Non transparent LE27 billion cuts in 2011/12 budget

Marwa Hussein, Thursday 23 Jun 2011

One week before the enforcement of the new budget, the sources of only less than a third of the cuts have been revealed by the Egyptian cabinet, with the larger part of the savings still classified

Gas cylinder
L.E 2 billion should be saved from selling gas cylinder to commercial and touristic entities with their real cost which reaches L.E 52

Egypt's cabinet approved yesterday next's year budget after introducing severe cuts on the draft proposed by the ministry of finance in the beginning of June. Expenditure was reduced by L.E 27.3 billion to end up at L.E 490.6 billion, compared to the previous figure of L.E 517.9 billion. The new changes to the budget are still to be approved by the military council.

However only the sources of L.E 8.5 billion of the L.E 27 billion cut have been revealed so far. The sources of the remaining L.E 18.5 billion savings are still unkown, one week before the 2011/12 budget is implemented. A source at the ministry of finance told Ahram Online that another L.E 7 billion will be cut from public investments without providing any further details. Ahram Online was unable to reach other officials at the ministry of finance for comment.

So far the main known sources of cuts concern energy subsidies that should save L.E 3.5 billion. L.E 1.5 billion will be saved from gas cylinder subsidies after the implementation of a plan aiming to deliver natural gas to brick factories and bakeries in a year and a half -- a plan that should cost the ministry only L.E 200 million according to the minister. L.E 2 billion should be saved from selling gas cylinders to commercial and touristic entities, with their real cost being L.E 52/ cylinder while the subsidized ones officially costing L.E 2.5/ cylinder.

Modifying gas exportation contracts should also bring in an additional L.E 4 billion. Contracts with Spain and Jordan were already modified with others, especially with Israel, are expected to follow. No information has been provided as to what system will be in place to prevent hotels from buying their gas cylinders from the market where the subsidized ones are sold, or how long such a system would take to implement.

Other measures are hugely unpopular, like cutting L.E 1 billion from the new unemployment aid to limit it to L.E 1 billion, as revealed by Al-Shorouk newspaper.

The main target of the cuts is to reduce the budget deficit from a previously expected 11 per cent of GDP to 8.6 per cent, a figure lower than the estimated 9.5 per cent for the 2010/11 fiscal year.

"The decision to cut planned spending has "nothing to do with the IMF. It's a purely Egyptian decision," Minister of Finance Samir Radwan said on Wednesday in response to several critics blaming the interim government and Radwan for drowning the country in debt.

The International Monetary Fund agreed to a $3 billion 12-month standby finance arrangement for Egypt this month. The government is still in negotiations to receive financial aid from Gulf Arab countries, the European Union and the United States, totaling some L.E 14.3 billion ($ 2.41 billion). However the minister of finance declared during Wednesday's press conference that the government won't borrow any money next year.

"We don't need  to borrow any more from the World Bank and The IMF, and we won't borrow at all from abroad during the coming fiscal year," said Radwan.

Investment bank Beltone financial issued a note on Thursday saying the changes to the budget were triggered by increasing yields on domestic securities that have traditionally been the major financing source of budget deficits, worries of criticism over extreme international borrowing and committing future generations to increased international and domestic debt. However, Beltone appeared to be concerned about the areas that will witness cuts.

"The cap on expenditure raises questions and worries on which budget areas will suffer from reduced spending. If current expenditure in areas such as administrative spending by ministries and the military is cut, it will be a good move; however, if capital expenditure is reduced, this will reflect negatively on growth, going forward," concluded Beltone's note.

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