CAIRO Egypt's government said on Monday it plans to cut petroleum product subsidies in the next fiscal year but still expects the budget deficit to widen, signalling more tough times ahead as voters went to the polls to elect a new president.
It predicted economic growth of 3.2 percent - up from an estimated 2-2.5 percent this year - and a fiscal gap of 12 percent of economic output in a final budget draft submitted to interim President Adly Mansour, the finance ministry said in a statement.
Egypt's economy has been struggling since a mass uprising ousted autocrat Hosni Mubarak in early 2011, with the deficit reaching 14 percent of GDP last year. Prior to Mubarak's removal, GDP growth was running at above 5 percent.
It has been boosted by Gulf aid this year in the form of grants, loans and petroleum products, after the army, prompted by mass protests, ousted the country's first democratically elected president Mohamed Mursi in July.
The country of 85 million people remains in dire need of economic reform, most importantly on subsidies that have eaten up around a quarter of state spending in recent years.
"There will be a start in reform of petroleum product subsidies which is estimated in the new budget to be around 104 billion (Egyptian) pounds," the statement said.
According to Reuters calculations, that would mean a 22 percent decline from 134.3 billion pounds in the current year.
The budget draft forecast government spending at 807 billion pounds in the year to June 30, 2015, 65 billion more than in the current fiscal year.
Revenues are seen falling to 517 billion pounds. The country has received exceptional grants and aid from abroad totalling $20 billion so far this fiscal year, the ministry statement said.
It said the 12 percent deficit estimate, compared with 11.5 percent predicted for this year "(takes) into consideration the possibility of declining grants from abroad."
It also said the fiscal balance was affected by the first phase of constitutional reforms designed to raise spending on healthcare, education and scientific research to around ten percent of GDP by 2017.
Another factor weighing on the deficit is a new minimum monthly wage of 1,200 pounds for public sector workers.
Egypt is voting on Monday and Tuesday in presidential elections which former army-chief and presidential candidate Abdel Fattah al-Sisi is widely expected to win.
(Reporting by Asma Alsharif; additional reporting by Ehab Farouk; Editing by John Stonestreet)
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