The Egyptian government unveiled its long-anticipated economic programme on Tuesday, as part of the cabinet's ten-year plan of action.
The programme provided economic projections for the economy in the short, medium and long term, but did not address a number of pressing issues such as the possible International Monetary Fund (IMF) loan, Egypt's energy needs, and investors' uncertainty with regards contractual agreements with the government.
In addition, the programme, which was published on Prime Minister Hisham Qandil's Facebook page, did not unveil many surprises, whether on the fiscal consolidation front or on the social protection front.
Its economic projections, however, were accompanied by detailed information about specific investment areas that will generate the forecasted economic growth.
Economic growth and unemployment
The short term section of the programme was the richest in details. Economic growth of 3.5 – 4 per cent is expected in the current financial year 2012/13, which will in turn generate 700,000 employment opportunities.
This level of job creation would at least maintain the current unemployment rate of 12.6 per cent.
However, some economic commentators questioned the figures.
"The government’s claim to provide 700,000 jobs in the current fiscal year 2012/13 is questionable," Mohamed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes told Ahram Online. "Such a figure requires economic growth rates of above 6 per cent, which is well below the government’s expected 3.5 per cent."
The forecasted growth rate of 3.5 per cent, however, is seen as realistic.
"The programme carried some revised, more realistic economic projects including growth forecasts for the current fiscal year 2012/13 of 3.5 per cent, down from an earlier 4.5 per cent," Abu Basha explained.
In the longer term, the government expects the economy to grow at 4.5 per cent in 2013/14, which will rise to 9.8 per cent by 2022.
The government also projected an increase in Net International Reserves (NIR) to $25 billion in June 2013. It indicated it will achieve such a target by increasing exports of goods and services by a minimum of 18 per cent on an annual basis in 2012/13.
The government also projects a narrowing of the current account deficit to GDP ratio, excluding transfers, to 6 per cent, down from 7.7 per cent in 2011/12.
Such a figure, Abu Basha explains, is "highly optimistic," as it "implies Egypt will receive inflows of nearly $10-12 billion till June 2013, factoring in the country's financing requirements of nearly $5-6 billion in the coming six months."
Cutting deficit: Short on details
The programme mentioned general strategies the government will undertake to reign in public expenditure.
On the revenues side, the government proposed widening the tax base, implementing a progressive tax structure and simplifying the tax system.
The plan, however, did not provide sufficient details on those policies, nor on the manner through which it would implement them given that Egypt does not currently have an elected legislative body.
Such ambiguity was a cause of unease for the economists at Cairo-based investment bank Beltone Financial.
"The plan includes a set of targets, which, in our opinion, seem unrealistic, especially as there is no clarity on how they are to be achieved," Beltone said in a note issued on Wednesday.
"This is especially true since most of the tools needed to achieve those targets are still a work in progress and have not been implemented or even approved," the note explained.
On the expenditures side, the government programme did not include any surprises, as many of the policies mentioned were already announced in the context of the ongoing loan negotiations with the International Monetary Fund.
An example of these policies is the move to cut energy subsidies through reducing leakage in the distribution systems and pulling the plug on fuel subsidies targeting wealthier consumers.
Overall, the programme expects the above mentioned measures will yield a budget deficit of LE184 billion in the current year 2012/13 or 10.7 per cent of GDP. The policies would further slash fiscal deficits in 2013/14 to LE162.3 billion or 9.5 per cent of GDP.
Vision
Prime Minister Hisham Qandil announced the government's programme in a press conference, stressing that he would answer critics who claim that the government "lacks vision."
In his speech and in the written plan, Qandil highlighted the government's care for the social aspect of development, an aspect that he says was ignored by previous governments. Qandil that the "trickle-down" framework that previous governments employed is not sufficient, and the government has decided to abandon this approach.
The programme outlined some measures that target the lower income segments of society, such as social housing and restructuring subsidies towards a cash basis system. All these policies were announced earlier.
Abu Basha, however, points out to some key issues that the prime minister did not allude to.
One of those issues is dealing with the uncertainty in the Egyptian investment climate, prompted by the recent wave of court judgements cancelling business contracts.
The latest of such incidents was the cancellation of the Sukari gold mine operation contract between the Egyptian government and the international mining company Centamin.
"The government still prefers to tackle this issue on a case-by-case basis, using a committee it established which is headed by the prime minister," Abu Basha explains, arguing that such an approach will not prevent new problems from surfacing and will not resolve the uncertainty that accompanies them.
Another issue the government plan did not address is the issue of energy shortages. Egypt has been suffering from recurrent power cuts which peaked last summer due to a power shortage which is still ongoing, despite reductions in energy consumption.
"Increased demand for energy and production shortfalls have recently turned the country into a net energy importer, with acute pressures on the external and fiscal balances," Abu Basha added. "Egypt is in a situation that risks dampening economic activity next year, especially in the summer."
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