Egypt to raise food subsidies spending by 20% in draft budget – statement

CAIRO: Egypt expects to raise its allocation for food subsidies by 20 percent and for petroleum products by 24 percent in the 2023-24 fiscal year, according to a draft budget approved by the cabinet on Wednesday, Reuters reported.

The budget forecasts gross domestic product growth at 4.1 percent and inflation at an average rate of 16 percent during the next fiscal year, which starts in July, according to a cabinet statement.

Egypt has been struggling to contain economic pressures exposed by the consequences of the war in Ukraine, which include rising costs to grain and fuel imports.

Its currency has come under renewed pressure this month despite three sharp devaluations since last March that have seen the Egyptian pound lose nearly half its value against the dollar.

Headline inflation has accelerated to five-and-a-half year highs of 31.9 percent.

Despite the challenges, the government is projecting a primary surplus of 2.5 percent, a 38.4 percent rise in overall revenues and a 28 percent rise in tax revenues, the cabinet statement said.

The budget still needs approval by Egypt’s parliament, and comes just days after a report by Morgan Stanley warned the country’s external financing needs are standing in the way of its economic development and may hinder its medium-term growth.

The investment management and financial services firm recommended the North African country implement structural reforms through a large-scale privatization program in order to boost its economy.

In December the International Monetary Fund approved a $3 billion Extended Fund Facility loan for Egypt, but Morgan Stanley warned in its report that this is “insufficient to close the financing gap and provide the country's foreign exchange needs in the near term”.

Egypt’s financial gap is currently pegged at $23 billion to $24 billion by the end of fiscal year 2023/2024, reported Morgan Stanley  

“This in turn should tame further expectations of FX depreciation and ensure a smooth transition to a durably flexible regime, potentially lowering the bar for portfolio investors and buying time for the authorities to implement the structural reforms to level the playing field and boost FDI inflows further,” added the report.