(October 12th 2016)

Ministry of Finance

Key Economic Developments

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

Ave

rage

20

05-2

010

Ave

rage

20

11-2

014

20

14/2

01

5

July

-Ma

rch

20

15/2

01

6

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

Average2005-2010

Average2011-2014

June 2015 June 2016

Unemployment Rate (%)

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

200

5/2

006

200

6/2

007

200

7/2

008

200

8/2

009

200

9/2

010

201

0/2

011

201

1/2

012

201

2/2

013

201

3/2

014

201

4/2

015

Ju

ly-M

arc

h2

01

5/2

016

Contribution to GDP growth – (Percentage Points)

Investments Final Consumption Net Exports

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

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

200

5/2

00

6

200

6/2

00

7

200

7/2

00

8

200

8/2

00

9

200

9/2

01

0

201

0/2

01

1

201

1/2

01

2

201

2/2

01

3

201

3/2

01

4

2014/2

015

201

5/2

01

6

13/8

/20

16

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

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

20

05

/06

20

06

/07

20

07

/08

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

20

14

/15

20

15

/20

16

US$

Bill

ion

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

-5.00.05.0

10.0

20

05

/06

20

06

/07

20

07

/08

20

08

/09

20

09

/10

20

10

/11

20

11

/12

20

12

/13

20

13

/14

20

14

/15

20

15

/16

$U

S b

illio

n

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

20

04/0

5

20

05/0

6

20

06/0

7

20

07/0

8

20

08/0

9

20

09/1

0

20

10/1

1

20

11/1

2

20

12/1

3

20

13/1

4

20

14/1

5

20

15/1

6

Non-oil and oil exports per capita ($US/person)

Oil exports per capita ($US/person) Non-oil exports per capita ($US/person)

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

20

05/0

6

20

06/0

7

20

07/0

8

20

08/0

9

20

09/1

0

20

10/1

1

20

11/1

2

20

12/1

3

20

13/1

4

20

14/1

5

20

15/2

01

6

Private Transfers and Official Transfers (US$ Billion)

Official Transfers Private Transfers

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

Jun

e 2

00

6

Jun

e 2

00

7

Jun

e 2

00

8

Jun

e 2

00

9

Jun

e 2

01

0

Jun

e 2

01

1

Jun

e 2

01

2

Jun

e 2

01

3

Jun

e 2

01

4

Jun

e 2

01

5

Jun

e 2

01

6

Mo

nth

s o

f Im

po

rts

US

$ B

illi

on

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

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

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

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

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

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

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

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

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

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

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

200

8/2

00

9

200

9/2

01

0

201

0/2

01

1

201

1/2

01

2

201

2/2

01

3

201

3/2

01

4

201

4/2

01

5

201

5/2

01

6B

udg

et

201

6/2

01

7B

udg

et

% t

o G

DP

Overall Fiscal Deficit

19

FY16/17 Budget – Key Remarks

20

FY16/17 Budget – Key Remarks

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

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)