In brief
- The draft FY24 budget documents presented in the House of Representatives showed a much lower fiscal deficit target of 7.0% (revised FY23: 7.4%) and on course to meet the FY27 target of 5.6%.
- The higher inflationary environment, although boosting the nominal GDP has resulted in a downward revision of FY23 real GDP growth estimate by 130bps to 4.2%. For FY24, the authorities have penciled in a real GDP growth rate of 4.1%.
- The primary surplus target of 2.5% of GDP in FY24 is impressive, compared to the average 1.4% of GDP achieved in FY20 – FY22, and 70bps higher than the authorities’ projections at the start of the current IMF programme. We see some downside risks on this ambitious target if FY23 in-year revision from 1.6% to 0.5% is anything to go by.
- A revised lower tax revenue-to-GDP base (from 12.1% to 11.9%) has resulted in the metric growing by 1.0pp in FY24 to 12.9%, and higher than the target 0.5% annual growth rate as per the Medium-Term Revenue Strategy. The authorities have employed both tax administrative measures and newer tax proposals to prop up tax revenue.
- The budgetary allocation to subsidies, grants and social benefits has been enhanced to EGP 529.7bn (24.3% y/y). Although food subsidy has been maintained at EGP 127.7bn, the authorities have hinted widening the target households which suggests reduced rations to the beneficiary card holders.
- The draft budget assumed an average price of brent crude at USD 80.0 per barrel (-14.9% y/y) in FY24. Nevertheless, the authorities have enhanced the fuel subsidy with a more than doubling in budgetary allocation to EGP 119.4bn, which is to cushion the most vulnerable as the government implements the retail fuel price indexation mechanism that has an upside bias.
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