Egypt's finance minister responds to criticism from MPs on budget deficit

Gamal Essam El-Din , Friday 12 May 2023

Egypt's Minister of Finance Mohamed Maait was in the hot seat on Wednesday and Thursday to respond to attacks he faced from MPs on what what they perceived as an "alarming increase in debt service costs and a widening of the budget deficit."

Egypt s Finance Minister Mohamed Maait addressing the House of Representatives in Cairo on Wednesday. Photo : Al-Ahram


Leftist opposition MP Diaa Elddin Dawoud called for the sacking of the current Egyptian government over the country's rising debt crisis and for appointing a "more economically professional one that can tackle the country's chronic debt crisis."

Speaking in parliament, Dawoud said that "the incumbent government is running in a vicious circle because its policies lead to the same results and I am surprised that we have still some who have the guts to defend the economic policies of this government."

Fellow leftist MP Abdel-Moneim Imam accused the government of pursuing "excessive borrowing policies that have led to a debt crisis."

Meanwhile, pro-government MP Attia El-Fayoumi criticised the government for doing little to reform the loss-making economic authorities and public sector companies.

Maait points finger at rising interest rates

Minister of Finance Mohamed Maait defended the government's record, stating that "the world's rising interest rates are largely to blame for the rise in Egypt's debt service costs."

​"World interest rates have increased to 18.75 percent at the present time and it is this hike which led to the rise in debt service costs in one year from EGP 550 billion to EGP 580 billion," said Maait.

"We are not to be blamed for the world's rising interest rates which triggered a hike in financing costs and negatively impacted the exchange rate of the Egyptian pound against the US dollar," he added.

According to Maait, Egypt's public debts are denominated in both foreign and local currencies. 

"The debts denominated in foreign currency currently stand at $108 billion," said Maait, also calling upon MPs to differentiate between figures released by the World Bank, the Central Bank of Egypt (CBE) and the finance ministry on Egypt's public debts.

"The figures released by the World Bank and the CBE usually refer to debts burdened by both the government and other authorities, but the figures cited by the finance ministry usually refer to debts burdened by the state treasury only," said Maait.

CBE's figures show that Egypt's foreign debt stands at $163 billion.

Government committed to cutting public debt

According to Maait, Egypt’s public debts have declined from 114 percent of GDP in FY2013/14 to 82 percent in FY2021/22 before increasing to 88 percent in FY2022/23.

The latest increase can be attributed to “the Russia-Ukraine war that triggered rising interest rates which exert pressure on the country's public finances plus the government obliged to spend more to meet social obligations," Maait explained.

"So as you see we are committed to cutting down public debts and we expect that these debts will go down to reach 76 percent of GDP at the end of FY2025/26," said Maait.

Wheat prices a significant factor

Maait cited the rise in world wheat prices as one of the negative financial pressures triggered by the war in Ukraine.

"As you know Egypt is a major wheat importer and in this respect, the price of wheat per ton increased on world markets to $340 per ton due to the Russia-Ukraine war, while under normal conditions the price would be between $150 and $200 only per ton," said Maait.

"In the past, we were used to a hike of only $20 per ton in wheat price, but now we see a hike between $200 and $250 per ton, and this increase has put the state's public finances and treasury under huge pressures which in their turn caused public debts to rise," said Maait.

Maait, however, insisted that the government's FX resources are still sufficient to meet the country's foreign financial obligations.

Budget deficit

Maait also indicated that the budget deficit is expected to reach seven percent in the upcoming FY2023/24, up from 6.5 percent in FY2022/23 which ends on 30 June, and from 6.8 percent in FY2021/22.

Head of the House's Budget Committee Fakhri El-Fiqi said the finance ministry's report on the draft FY 2023/24 budget includes three figures about the deficit.

El-Fiqi stated, "the finance ministry's projections for the upcoming FY 2023/24, starting on 1 July, show that the budget deficit is expected to reach seven percent. The other two figures are related to the outgoing FY 2022/23. The first figure indicates that the deficit was initially expected to be 6.5 percent, down from 6.8 percent in FY 2020/21. However, due to additional spending of EGP 165 billion, including new wage and pension hikes introduced in March at the request of President El-Sisi, the budget deficit is expected to reach eight percent of GDP."

Maait criticizes inaccurate reporting

Maait’s comments on Wednesday and Thursday come on the heels of remarks made before parliament on Tuesday in which he slammed the “the inaccurate reports published every now and then about Egypt's financial affairs."

"We have been the target of malicious reports in recent weeks, and the latest in this respect was a number of inaccurate reports about the budget deficit.

"I appeal to the media to exercise accuracy and objectivity, especially as a flood of rumours and unbiased reports have been sweeping the financial conditions of Egypt in recent weeks."

"The accurate figures are that we initially targeted a budget deficit of 6.5 percent at the end of FY2023/24, but we now expect it to reach seven percent," said Maait, indicating that "three reasons to blame for the expected widening of the budget deficit in the new FY2023/24: the continued hike in interest rates on world lending markets, the increase in spending on social safety programs, and the high cost of imported basic commodities, particularly cereals, food and fuel, due to the unprecedented rise in their prices."

Maait also told MPs that there are good developments in the Egyptian economy in the coming fiscal year which will start on the first of July. "We are also expecting a growth rate of 4.1 percent and that inflation rates are forecasted to drop to 19 percent by the end of the FY 2023/24."

Minister of Planning and Economic Development Hala El-Said also told MPs that "though the 4.1 percent growth rate is less than the initially expected five percent, it is higher than the 2.5-2.8 percent forecast for the world economy.

Privatization and taxes expected to boost revenue

During the parliament's budget committee meeting, deputy Finance Minister for Fiscal Policies Ahmed Kouchouk also told MPs that the draft FY2023/24 budget expects that the state will generate EGP 70 billion ($2.3 billion) from the privatization program and is in line with the state ownership policy document.

"These revenues will be transferred to the state treasury and will help achieve surplus and give a big boost to the Egyptian economy, not to mention that the finance ministry has a plan to double tax receipts."

"Tax receipts are projected to increase by 41 percent to reach 2.1 trillion in the upcoming fiscal year, up from an estimated EGP 1.5 trillion at the end of the current fiscal year on 30 June," said Kouchouk.

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