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Egypt's domestic debt increased by LE 100 billion during the second quarter of fiscal year 2017-2018. The increase, recorded from October to December 2017, weighed more heavily on the shoulders of the government and worried commentators.
"The rise in domestic debt could hinder the ability of the state to meet its commitment to the International Monetary Fund (IMF) budget deficit," said Alia Al-Mahdi, a professor of finance. Economy at Cairo University.
The government targets a budget deficit of 8.4 per cent during the fiscal year 2018-19.
"The total external public debt, constitutes the largest slice of spending in the budget of Egypt.The increase in debt makes the government unable to bridge the gap between revenue and spending, which increases the deficit, "she added.
The recent rise in world oil prices and a number of commodities goes against the government's expectations. government spending for the 2017-2018 fiscal year.
The government had taken into account a price of $ 55 per barrel of oil in its 2017-2018 budget, but by the end of the year, world prices had risen to about $ 70 per barrel. 19659002] The additional spending prompted the government to ask parliament to approve "a documentary credit" that will allow it to increase over last year's budget by 70 billion LE
Figures released by the Central Bank of Egypt (CBE) indicate that the debt reached LE 3 444 billion at the end of December 2017, against 3 316 billion in June of the same year, an increase of eight percent in six months .
"The eight percent increase in domestic debt as Egypt is not engaged enough in its reform agenda and risks compromising the government's agreement with the IMF ", commented Mr. Al-Mahdi
In 2016, Egypt embarked on a program of economic reforms supported by the IMF. . Under this program, a number of measures have been put in place, including the imposition of a value-added tax (VAT) and the reduction of energy and energy subsidies with the aim of reducing the budget deficit.
According to Omar El-Shenety, founder and CEO of Multiples Investment Group, how to avoid escalating debt in the future. He believes this will be difficult to achieve, given the current high interest rates on bonds and treasury bills.
Between November 2016 and February 2018, the ECB raised interest rates by seven percent to encourage people to keep their books.
However, since February 2018, he has lowered the deposit and lending rates on two occasions to 16.75% and 17.75%.
The Monetary Policy Committee of the ECB met last Thursday and kept its rates unchanged. Experts were expecting the ECB to keep rates at a constant level to counter the expected rise in inflation after the drop in fuel prices last month.
Given the rise in interest rates put in place by the US Federal Reserve maintain high interest rates to attract foreigners to invest in debt instruments offered by the government in the form bonds and treasury bills, "continued El-Shenety
. keep them at 0.25 percent after the 2008 recession.
The current rate of federal funds is about two percent, and the Federal Reserve has reported that it would raise rates to 2, 5 percent in 2018, three percent in 2019, and 3.5 percent in 2020.
The rise in interest rates will hinder the government's ability to control domestic debt and the deficit will remain even if the government manages to achieve a primary surplus, El-Shenety believes. A primary surplus means that budgetary revenues exceed expenditures before accounting for debt service.
According to the May monthly report of the Ministry of Finance, interest payments on Egyptian debt reached LE 251 billion, or 7.4% of GDP. The total budget deficit decreased during the first eight months of the 2017-2018 fiscal year to reach LE 258.9 billion, or 6% of GDP and 6.5% over the same period of time. fiscal year 2016-2017, according to the ministry report
He added that the decline in the deficit was the result of the increase in government revenue. From July 2017 to February 2018, state revenues increased by 38.7% to reach LE 430.7 billion
"We are cautious as long as the government can continually pay the debt service" said Riham Al-Desouki, an economic expert
It is important to consider the sum of domestic debt not as a number, but "rather in relation to GDP. Currently, domestic debt has not reached 100 percent of GDP, "she added, according to IMF data, domestic debt reached about 75 percent in 2017- 18.
Ali al- Idrissi, economics professor at the Zewail Science and Technology Center, agreed with Al-Desouki. "No problem will arise as long as the government is able to repay the debt. At the same time, the state is already working to reduce the ratio of debt to GDP, "he said.
From where the government stands, in the new fiscal year" revenues are estimated at about 1 trillion LE and spending at LE1 4 trillion. The Australian government is working on a number of national projects and is constitutionally committed to increasing spending on health care, education and social security programs, he added. "The government needs to borrow to bridge the gap between revenues and expenditures," he said.
With the new fiscal year that began on Sunday, spending has increased by 200 billion LE compared to last year's budget. 19659002] Salaries of administrative employees increased by LE 30 billion to LE 270 billion, while the budget for health and education increased to LE 257 billion, compared with LE 222 billion. THE LAST YEAR. The version of this article appears in the July 5, 2018 edition of Al-Ahram Weekly under the title: Analysis of Domestic Debt
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