Time to reign in austerity: an inside look into Egypt's revised budget plan
Egypt’s Cabinet has submitted a revised budget for the new fiscal year which starts on Tuesday, proposing a narrower deficit after President Abdul Fattah Al Sisi rejected a previous draft because spending was too high, finance ministry spokesman Ayman Alkaffas told Reuters on Sunday.
The new budget envisages a deficit of 240 billion Egyptian pounds ($33.6 billion) in the fiscal year ending June 2015, less than the 292 billion pounds in the initial draft, he said.
Last month, the finance ministry predicted a fiscal gap of around 290 billion pounds, or 12 per cent of the gross domestic product (GDP) for the coming year and forecast growth of around 3.2 per cent, too low to create enough jobs for the young Egyptians that enter the workforce each year.
Boosted by aid worth billions of dollars from Gulf Arab countries after Sisi deposed Islamist president Mohamed Morsi last July, Egypt’s 2013/14 budget deficit was set to shrink to around 11 per cent of GDP from some 14 per cent the year before.
It was not immediately clear what percentage of GDP the deficit would account for in the new budget.
“All non-productive expenses have been trimmed down,” Alkaffas said, but declined to go into details pointing to a statement due to be issued later.
When asked about a time frame or details of cuts in Egypt’s energy and food subsidies programme, which traditionally eats up around a quarter of state spending, he replied: “We don’t have a time frame or a named product. This is going to be coordinated with other ministries.”
Sisi, who was inaugurated as president this month, has pledged to give up half his salary and property and called on the Egyptian people to make similar sacrifices, as he prepares the public for a period of painful economic austerity.
In the same speech, Sisi rejected the initial budget plan, saying the deficit was too large and continued borrowing would not leave “anything good” for future generations.
The turmoil of the past three years, in which two presidents have been overthrown and hundreds of people killed in the streets, has battered the tourist industry and investment, worsening a huge unemployment problem and pushing up the deficit.
A simple spreadsheet model of Egypt’s public debt, created by Reuters in March, suggests it will be several years before the rising ratio of debt to GDP, which was 89.2 per cent in the fiscal year to June 2013, levels off and starts to fall.
Separately, one of the developers of a natural gas field off Israel’s Mediterranean coast on Sunday said it has signed a letter of intent to provide gas to a facility in Egypt.
Delek Drilling said it is negotiating a deal to provide seven billion cubic metres of natural gas from the offshore Leviathan gas field to British company BG’s plant in Idku, Egypt, through an underwater pipeline annually for 15 years.
An industry official familiar with the deal said it could be valued at about $30 billion — which would be the largest energy deal in Israel’s history. He spoke on condition of anonymity because he was not authorised to comment on the deal.
Until recently, Egypt provided natural gas to Israel. But following the ouster of president Hosni Mubarak in 2011, supplies were disrupted and eventually halted.
Last month, Houston-based Noble Energy Inc., one of Delek’s partners, reached a preliminary deal to sell up to 2.5 trillion cubic feet of gas annually over 15 years to Union Fenosa Gas SA for its liquefied natural gas facility in Egypt.
Despite a long history of geopolitical conflict with its Arab neighbours, the discovery of large natural gas deposits off its coast has positioned Israel to become a leading energy exporter in the region.
Earlier this year, Noble Energy and its partners signed a deal with Arab Potash Co. and Jordan Bromine Co. in Jordan, and another deal with a Palestinian power company to supply gas to a power plant to be built in the West Bank.
Israel has long relied on imports to meet most of its energy needs. The gas fields are expected to supply Israel’s domestic needs for decades and could transform the country into an energy exporter.