New budget plans

Gamal Essam El-Din , Friday 29 Mar 2024

The government’s budget and development plan will be submitted to parliament this month, writes Gamal Essam El-Din

More than LE125 billion will be earmarked for subsidised bread, up from LE92 billion
More than LE125 billion will be earmarked for subsidised bread, up from LE92 billion

 

In the 2024-25 budget, due to be presented to the House of Representatives within days, the government will reinforce recent measures to mitigate the impact of inflation by increasing spending on social security programmes, subsidies, and grants targeting the poor.

“The government will continue working to improve the living conditions of citizens by striking a balance between fiscal discipline and mitigating the impact of soaring inflation triggered by the global economic crisis,” said Finance Minister Mohamed Maait.

Following instructions in January from President Abdel-Fattah Al-Sisi, the government introduced a LE180 billion package of social security measures that included wage and pension hikes and increased tax thresholds.

“To further ease financial pressures on the most vulnerable classes we are planning another package of social support initiatives in the new budget,” announced Maait.

The budget earmarks LE596 billion for subsidies, including LE134 billion for ration cards and more than LE125 billion for subsidised bread, up from LE127.7 billion and LE92 billion in the current budget. More than LE147 billion will be allocated to fuel subsidies, up from LE119.4 billion in FY 2023-24.

“The increase in fuel subsidies reflects the rise in international oil prices and the recent floatation of the Egyptian pound,” said Maait.

On Thursday, the government raised fuel prices between eight and 21.2 per cent.

Maait also revealed more than LE40 billion will be allocated to the Takaful and Karama (Solidarity and Dignity) social programmes, up from LE31 billion in the current fiscal year.

According to Maait, the new budget will increase government expenditures by 30.4 per cent to LE3.9 trillion. The Ministry of Finance’s latest figures show that actual expenditures reached LE1.75 trillion from July to January in FY 2023-24. At the end of January, Prime Minister Mustafa Madbouli announced a cut of 15 per cent in government investments for the second half of the year.

The cut met economic reforms demanded by the IMF which said on 6 March that monetary and fiscal policy tightening, including containing off-budget capital expenditure, was needed to reduce inflation and maintain debt sustainability.

Yasser Omar, deputy chairman of parliament’s Budget Committee, told parliamentary reporters on Saturday that “there is no question that the new budget will reflect many of the reforms demanded by the IMF, including a stringent ceiling on public investments, particularly infrastructure projects.”

Maait argued the cut in public investments will create room for the private sector to expand its activities.

“We expect the private sector to play a greater role in the national economy in the new fiscal year and are launching initiatives to support this,” said Maait. “The new budget will earmark LE23 billion to help private investors expand export-led activities.”

Following a cabinet meeting on Sunday, Madbouli said that in FY 2024-25 the government will aim to increase the private sector’s contribution to the national economy to 65 per cent in line with the State Ownership Policy Document and the privatisation programme announced in December 2022”.

One of the main objectives of the 2024-25 budget is to cushion the economy against further shocks. This, says Maait, will be helped by the fact the country has received pledges of more than $20 billion in foreign support, including $8 billion from the IMF, 7.4 billion euros from the European Union and $6 billion from the World Bank.

Maait sounded upbeat about prospects in the new fiscal year which starts in July. He said the recent influx of foreign exchange had helped release $14.5 billion worth of goods and commodities stuck at ports since January. He also said the government will work to stockpile strategic reserves in FY 2024-25.

On Sunday, Madbouli directed the government to increasre strategic reserves of basic commodities by 20 per cent.

“Reserves will be imported and offered on the market in the event of a crisis in a bid to stabilise local retail prices,” said Madbouli. “The direction comes after President Al-Sisi suggested the government allocate $1-3 billion in the new budget to import essential commodities to compete directly with the private sector in a bid to reduce prices.”

The government is also targeting a primary surplus of 3.5 per cent for the next fiscal year compared to 2.5 per cent targeted in 2023-24.

“This increase will come through taxes which account for 80 per cent of total government revenues,” said Maait. “We are targeting a 30.7 per cent year-on-year increase in tax revenues to LE2 trillion.”

The new budget will also see the government embark on the arduous task of reducing public debt to less than 80 per cent of GDP within three years.

“The budget will limit public entities’ annual debt and direct the primary surplus and 50 per cent of revenues from the privatisation programme to service and reduce outstanding debt in the upcoming fiscal year,” said Maait.


* A version of this article appears in print in the 28 March, 2024 edition of Al-Ahram Weekly

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