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Egypt's new budget targets subsidies, boosts wages, social spending

Finance minister unveils spending plans for 2012/13, balancing hikes in state salaries and infrastructure investment with cuts in petrol subsidies and non-essential government services

Ahram Online, Saturday 19 May 2012
Egypt
A FJP rally with banners last year. Egyptians look for balance in 2012/13 budget (Photo: Reuters)
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Egypt's proposed 2012/13 budget will ramp up state spending while rationalising fuel and food subsidies and boosting public wages and investment in infrastructure, the country's finance ministry announced on Saturday.

Speaking at a news conference, Minister of Finance Momtaz El-Saeed said state spending will climb to LE533.7 billion ($88.3bn) in 2012/13.
 
This is 8.8 per cent more than the LE490.6 billion spent by the state the year before.
 
Food subsidies, pensions and housing will see additional funding under the new proposals, with a projected LE44 billion annual increase in state revenues helping bridge the gap.
 
Total expenditure for 2012/13 -- including spending and repayments of loans -- will reach LE635.4 billion, up from LE594 billion in the previous budget.
 
The new financial year will begin on 1 July 2012. The proposed budget needs the approval of Egypt's ruling military before it is passed to parliament for debate and an eventual vote.
 
"SCAF [the Supreme Council of the Armed Forces] is not able to change the numbers in the budget now we have parliament," El-Saeed explained.
 
A long-awaited shake-up of fuel and food subsidies is one of the budget's main pillars.
 
Subsidies for fuel and gas will be allotted LE70 billion of state spending in 2012/13, a  significant drop on LE95.5 billion the previous year.
 
But while the highest-grade Octane 95 petrol will have its subsidy removed, the changes will not necessarily mean all consumers will face higher fuel prices, El-Saeed said.
 
The minister added that the January 2012 removal of subsidies for fuel-intensive industries is being retroactively applied and that manufacturers which have received supplies at subsidised prices since the start of the year will have to repay the government.
 
Such measures will bring in LE6 billion of state revenues by the opening months of 2013, El-Saeed said.
 
Food subsidies, meanwhile, will see a sizeable increase. 
 
They will climb to LE26.6 billion in the 2012/13 budget, up from LE18.9 billion the year before, in a move the ministry said will benefit 63 million citizens reliant on rationing cards.
 
Also seeing increases are Egyptian public wages which will account for a quarter -- or LE136.6 billion -- of 2012/13's total state spending. 
 
The previous year's wage bill was LE117.5 billion.
 
Part of the additional funding will go towards ensuring that 400,000 government workers with temporary contracts become permanent employees, El-Saeed said.
 
This move will require LE4 billion in additional spending over the next two years and is factored in to the 2012/13 budget, he added.
 
When it comes to social welfare projects, among the budget's proposals is raising spending on state pensions to LE32.8 billion, up from LE24.9 billion in 2011/12.
 
Also seeing a hefty increase is the amount the Egyptian state will invest in infrastructure, housing and sanitation projects -- a proposed LE55.6 billion. Such an amount will be 17.8 per cent more than the LE47.2 billion invested in 2011/12.
 
El-Saeed said the public treasury will fund around LE43 billion of the 2012/13 investment sum, with the rest coming from grants and loans.
 
Spending on government services will see a slight drop to LE28.8 billion, 4.6 per cent lower than 2011/12.
 
The minister said savings would be made via cuts to non-essential public services. Previous budgets suggest the trims may be to areas such as state employee transportation and print orders of schoolbooks.
 
Interest repayments on domestic and foreign debts will make up LE133.6 billion of spending, around a quarter of the total spending, and up from LE106.3 billion the year before.
 
Despite these commitments, the finance ministry seems confident it will have sufficient revenues to fund its plans.
 
El-Saeed estimated total revenues for 2012/13 at LE393.4 billion, a steep climb on the LE349.6 billion generated in 2011/12.
 
Increased tax revenues will play a major part in this figure, with the ministry predicting LE267 billion in 2012/13, up from LE232.2 billion the year before, thanks to more efficient collection and modest tax reforms.
 
Also boosting revenues will be an estimated $1.3 billion in grants from friendly countries. This is down from $1.6 billion in such funds mentioned in the previous year's budget.
 
The ministry's figures indicate a LE140.3-billion deficit for 2012/13, around 7.9 per cent of GDP. This compares with a deficit-to-GDP ratio of 8.6 per cent in 2011/12.
 
Egypt's ruling military will pass judgement on the budget proposal in the coming days, El-Saeed said, clearing the way for its discussion in parliament.
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