The Egyptian economy has endured a chronic structural fiscal deficit for the better part of the last fifty years. Contrary to the common misconception that high public spending drives this deficit, international comparisons indicate Egypt’s expenditure levels are moderate. While structural weaknesses in public spending efficiency exist, the core of Egypt’s fiscal problem primarily lies in a shortfall in public revenues.
Egypt’s public revenue shortfall is an inherited problem with historical roots in the socialist era. The extended period taken for the economic transition from a socialist model to a free market economy, despite its aim to mitigate adverse impacts on vulnerable groups, led to a hesitant transition. The duality between free market and socialist systems has resulted in two primary hurdles: first, restricted tax system efficiency; and second, the persistent underperformance of state-owned enterprises (SOEs). The latter stems from weak governance frameworks and continued government protection of SOEs (including economic authorities, public sector, and public business sector companies) from free market risks. These two essential difficulties have consequently led to a continuous decline in both tax and non-tax components of public revenues.
This paper aims to analyze the challenges in both tax and non-tax revenues. It highlights that tax revenue challenges stem from widespread tax evasion, ineffective tax administration, generous tax expenditure policies, and a structural transformation of the Egyptian economy leading to a heavy reliance on low-tax sectors at the expense of manufacturing. Non-tax revenue challenges include the declining surplus from public economic authorities, reduced treasury share from the public sector and public banks’ profits, and the expanding of extra-budgetary special funds and accounts. Finally, the paper proposes a reform roadmap to enhance revenue generation and foster long-term economic growth in Egypt.