Ministry of Finance of Egypt

Egypt’s Economic Reform & Stabilization Program Sustaining inclusive balanced growth path

September 2019

Agenda

2

Latest Macroeconomic Developments

Evolution of Fiscal Indicators

1

2

External Accounts’ Development 3

Social Protection Profile 4

(1) Latest Macroeconomic Developments

3

4

Higher and more resilient growth path

Implemented reforms restored confidence & enabled Egypt to achieve strong diversified economic recovery. Growth reached 5.6% in 2018/19, the highest rate since the financial crisis in 2008 & one of the highest rates among Emerging Markets. We target a 6-7% growth rate over the medium term.

4.4 4.3 4.2

5.3 5.6

6.0

6.5

7.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

7.0

7.5

2014/15 2015/16 2016/17 2017/18 2018/19Prel. Act.

2019/20ProposedBudget

2020/21Forecasts

2021/22Forecasts

Real Growth Rate (%)

5

More diversified growth with higher investment and net exports contributions

Economic reforms adopted led to strong investment and net exports performance, both becoming main drivers of growth since FY 2017/18.

0.1

1.1 1.0 1.0 0.8

-1.6 -1.3

1.7

1.9 2.3

-1.2

0.6 0.8

1.4

0.4

0.5 0.3

0.2

2.2

3.8 3.4

1.1

1.2 1.2

2.5 2.5

-2.0

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

2012/2013 2015/2016 2016/2017 2017/2018 2018/19Prel. Act.

2019/20Budget

Contribution to real GDP growth (%)

Investments

Final Consumption

Private Consumption

Public Consumption

Private Investments

Net Exports

Public Investments

6

With realized job rich growth rates, unemployment is trending downward. It reached less than 8 percept recently.

More jobs are being created leading to lower unemployment rate

12.6

13.3 13.3

12.7 12.5

12.0

9.9

8.1

7.0

8.0

9.0

10.0

11.0

12.0

13.0

14.0

201

1/2

012

201

2/2

013

201

3/2

014

201

4/2

015

201

5/2

016

201

6/2

017

201

7/2

018

Ma

rch

201

9

Unemployment Rate (%)

(2) Evolution of Fiscal Indicators

7

8

Significant pro-growth fiscal consolidation is ongoing driven by long-lasting reforms on both revenues & expenditure sides

16.5%

12.5% 12.7% 11.4%

9.8%

8.2% 7.2%

6.2%

4.7%

-8.4%

-4.6% -3.7%

-2.3%

0.0%

2% 2.0% 2.0% 2%

-10%

-5%

0%

5%

10%

15%

20%

13/1

4

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9P

rel. A

ct.

19/2

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et

20/2

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et

21/2

2T

arg

et

Overall Deficit and Primary Balance (Excluding Grants) (% of GDP)

Overall Deficit Primary Balance

9

Putting debt to GDP ratio on a steep declining path to reach 90.3% by June 2019 and projected to further decline to less than 77.5% by June 2022

85.2% 94.9%

90.0%

78.2% 72.3%

67.7% 65.7% 64.2%

7.8%

7.9% 18.0%

19.0%

18.0%

15.3% 14.3% 13.3%

93.1%

102.8% 108.0%

97.2%

90.3%

83.0% 80.0%

77.5%

0.0%

20.0%

40.0%

60.0%

80.0%

100.0%

120.0%

0%

20%

40%

60%

80%

100%

120%

14/1

5

15/1

6

16/1

7

17/1

8

18/1

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19/2

0B

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20/2

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21/2

2T

arg

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Total Budget Sector Debt (% of GDP)

Total Domestic Budget Sector Debt Total External Budget Sector Debt Total Budget Sector Debt

10

As non-sovereign tax revenues continues to increases despite a stable tax policy. We target annual non-sovereign taxes increase by 0.5% of GDP.

8.7% 8.8% 8.9% 9.5% 10.2%

11.0% 11.5% 12.0%

3.8% 4.2% 4.4%

4.7% 3.8% 3.0% 2.7%

2.5%

12.5% 13.0%

13.3% 14.2% 14.0% 14.0%

14.3% 14.5%

0.0%

3.0%

6.0%

9.0%

12.0%

15.0%

0%

2%

4%

6%

8%

10%

12%

14%

16%

14/1

5

15/1

6

16/1

7

17/1

8

18/1

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19/2

0B

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20/2

1T

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21/2

2T

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et

Total Taxes (% of GDP)

Non-sovereign Tax Revenues Sovereign Tax Revenues Tax Revenues (% of GDP)

11

At the same time, improved expenditure structure supports a pro-growth and equitable fiscal consolidation path

Total Expenditures Breakdown (% of GDP)

14/15 15/16 16/17 17/18 18/19

Prel. Act. 19/20

Budget

Wages and Compensation of Employees 8.1% 7.9% 6.5% 5.4% 5.0% 4.9%

Purchase of Goods and Services 1.3% 1.3% 1.2% 1.2% 1.1% 1.2%

Interest Payments 7.9% 9.0% 9.1% 9.9% 10.1% 9.2%

Subsidies, Grants and Social Benefits, of which 8.1% 7.4% 8.0% 7.4% 5.5% 5.3%

Fuel Subsidies 3.0% 1.9% 3.3% 2.7% 1.6% 0.9%

Other Expenditures 2.1% 2.0% 1.8% 1.7% 1.5% 1.5%

Investments, of which 2.5% 2.6% 3.1% 2.5% 2.6% 3.4%

Self-financed investments 0.7% 0.6% 1.3% 0.9% 0.7% 1.2%

Deficit-financed investments 1.9% 1.9% 1.8% 1.6% 1.9% 2.3%

12

At the same time, improved expenditure structure supports a pro-growth and equitable fiscal consolidation path

27%

4%

26%

27%

7% 9%

19%

5%

36%

21%

6%

13%

Expenditures Breakdown

2014/2015

2019/2020Budget

Other

Expenditures

Subsidies,

Grants

and Social

Benefits

Investments

Wages and

Compensation

of Employees

Interest

Payments

Purchase

of Goods

and

Services

37%

6% 37%

9% 11%

30%

7%

33%

9%

21%

Expenditures Breakdown (Excluding Interest Payments)

2014/2015

2019/2020 Budget

Other

Expenditures

Subsidies,

Grants

and Social

Benefits

Investments Wages and

Compensation

of Employees

Interest

Payments

Purchase of

Goods and

Services

13

Ongoing pro-growth fiscal consolidation efforts will contain debt service costs over the medium-term

63.1%

69.2% 68.5% 69.5% 72.4%

62.3%

56.9%

44.3%

0%

10%

20%

30%

40%

50%

60%

70%

80%

14/1

5

15/1

6

16/1

7

17/1

8

18/1

9P

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ct.

19/2

0B

ud

get*

20/2

1T

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21/2

2T

arg

et

Total Interest Payments (% of Total Taxes)

7.9%

9.0% 9.1%

9.9%

10.1%

8.7%

8.1%

6.2%

6.0%

6.5%

7.0%

7.5%

8.0%

8.5%

9.0%

9.5%

10.0%

10.5%

11.0%

14/1

5

15/1

6

16/1

7

17/1

8

18/1

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ct.

19/2

0B

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20/2

1T

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21/2

2T

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Total Interest Payments (% of GDP)

14

Supported by efforts to elongate debt maturity, with average debt maturity at 3.3 years in June 2019 and projected to reach 5 years by June 2022

1.9 1.9 1.9

2.5

3.3

4.0

4.4

5.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

5.0

5.5

14/15 15/16 16/17 17/18 18/19Prel. Act.

19/20Budget

20/21Target

21/22Target

Average maturity (in year) of Egypt Budget sector debt

(3) External Accounts’ Development

15

16

Exchange rate flexibility is prompting strong decline in current account deficit

6.8

10.8

7.2

14.7 14.8

19.9

14.5

6.2 7.5

6.2

2.9%

3.9%

2.5%

4.9%

4.5%

6.0% 6.2%

2.5% 2.5%

1.8%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

0

5

10

15

20

25

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

Est

.

2019

/20

Fo

reca

st

Current Account Deficit excluding official transfers (grants)

USD billion

% of GDP

17

…driven by improved key foreign exchange inflows

Source: IMF Fourth Review, April 2019

-1.0% -1.1%

-2.2%

-1.6%

-0.4%

0.1%

-2.5%-2.0%-1.5%-1.0%-0.5%0.0%0.5%

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

Fo

reca

sts

2019

/20

Fo

reca

sts

Oil Trade Balance (% of GDP)

-10.0% -10.5% -12.3%

-13.4% -12.0% -11.2%

-16.0%

-11.0%

-6.0%

-1.0%

4.0%

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

Fo

reca

sts

2019

/20

Fo

reca

sts

Non-oil Trade Balance (% of GDP)

2.2%

1.1% 1.7%

3.9% 4.1% 4.2%

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

Fo

reca

sts

2019

/20

Fo

reca

sts

Tourism Receipts (% of GDP)

5.8% 5.0%

8.5%

10.5%

9.0% 8.5%

3.5%4.5%5.5%6.5%7.5%8.5%9.5%

10.5%11.5%

2014

/15

2015

/16

2016

/17

2017

/18

2018

/19

Fo

reca

sts

2019

/20

Fo

reca

sts

Workers' Remittances (% of GDP)

18

…and resumed strong foreign appetite for investments in domestic T-bills and bonds since beginning of 2019

17.2

16.2

15.0

13.4

12.5 12.3

12.9

15.8

16.7

17.4

18.7 18.9

19.3

14.3%

13.3%

12.4%

10.5% 10.0%

9.0%

10.4% 11.2%

11.6% 12%

12.5% 12.4% 11.8%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

14.0%

16.0%

10.0

11.0

12.0

13.0

14.0

15.0

16.0

17.0

18.0

19.0

20.0

Jul-

18

Au

g-1

8

Sep

t-1

8

Oct

-18

No

v-1

8

Dec

-18

Jan

-19

Feb

-19

Mar

-19

Ap

r-1

9

May

-19

Jun

-19

Jul-

19

Foreign Purchases of T-bills and bonds /1

Billion dollars Net foreign holding of treasury bills & bonds

1/ The data reflects the last trading day of each month

19

NIR picked-up to reach a high of USD 44.4 billion by end June 2019 (on a preliminary basis), more than 8 months of imports coverage

16.7

20.1 17.5

31.3

44.3 44.9

3.3 3.9 3.7

6.4

8.4 8.0

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

50.0

2013/2014 2014/2015 2015/2016 2016/2017 2017/2018 July 2019

Net International Reserves US$ Billion Months of Imports

(4) Social Protection Profile

20

21

More equitable government spending policies

The government is restructuring subsidies schemes, developing a more efficient social protection network, increasing spending on human development, and introducing new programs targeting the most-vulnerable groups

Expenditure on Health,

73.1

Expenditure on

Education, 132.0

Electricity Subsidies,

4.0

Petroleum Subsidies,

53.0

0

20

40

60

80

100

120

140

160

180

200

220

LE B

illio

n

Expenditure on Health and Education Exceeds Energy Subsidies (Petroleum and Electricity) in FY19/20 Proposed Budget

Expenditure on Health,

30.8

Expenditure on

Education, 84.1

Electricity Subsidies,

13.3

Petroleum Subsidies,

126.2

0

20

40

60

80

100

120

140

160

180

200

220

LE B

illio

n

Expenditure on Energy Subsidies (Petroleum and Electricity) exceeds

Expenditure on Health and Education in FY13/14

22

A gradual shift from in-kind subsidies to cash and semi-cash transfers to ensure better targeting.

6.7

8.8

13.0

17.5 17.4 18.5

20.0 21.0

1.5

6.5

11.5

16.5

21.5

26.5

14/15 15/16 16/17 17/18 18/19Preliminary

Actual

19/20Budget

20/21Target

21/22Target

Cash Transfers (Including Takaful and Karama Programs) - LE Billion

23

More allocations for heath programs and initiatives

0.9 1.0

5.8

7.3

8.9

10.2

11.4

12.8

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

14/15 15/16 16/17 17/18 18/19Preliminary

Actual

19/20Budget

20/21Target

21/22Target

* includes medical treatment of Egyptian citizens by the treasury and health insurance subsidies

Subsidies and grants related to the health sector*

24

Egypt is filtering its food subsidies database to ensure better targeting and more efficient spending

39.4 42.7

47.5

80.5*

87.0 89.0 91.0 93.0

1.5

11.5

21.5

31.5

41.5

51.5

61.5

71.5

81.5

91.5

101.5

14/15 15/16 16/17 17/18 18/19Preliminary

Actual

19/20Budget

20/21Target

21/22Target

*140% increase in semi-cash allowance on food subsidy cards from LE 21 to LE 50 per month.

Food Subsidies - LE Billion

25

Egypt is implementing a comprehensive pension reform program to ensure its financial sustainability

33.2 44.0 45.2

52.5 48.5

160.5 170.0**

180.0**

1.5

21.5

41.5

61.5

81.5

101.5

121.5

141.5

161.5

181.5

201.5

14/15 15/16 16/17 17/18 18/19Preliminary

Actual

19/20Budget

20/21Target

21/22Target

** In light of the new suggested treatment

Contributions to Social Funds - LE Billion

Thank You

26