Egypt’s fiscal position may not be hard hit by Covid-19, IMF

The affect of COVID-19 pandemic on the Egyptian government’s finances may not be as hard as previously feared, according to the IMF’s October 2020 Fiscal Monitor Report (pdf).

Though fiscal indicators have weakened slightly from the last outlook in April, the fund is now predicting a rapid recovery over the coming five years, with the budget deficit narrowing significantly from 2022 onwards.

The hit to the deficit will be limited: After shrinking to 7.5 percent of GDP in FY2019-2020, the IMF sees Egypt’s budget deficit widening to 8.1 percent this fiscal year before narrowing significantly to 5.2 percent in FY2021-2022.

The deficit will then continue to gradually decline to reach 3.8 percent by FY2024-2025. The IMF attributes this to a comparatively muted fiscal response to the pandemic, caused by an already large debt pile exceeding 35 percent of GDP.

The report sees the state primary balance will be remaining in a surplus this fiscal year, decreasing to 0.4 percent from 1.4 percent in FY2019-2020. This will then pick up, reaching 2.1 percent in FY2021-2022 until the middle of the decade.

On the flipside, projections for the current fiscal year seem to have worsened slightly since April, when the IMF predicted a budget deficit of 6.6 percent and a 1 percent primary surplus.

The government looks to fatten it is purse wit more revenues: The IMF sees revenues inching up this fiscal year to 20 percent from 19.2 percent last fiscal year, then continue a slow but steady rebound through FY2024-2025.

Revenues are being cushioned by the government’s 1 percent tax on salaries, and a significant increase in borrowing, which has seen it receive $ 8 bn from the IMF, a $2 bn loan from foreign banks, while also generating revenue through a $ 5 bn eurobond issuance in May.

The IMF sees Egypt tightening its purse as of the next fiscal year, when spending is projected to dip to 25.4 percent of GDP from 28.1 percent in the current fiscal year