Ratings agency Moody’s Investors Service has published a report which details how although fiscal conditions in Egypt are improving, a weakness is found because of the need of large financing.
The report called “Credit Analysis – Government of Egypt” highlights how recent reforms has meant that improvements have been made in the country’s economic conditions and public finances but challenges are still present.
These challenges include the Egyptian government’s large financing needs, as well as structural economic issues such as inflation and high unemployment in an environment with elevated political risks.
With predictions of real GDP growth of 5% for the current fiscal year, up from the expected 4.5% in fiscal 2015, the economy over the next year will most likely be supported by public and private investment. Alongside this, increased growth in capital goods imports and the weak global demand is expected to weigh on net exports’ contribution to the growth.
Vice president, senior analyst at Moody’s, Steffen Dyck, said that the agency expect the economic and fiscal momentum in Egypt to help debt to reduce. “We expect that the economic and fiscal reform momentum in Egypt will help fiscal deficits and government debt levels to gradually reduce, although government financing needs remain relatively large,” Dyck said.
Dyck continued to say that the expansion of the Suez Canal will make positive contributions to Egypt’s fiscal revenues and balance of payments over the medium term. “So far the government’s track record of implementing revenue-enhancing measures, such as the introduction of new taxes, is mixed,” Dyck mentioned.
An example given was the introduction of a value-added tax to replace the current sales tax, which the Egyptian government aims to adopt by the end of this year.
The proposed new tax, announced two weeks ago in the federal budget, is due to be introduced on July 1 and will raise A$6.2bn for the government over the next four years.
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