The draft budget for the next fiscal year will be returned to the government to re-target the deficit, after the Central Bank of Egypt (CBE) decided to devaluate the pound to EGP 8.95 against the dollar, according to parliamentary sources.
The sources told Daily News Egypt that the Ministry of Finance had sent next year’s budget to the parliament in early March.
The government is bound by the 2014 Constitution to submit a draft budget of the next fiscal year 90 days before the end of the current one.
The CBE raised the dollar exchange rate by 112 piasters on Monday, in the framework of its policy, to eliminate the informal exchange market. Sources described the move as a partial floating of the pound.
The budget draft has not been reviewed by MPs yet; they have been busy in discussion regarding the parliament bylaws.
An official at the Ministry of Finance said the ministry targets a deficit of 10.5% for the next year, compared to a deficit of 8.9% intended for the ongoing year. However, the CBE’s decision is expected to aggravate the deficit to over 11.5%.
Minister of Planning Ashraf El-Araby said the CBE’s decision to lift the cap on dollar deposits is one of the most important decisions taken by the bank in the last few months.
“Without restoring trust, controlling remittances from Egyptians abroad, and increasing exports, the official exchange rate and that of the informal market will never be unified,” El-Araby said.
According to the parliamentary sources, the government will re-evaluate the network of social protection by raising the value of subsidies for low-income earners, especially electricity and water costs.
El-Araby said floating the pound once foreign reserves are secured will make Egypt one of the most attractive countries for foreign direct investments. The devaluation of the pound should be the first of many steps to make the country attractive for investments, he noted.
Sources said tax reforms will be affected by increasing the size of the deficit, especially with the government’s intention to propose a draft law for the value-added tax to the parliament.