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Recent budgeting developments in the MENA region - Fatma EL ASHMAWY, Egypt (English)

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This presentation was made by Fatma EL ASHMAWY, ministry of Finance, Egypt, at the 9th OECD MENA-SBO meeting held in Kuwait City on 12-13 October 2016

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Recent budgeting developments in the MENA region - Fatma EL ASHMAWY, Egypt (English)

  1. 1. (October 12th 2016) Ministry of Finance Key Economic Developments
  2. 2. 2 Current Economic Status Real GDP growth picked up recently after 4 years of sluggish growth, yet it continues to be below potential. 6.2 2.1 4.2 4.3 0 1 2 3 4 5 6 7 8 Average 2005-2010 Average 2011-2014 2014/2015 July-March 2015/2016 Real GDP Growth (%) Unemployment rate reversed trend and started to slightly edge down to 12.5% by June 2016 after reaching a high of 13.3% in June 2014. 9.3 12.7 12.7 12.5 0 2 4 6 8 10 12 14 Average 2005-2010 Average 2011-2014 June 2015 June 2016 Unemployment Rate (%)
  3. 3. 3 Current Economic Status Consumption continues to be main driver of growth, albeit with a smaller contribution to growth recording smaller rate. Investment spending started to rebound recently and to post higher positive contribution rates. Net exports continue to be a drag on growth. 2.4 4.4 3.2 -2.0 1.6 -0.4 1.1 -1.4 0.2 1.2 0.8 5.0 5.0 4.4 4.6 3.5 4.4 5.1 2.7 4.0 3.2 5.0 -0.5 -2.4 -0.5 2.1 0.1 -2.2 -4.0 0.8 -2.1 -0.2 -1.6 -6 -4 -2 0 2 4 6 8 10 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 July-March 2015/2016 Contribution to GDP growth – (Percentage Points) Investments Final Consumption Net Exports
  4. 4. 4 Current Economic Status Serious fiscal challenges as reflected in the high deficit and debt ratios to GDP that reached critical levels 2.1 3.6 3.8 5.0 3.9 3.6 8.1 9.8 10.1 13.0 12.2 11.5 0 2 4 6 8 10 12 14 09/10 10/11 11/12 12/13 13/14 14/15 Overall Deficit and Primary Deficit (% of GDP) 79.2 82.1 79.0 89.0 90.6 93.7 65 70 75 80 85 90 95 100 09/10 10/11 11/12 12/13 13/14 14/15 Total Government Sector Debt (% of GDP)
  5. 5. 5 Current Economic Status High and sustained inflation differential between Egypt and its trading partners over a long period of time weakened competitiveness of the Egyptian economy 5.8 5.7 5.5 5.5 5.6 5.8 6.0 6.5 7.1 7.3 8.2 8.8 5.0 5.5 6.0 6.5 7.0 7.5 8.0 8.5 9.0 9.5 10.0 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 13/8/2016 Exchange Rate (LE/Dollar) Egyptian Pound has depreciated against US$ by around 56% during 2011-October 2016 10.9 11.7 16.2 11.5 11.0 8.7 6.9 10.1 11.0 10.2 14.0 1.8 3.4 1.5 0.6 2.4 2.6 1.3 1.7 1.2 0.9 0.76 0 2 4 6 8 10 12 14 16 18 06/07 07/08 08/09 09/10 10/11 11/12 12/13 13/14 14/15 15/16 Jul-16 EU-27, US, Canada, Japan and China Inflation Differential between Egypt and its trade partners* Inflation Rate in Egypt Trade Partners' Average Inflation Rate
  6. 6. 6 Current Economic Status Egypt deteriorating trade deficit reflects declining exports and deteriorating oil balance … and lower-than-potential capital inflows are also contributing to deteriorating capital account 6.1 11.1 13.2 8.1 6.8 2.2 4.0 3.8 4.1 6.4 6.8 2.8 -0.9 -1.4 -9.2 7.9 -2.6 -5.0 1.5 1.2 -0.6 -1.3 -15 -10 -5 0 5 10 15 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/2016 US$Billion Foreign Direct Investments Portfolio Investments 4.9 6.0 4.9 4.0 5.1 2.9 -0.5 0.9 -0.8 -3.5 -3.6 -16.8 -22.3 -28.3 -29.1 -30.2 -30.0 -33.6 -31.6 -33.3 -35.6 -34.0-40.0 -35.0 -30.0 -25.0 -20.0 -15.0 -10.0 -5.0 0.0 5.0 10.0 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 $USbillion Trade Balance (oil vs. non-oil) Trade Balance (oil) Trade Balance (non-oil) 75 142 137 192 143 130 151 136 154 144 100 62 121 114 162 198 184 173 185 168 165 158 150 143 0 50 100 150 200 250 2004/05 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16 Non-oil and oil exports per capita ($US/person) Oil exports per capita ($US/person) Non-oil exports per capita ($US/person)
  7. 7. 7 Current Economic Status Remittances declined in 15/16 due to capital restrictions and presence of parallel market Tourism was hardly hit by recent incidents 7.2 8.2 10.8 10.5 11.6 10.6 9.4 9.8 5.1 7.4 3.8 2.0 4.0 6.0 8.0 10.0 12.0 14.0 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/2016 Tourism Revenues (US$ Billion) 0.6 0.8 1.0 0.6 1.0 0.8 0.6 0.8 11.9 2.7 0.1 5.0 6.3 8.4 7.6 9.5 12.4 17.8 18.4 18.4 19.2 16.8 0.0 5.0 10.0 15.0 20.0 25.0 2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/2016 Private Transfers and Official Transfers (US$ Billion) Official Transfers Private Transfers
  8. 8. 8 Current Economic Status Thus, Egypt external position is deteriorating This is leading to intensified pressures on NIR… 22.9 28.6 34.6 31.3 35.2 26.6 15.5 14.9 16.7 20.1 17.5 6.1 5.4 6.9 6.6 6.9 4.7 2.8 2.6 2.8 3.6 3.7 0 1 2 3 4 5 6 7 8 0 10 20 30 40 50 60 June2006 June2007 June2008 June2009 June2010 June2011 June2012 June2013 June2014 June2015 June2016 MonthsofImports US$Billion Net International Reserves Net International Reserves NIR - to - Imports Coverage 2.9 3.9 2.6 4.9 4.5 5.5 2.6 3.7 2.3 0.9 3.7 5.5 - 1.0 2.0 3.0 4.0 5.0 6.0 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 Current Account Deficit %of GDP Current Account Balance (Excluding Transfers) (% to GDP) Current Account Balance
  9. 9. 9 State Budget • It is the plan for an upcoming fiscal year (starts in July 1st and ends in June 30th) to achieve specific goals within the framework of the plan for economic and social development and in accordance with the state policies. • Of the most important financial and economic policy management tools through which:  The government can prioritize expenditures as well as provide funds to cope up with emergencies  Achieve social and economic objectives taking into account the social dimension as a strategic objective. • It presents the government’s forecasts for the collection of revenues (taxes, grants and other revenues), as well as expenditures appropriations in accordance with the economic classification (wages and compensation of employees, purchase of goods and services, interest payments, subsidies, grants and social benefits, other expenditures, and investments) during a full fiscal year.
  10. 10. 10 State Budget • State budget is the most important annual document prepared by the government and submitted to Parliament for discussion and approval. • It also includes expenditures in accordance with the functional classification (health, education, social protection, defense and national security…etc.) • The preparation and presentation of the state budget abides by GFS 2001 classification prepared by the International Monetary Fund (IMF), but on cash basis and not on accrual basis. • The budget also includes public debt service obligations including loan repayments and government bonds maturing during the fiscal year, in addition to expected financing needs plan and sources of finance. • State Budget includes all the resources and uses of the budget sector including the central administration, local governments and public service authorities.
  11. 11. 11 Legislative framework for the state budget • Law No. (53) of 1973, as amended, is the primary focus of the fiscal performance. It is the comprehensive law governing the general state budget based on the following principals:  The state budget is the plan for an upcoming fiscal year to achieve specific goals within the framework of the plan for economic and social development and in accordance with the state policies.  The fiscal year starts in July 1st and ends in June 30th  The state budget is based on the principle of generality and inclusiveness, which includes (by law) all uses and resources of the central administration, local governments and public service authorities. However, it does not include economic authorities budgets.  The budget includes contingencies without being bound by economic classification, in order to meet national inevitable obligations, emergencies, expenses or commitments that were not taken into account while preparing the budget.
  12. 12. 12 Legislative framework for the state budget Budget Circular End of September Entities prepare their budgets Entities’ proposals MoF’s Budget Sector Feedback MoP proposal - Investme nts Presented to Minister of Finance Presented to Ministers’ council Early March Presented to President then to parliament End of March Parliament Discussions Budget law End of June Execution July 1st
  13. 13. 13 Structure of State Budget State Budget Central Administration Local Governments Public Service Authorities Private financing funds Public institutions budgets that are not included in the state budget Economic Authorities Public Sector Enterprises Law 203, 1991 Budgets of Banks abiding by law No. 117, 1976 and law No. 88, 2003 Budgets of enterprises abiding by law No. 159, 1981
  14. 14. 14 Relationship between budget and other public institutions State Budget other public institutions Budgets (Not included in state budget) Subsidies, capital contributions and loans Surplus
  15. 15. 15 State Budget Classification: Administrative Classification • Central Administration: includes all ministries, presidency, Council of Ministers and the Administrative Control Authority's (152 Budget Entity) • Local governments: it includes governorates and affiliate services directorates (323 Budget Entity) • Public service authorities: include universities and independent service authorities (150 Budget Entity)
  16. 16. 16 State Budget Classification: Economic Classification Economic Classification Item Economic Classification Item 1 Resources 2 Uses 11 Revenues 21 Expenditures 111 Chapter 1: Taxes 211 Chapter 1: Wages and Compensation of employees 112 Chapter 2: Grants 212 Chapter 2: Purchase of goods and services 113 Chapter 3: Other Revenues 213 Chapter 3: Interest Payments 214 Chapter 4: Subsidies, Grants and Social Benefits 215 Chapter 5: Other Expenditures 216 Chapter 6: Purchase of Non-Financial Assets (Investments) 12 Receipts from Acquisition 22 Acquisition of Financial Assets 124 Chapter 4: Receipts from lending, sales of financial and other assets 227 Chapter 7: Acquisition of domestic and foreign financial assets 13 Sources of Finance: Borrowing 23 Loans Repayment 135 Chapter 5: Borrowing 238 Chapter 8: Domestic and Foreign Loans Repayment
  17. 17. 17 State Budget Classification: Functional Classification Code Functional Sector 1 701 General Public Services 2 702 Defense and National Security 3 703 Public Order and Public Security 4 704 Economic Affairs 5 705 Environment Protection 6 706 Housing and Public Utilities 7 707 Health 8 708 Youth, Culture and Religious Affairs 9 709 Education 10 710 Social Security
  18. 18. 18 FY16/17 Budget – Key Remarks 6.9 8.1 9.8 10.1 13.0 12.2 11.5 8.9 9.8 5 6 7 8 9 10 11 12 13 14 2008/2009 2009/2010 2010/2011 2011/2012 2012/2013 2013/2014 2014/2015 2015/2016 Budget 2016/2017 Budget %toGDP Overall Fiscal Deficit
  19. 19. 19 FY16/17 Budget – Key Remarks
  20. 20. 20 FY16/17 Budget – Key Remarks
  21. 21. 21 FY16/17 Budget – Key Remarks General Public Services, 26, 17% Defense and National Security, 0, 0.03% Public Order and Public Security, 4, 3% Economic Affairs, 17, 12% Environment Protection, 1, 0% Housing and Public Utilities, 76, 52% Health, 8, 5% Youth, Culture and Religious Affairs, 4, 3% Education, 11, 8% Social Security, 0, 0.1% Functional Classification of Investments - FY16/17
  22. 22. 22 Public Financial Management (PFM) Reforms Create a Macro-Fiscal Policy Unit Establish a PFM unit that has multiple mandates; internal auditing, government accounting, contingent liabilities and fiscal risks Establish a unit for Public Debt Management and Public Debt Automation (DMFAS) Automation of stages of state budget preparation Application of Electronic Payment and Collection Establishment of Treasury Single Account (TSA) Activate the electronic collection of the Egyptian Customs Service and the system of current accounts Activate the electronic collection of the Egyptian Tax Service The partial application of government financial management information system GFMIS The partial application of automation of the wage system (Payroll)

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