UPDATE 2-Egypt curbs energy subsidies spending in tighter new budget

Mon Jun 30, 2014 10:45am EDT

Related Topics

* 40 billion pounds cut after 144 billion spent last year

* President al-Sisi rejected early draft, ordered more cuts

* Finance minister says all have to share burden (Adds background and quote and figures)

By Asma Alsharif

CAIRO, June 30 (Reuters) - Egypt announced deep cuts in energy subsidies in its budget for the 2014/15 fiscal year on Monday, a first step toward reducing the deficit after three years of political turmoil that have battered the economy.

Some 40 billion pounds ($5.59 billion) worth of savings were made by curbing planned spending on energy subsidies to 100.3 billion pounds in the next fiscal year, Finance Minister Hany Kadry Dimian told a news conference.

President Abdel Fattah al-Sisi rejected the first draft of the budget, which comes into effect on Tuesday, complaining that it was too extravagant and mounting debts would leave nothing for future generations.

Sisi approved on Sunday a tightened budget that seeks to reduce the deficit to 10 percent of gross domestic product in the next fiscal year, from an expected shortfall of 12 percent in the 2013/14 fiscal year that ended on Monday.

The budget deficit was around 14 percent in the fiscal year ending June 2013.

"There is a bottleneck that we need to get through... There will be a burden that we have to all endure," Dimian said.

Dimian did not announce exactly how the energy subsidy savings would be made and said there was no timeline for petroleum price increases or other reforms for the sector.

Egypt originally budgeted 99.6 billion pounds in energy subsidies for this fiscal year, but a finance ministry spokesman said this target had not been met and the actual spending on energy subsidies was closer to 144 billion pounds.

The spokesman said savings would come through redistribution and restructuring, without giving details.

GROWTH TOO WEAK

The country of 85 million is in dire need to increase revenue and curve spending since a popular uprising in 2011 ousted autocrat Hosni Mubarak and deterred foreign investors and tourists, once a major source of foreign currency.

Egypt's economy grew a meagre 2.1 percent last fiscal year, ending June 2013 and Gulf countries Saudi Arabia, United Arab Emirates and Kuwait have contributed billions in grants, loans and petroleum products.

Revenue in the new budget is expected rise by 8 percent to 548.6 billion pounds for the fiscal year ending June 2015, the minister said, while spending will climb by 7 percent to 789.4 billion pounds.

Dimian said the Egyptian economy was expected to grow by more than 3 percent in the next fiscal year, after two percent expected in the current fiscal year.

Three percent growth is in line with previous forecasts and too low to create enough jobs for the rapidly growing population in this country of 86 million.

The turmoil of the past three years, with two presidents overthrown and hundreds of people killed in the streets, has hit the tourist industry and investment, worsening a huge unemployment problem and pushing up the budget deficit.

Subsidy cuts could prove unpopular with many ordinary Egyptians struggling to make ends meet, particularly during the month of Ramadan, when Muslims fast from dawn until dusk. ($1 = 7.1501 Egyptian Pounds) (Reporting by Asma Alsharif; Editing by Tom Heneghan)

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