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Monday, 19 April 2021

Egypt: More spending budgeted

Increased spending and a set of society-friendly measures have been pencilled into Egypt’s 2021-2022 budget

Sherine Abdel-Razek and Niveen Wahish, Saturday 20 Mar 2021
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President Abdel-Fattah Al-Sisi announced increased spending intended to boost the incomes of millions of Egyptians on Monday in the state budget for the 2021-2022 fiscal year that goes into effect in July.

The new spending increases the minimum wage for public-sector employees, pensions, and civil-servant salaries, with the monthly minimum wage of civil servants increasing by 20 per cent from LE2,000 to LE2,400. Pensions are to increase by 13 per cent.

The announcements came as Al-Sisi met Prime Minister Mustafa Madbouli to discuss the 2021-2022 budget, according to a statement from the Ittihadiya Presidential Palace.

Coming after two years of slowed economic activities on the back of the Covid-19 pandemic, the increases will cushion the effects of the pandemic on Egyptian households.

President Al-Sisi is very much aware of people’s needs, especially as the government’s economic reform programme begins to reap its benefits, Finance Minister Mohamed Maait said on TV on Monday.

The 20 per cent increase in the minimum wage for civil servants will cost the government LE37 billion and benefit five million employees. The last minimum wage increase for the public sector was introduced in 2019, when Al-Sisi raised it to LE2,000 from LE1,200.

The president also approved two allowances at a cost of about LE7.5 billion. The first represents the annual raise to employees who fall under the civil service law, while the second is a 13 per cent bonus for those not covered by the law, estimated at some three million employees.

The higher pensions will cost the budget an extra LE31 billion. “We looked into various scenarios for the annual increase, according to the financial capabilities of the General Authority for Social Insurance, and we presented these to the president who decided on the amount of the increase,” head of the General Authority for Social Insurance Gamal Awad said on television on Monday.

Egypt’s new pensions law stipulates an annual increase that meets the inflation rate. The average inflation rate in 2020 was 5.1 per cent.

“The increase means that the president has not only compensated pensioners for the price increases, but has also increased their real incomes by eight per cent,” Awad said, adding that 10.5 million pensioners would benefit from the decision.

The decisions are positive ones for government employees because they will be pocketing higher incomes and boosting their purchasing power, especially since inflation is now at bay, said Allen Sandeep, director of research at investment bank Naeem Holding.

However, he was not surprised by the decisions, pointing out that annual wage and pension hikes have always ranged around the same figure. What was different this year was the increase in the minimum wage, he said.

Sandeep did not expect the increased allocations to present a burden for the budget, as they represent a 0.5 to one per cent increase to allocations on salaries and pensions, he said.

The hike in the minimum wage, according to Heba Al-Leithi, a professor of statistics at the Faculty of Economics and Political Science in Cairo, is a good step, but it could be more effective as it is not applied to the private sector or informal casual workers.

“To benefit more people, the steps should have included plans targeting these workers like building new factories or adopting new job-creation policies,” Al-Leithi said.

She said that even the LE500 assistance offered to informal workers as part of the Covid-19 stimulus package last year had been a simple “painkiller” that had cost the government millions of pounds but had done nothing to solve underlying problems.

 “We have to find long-term solutions for such persistent problems,” she said.

In early March, it was revealed that the government will start registering millions of temporary workers as a prerequisite to offering them health insurance and emergency state aid during the pandemic.

Egypt has at least 14 million casual workers, a wide segment of labourers who lack a stable source of income and have thus been hard hit by the pandemic.

Minister of Planning Hala Al-Said, also head of the National Wages Council, is preparing for a meeting with representatives of the private sector to discuss increasing the minimum wage in the private sector, Maait said.  

The new budget will also include an allocation of LE1.5 billion for those whose workplace will be moved to the New Administrative Capital. The nature of this allocation and whether it will be a one-off payment or a monthly allowance is unclear.

Those working in the new capital should not be already living there, as otherwise the main reason for moving them, limiting congestion in Cairo, will not be achieved, Al-Leithi said, adding that the allowances might not cover extra expenses like the cost of new homes and school fees.  

According to the Ittihadiya statement, despite the new allocations, the budget targets lowering the fiscal deficit to 6.6 per cent of GDP. It also said there would be a primary surplus of 1.5 per cent.

But Sandeep believes the budget deficit will more likely be in line with the expected deficit in the current fiscal year. Egypt’s budget deficit-to-GDP ratio declined to 3.6 per cent in the first half of the current fiscal year (July-December 2020), down from 4.1 per cent in the same period in 2019-2020.

Earlier this week, parliament said it would discuss an extra allocation of LE2 billion in the 2020-2021 budget to support the financial position of some of the country’s economic institutions that have been negatively affected by the pandemic.

*A version of this article appears in print in the 18 March, 2021 edition of Al-Ahram Weekly

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