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Egypt to implement maximum wage as it battles budget deficit - Daily News Egypt

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Egypt to implement maximum wage as it battles budget deficit

CAIRO: Egypt’s Prime Minister Kamal El-Ganzoury said Tuesday that the public sector will enforce a maximum wage 35 times that of the minimum wage, to be applied starting January 2012. El-Ganzoury had first announced plans to approve a maximum wage at a televised press conference on Monday. Previous finance ministers have this year mulled a …


CAIRO: Egypt’s Prime Minister Kamal El-Ganzoury said Tuesday that the public sector will enforce a maximum wage 35 times that of the minimum wage, to be applied starting January 2012.

El-Ganzoury had first announced plans to approve a maximum wage at a televised press conference on Monday. Previous finance ministers have this year mulled a maximum wage of 36 times the minimum.

The decision, which reportedly includes a new tax on imported tobacco products, was introduced by the PM and the Cabinet on Monday, according to the state-owned Al-Ahram newspaper.

Egypt’s government is currently in the process of cutting wages for state employees at the executive level in an attempt to curb government spending. The minimum wage is currently set at LE 700, including bonuses and meal stipends.

"The current budget does not include the maximum wage," said Minoush Abdel Meguid, managing director of Union Capital. "This is a good move because the point of this is to help the government save money as they are in the process of reducing salaries of government executives."

Egypt’s current account deficit widened to $2.18 billion in the July-September quarter from a deficit of $1.31 billion a year earlier, the central bank said on Tuesday, according to Reuters.

The balance of payments had a deficit of $2.36 billion compared to a year earlier surplus of $14.7 million. Foreign direct investment during the quarter fell to $440.1 million from $1.60 billion.

The Egyptian Stock Exchange implemented a similar decision last month, reducing salaries of senior executives by roughly 20 to 40 percent, while cutting managers and directors’ salaries by about 15 to 25 percent as part of a financial restructuring process.

“The plan aims to reduce the LE 134 billion deficit by LE 20 billion,” Finance Minister Momtaz Al-Said was quoted as saying in Egyptian newspapers on Monday.

“We have set a maximum wage for government officials at 35 times the minimum wage. And we’ll stop buying expensive cars.” he added.

Mohamed Omran, head of the exchange, told Daily News Egypt in November that the bourse approved the decision to keep up with the recent socio-economic unrest that has battered the country’s economy in the midst of political unrest, violence and a surge in global food and fuel prices.

Cost cutting

To mitigate the effects of a looming economic crisis, the Cabinet also announced Monday a series of measures to cut government spending, including reducing fuel subsidies and postponing a property tax, which has repeatedly been delayed.

"The proposed reforms include cutting fuel subsidies for energy-intensive industries, postponing the application of a property tax for another year, and deferring a new law on social insurance and pensions until July 2013," said Magda Kandil, head of the Egyptian Center for Economic Studies in her latest column about Egypt’s economy during the political transition.

"The interim government has been scrambling to come up with savings estimated at LE 20 billion to relieve continued pressures on the budget, amidst rising concerns about financing shortfalls," she added in a column published on the Atlantic Council website.

Abdel Meguid believes that the government, however, should not implement this idea when it comes to state-owned banks or oil companies.

"I don’t think its practical that someone who works in a bank, and is responsible for signing off for a $200 million loan, for example, to be making a maximum of LE 35,000 a month," she stressed. "If a bank is making millions, it does not make sense that their director makes less than LE 1 million a year."

In addition to the state’s high budget deficit, Egypt has also been seeing rapid decline of foreign reserves. As of end of November, the Central Bank of Egypt announced that foreign reserves dropped to $20 billion, about $1.4 billion less than the previous month.

"The current level, estimated at $20 billion, is barely adequate to cover four months of imports, raising concerns about potential further depreciation of the Egyptian pound, which is likely to continue unless Egypt reconsiders the option of concessional borrowing from international institutions, such as the World Bank and IMF," Kandil said in her column.

Kandil previously told DNE that the government’s increasing dependence on domestic borrowing is also a problem because it has become too expensive, causing banks to increase their interest rates up to about 16 percent.

According to the central bank, inflation is also on the rise, surging 0.66 percentage points to monthly headline inflation in November as prices also rose.

"Regulated prices increased by 3.65 percent in November," the bank said in its last report on inflation. "Headline CPI [core inflation] increased by 1.0 percent in November following the 0.33 percent increases recorded in October, which is above the average monthly pace of 0.84 recorded in the first ten months of 2011."

Moreover, this led the annual rate in November to rebound to 9.07 percent after falling to a 4-year low of 7.10 percent in the previous month, according to the bank.

In addition, the bank also reported that the prices of tobacco and related products increased 8.76 percent, which contributed to 0.36 and 0.30 percentage points, respectively, to the monthly headline inflation.

With the increased pressures on the economy as a result of the political instability, economists are questioning the military’s role as the leader of Egypt’s democratic transition.

Abdel Meguid previously told DNE that the economy is not in the "expertise" of the ruling military counsil, which has been in power since a popular uprising ousted former president Hosni Mubarak in February.

Topics: minimum wage

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