The new Budget .. Between Ambitions and Challenges

The Egyptian government has gone a long way in the economic reform program. Successful fiscal and monetary policies have succeeded in overcoming many challenges and putting the economy on the right track. However, despite the success achieved in some fields, the permanent deficit in the public budget remains the main challenge of the government.

In this context, Canada Egypt Business Council and the Egyptian Council for International Cooperation organized an event with H.E Mr. Amr El Garhy Minister of Finance to discuss “The New Budget…. Between ambitions and challenges”.

In the opening remarks, Eng. Motaz Raslan welcomed all members and guests then he mentioned that the government has taken many decisions since November 2016, which were able to paint a different picture of the Egyptian economy in front of the global credit rating agencies, raise the credit rating of the country and improve the outlook for the economy. He added that the reform of the fiscal and monetary policy after the liberalization of the foreign exchange rate has succeeded in achieving a recovery of the Egyptian stock market indices, which has recently recorded an unprecedented growth. Also, the central bank’s decision to float the Egyptian pound has contributed to increasing the flows of remittances from the Egyptians abroad and increasing tourism revenues, as well as raising foreign direct investment to record 7.9 billion dollars during the last fiscal year.

Minister of Finance H.E Amr El-Garhy confirmed that the inflation rate in the last 4 months decreased by 1% on a monthly basis, which is an indicator of the improvement of economic conditions and the restoration of price stability of goods and services, which were heavily affected by the decision of liberalization of the exchange rates and converting the sales tax to VAT.

He added that the government aims to raise the growth rate by about 7% on the long run, which contributes to the creation of more job opportunities, so reducing the unemployment rates, stressing that the best way of achieving social justice is by finding good and suitable jobs for the citizens, in the light of a high and sustainable growth rate. These goals are reflected by the government’s efforts to accelerate the growth rate of the private sector and increase spending on infrastructure as well as the rationalization of imports and increasing exports.    

The minister stressed that the measures taken by the government to strengthen the social protection network have provided good protection for the lower income classes; that reform was necessary as the national economy suffered from structural imbalances. The government also aims to reduce the total budget deficit by next fiscal year to 8.4 percent of gross domestic product (GDP), while continuing to put the public debt in a downward trend in the upcoming years to record 75 percent of GDP by 2022.  

It was explained that the size of the growth rate after the economic reform process reached 5.2%, this percentage was achieved in a very short period of time, and it is hoped that it will reach 6.7%; this growth process is proof that the economic development plan is on track. Also, the industrial sector in Egypt is gradually growing, as the new investment law granted tax exemptions up to 50%, and reached 80% depending on the region, which is an encouraging step for foreign investors to invest in Egypt. Considering the labor-intensive industries, such as textiles, similar industries were identified so that there would be no manipulation of the appointment of redundant workers, and the factory owner would receive exemptions that were not his right. It was pointed out that the proportion of the informal sector in the GDP is not specified; therefore it is important to take a step towards financial inclusion in the integration of the formal economy and dealing with small investors.   

It was explained that the Ministry of Finance is currently working on the tax file to expand the tax base of the society and the development of mechanisms that contribute to raising the efficiency of tax collection, as the ministry is working on the preparation of sectorial studies for each economic activity to identify the nature of each industry and service it provides, stressing that the ministry is keen to apply the idea of electronic bill, and the ministry have been provided training for the speed of its implementation, and next year we will have the ability to provide tax returns electronically as well as payment and electronic collection, which helps to expand the base of tax collection.

The floor was then opened for questions and answers session where several ideas and suggestions where raised considering how to overcome the current budget deficit and the best monetary and fiscal policies that can suit the current Egyptian situation.