Egypt will struggle to service high-interest loans

Subject

Budget analysis.

Significance

On June 30, President Abdel Fattah el-Sisi approved Egypt's budget for the 2019/20 fiscal year (FY), which started on July 1. The budget assumes 6.0% GDP growth and a 7.2% deficit, compared to 5.6% growth and an 8.4% deficit for the previous fiscal year. However, these numbers are distorted through a number of mechanisms.

Impacts

• Investors in the short-to-medium term will continue to reap high profits from Egypt's government bonds.
• Egypt is steadily accumulating debt, but the government's fiscal policy suggests plans to stabilise this.
• The private sector will find it ever more difficult to compete with military-led enterprises, which enjoy special privileges.
• The military's role in the economy is a subject of speculation, but is thought to be growing.
• Military spending does not factor into public expenditure, casting doubt on the accuracy of the state budget.