President Abdel Fattah Al-Sisi approved Saturday the state’s budget, targeting to decrease the deficit to 10% of GDP and push foreign and domestic debts down from 94% to 90% of GDP during the 2014/2015 fiscal year (FY).
During the FY 2013/2014, the budget deficit recorded 12% of GDP, or around EGP 185.7bn. With the new budget, it is expected to reach the 10% of GDP amounting to EGP 240bn.
Head of economic research at the Egyptian Centre for Economic and Social Rights (ECESR) Heba Khalil said that the general information provided by the government does not allow for a clear evolution for the budget.
“The budget should have been open for discussion with the people in April,” Khalil said. “What we know so far is the government’s intention to reduce the deficit to 10% of GDP and this will happen through the reduction of expenditure and increase in revenues.”
Khalil explained that the details of the budget are still absent.
“For example, the issue of maximum wage is still a question mark,” Kahlil said. “There have been some previous announcements that some authorities are exempted so we need to understand if that will still be the case.”
Angus Blair, CEO of Signet Institute, said that “the goal of the budget [deficit] being equivalent to 10% of GDP is attainable if there are cuts in subsidies and some government spending”. Blair added that this would also happen if economic growth rises strongly.
“Stronger economic growth is vital to create new jobs and increase taxation revenues,” Blair said. “Economic growth would need to reach nearly 8% per annum now to create enough new jobs for the increasing numbers of job seekers.”
Cairo University Economics Professor Alia El-Mahdy said that these are still the initial figures and some changes can be expected.
“The country might witness some price changes [in terms of food products and commodities], meaning that prices can go up through increasing inflation,” El-Mahdy said. “The price increases can also be in the petroleum products as well. The deficit doesn’t have to necessarily change positively.”
The Egyptian government is also expecting the GDP to reach EGP 2.4tn by the end of FY 2014/2015.
El-Mahdy stated that the growth of GDP is mainly attributed to two main factors.
“The first is when the government is using nominal prices where growth can be led by inflation or price increases,” El-Mahdy said, adding that “the other reason behind growth happens when the government uses real prices and will be mainly due to increasing income and revenues.
“Prices will rise and there may be some knock-on increase in inflation,” Blair said, explaining how subsidies removal will influence prices. He added, however, that those subsidies “mostly benefit the rich and I am surprised that they were not tackled years ago.”
According to Khalil, despite repeated assertions by the government that cutting expenditures is only possible through cutting subsidies, this is not the case.
“The issue of loans interest remain untapped,” Khalil said. “If we divide the budget to four sections you’ll find that the interest on loans take about one quarter. This means that there is a big potential in that section.”
Khalil added negotiations should be opened in the area of loans’ interests.
“The people have stated that they were suffering from dictatorship and corruption, which means that the loans’ money didn’t benefit the [typical] Egyptian, so the topic of loans can be opened ,” Khalil said, adding that “ a political decision needs to be taken.”
El-Mahdy explained that the income increases will be due to increasing investments, which she described as “difficult”.
She blamed the government’s “changeable opinion” regarding taxes for the difficulty the country meets in increasing investments.
“The position of taxes applied must be announced and clearly identified by the government,” El-Mahdy said, “No investor would be willing to put his money here [Egypt] if he doesn’t know where he stands with regards to taxes.”
“If economic growth rises then do does taxation revenues,” Blair said, “I assume that the authorities expect this to diminish the government borrowing requirements.”
El-Mahdy said that President Al-Sisi’s economic direction remains “vague”.
“I can’t really understand whether it is a socialist direction or a liberal direction or anything else,” El-Mahdy said, adding that this direction must be defined as it will direct the government through the coming four years.
As for long-term goals, the Finance Minister Hany Kadry Dimian announced that within two to three years, the deficit would decrease to 80% or 82% of GDP. The minister added that within five years, the deficit is expected to decrease to below 80% of GDP.
Prior to being elected, Al-Sisi stated, during a television interview, that the volume of domestic and foreign debt reached EGP 1.7tn. He added that this debt “should not be inherited by future generations.”
“In order to solve this issue [of debts] do we need to walk, run or jump?” Al-Sisi asked. He stressed that debt issues should be solved with speed. “I will not sleep and neither will you [Egyptians citizens].”
Later in May, Al-Sisi discussed the issue of debts in his economic platform saying that public debts should return to “safe levels”, adding that his platforms aims to lower the debt to 74.5% of GDP by FY 2017/2018.