Egypt's budget: beginning cautiously to exit the Mubarak box

Ahmed El-Sayed Al-Naggar , Tuesday 29 Jul 2014

Cutting the deficit in the general budget was an essential start that needs to be followed by serious steps for sharper reductions once Egypt's economy stabilises and growth improves

The general budget is a key document in defining a state's socio-economic policies. It reflects its social biases or balance between the interests of the poor, middle class and wage workers on the one hand, and the interests of the wealthy, and local and foreign large-scale capitalists on the other. It reflects the balance between consumption and enjoying the present through investing in the future and achieving economic leaps through major improvements in future standards of living. It also reflects the government's choice to mobilise society and state to trigger an economic boom based on self-reliance or borrowing or burdening future generations with heavy debts.

The state's general budget, which for the majority of the public remained a mystery relegated to economists, is now at the centre of genuine public interest. Thus, reviewing, analysing, simplifying and criticising it in simple terms and methods has now become the duty of economists. The goal and proof always being to fulfil the interests of the people and state of Egypt in terms of progress, development and justice.

Budget deficit and the presidential veto

The president rarely returns the budget in objection to the size of the deficit, forcing the government to review the budget once again. The final copy approved by the president, who currently holds legislative powers, shows public revenues of LE548.6 billion and public spending at LE789.4 billion. The deficit comes to LE240.8 billion, which is ten per cent of GDP forecast for 2014/2015 at LE2,403 billion. Preliminary estimates put the budget deficit at LE288 billion before the president returned the budget to the cabinet to reduce the deficit to the approved level. The budget deficit in 2013/2014 was LE243.2 billion which is 12 per cent of GDP forecast for that year at LE2,033 billion.

In the final and approved copy of the budget for 2014/2015, spending was cut to 32.8 percent of GDP compared to 36.2 percent for 2013/14. Nonetheless, it is pertinent to point out this does not mean this budget is better than its predecessor, since it is primarily an indicator of the state's socio-economic role. In France, public spending is at 48.1 percent of GDP; 46.4 percent in Britain; 44.1 percent in Belgium; 32 percent in Germany in addition to the spending of federal states; 26.8 percent in the US in addition to the spending of states. Public spending amounted to 27.2 percent of GDP in Middle East and North African countries, of which Egypt is a part.

Despite the reduction of the budget deficit for 2014/2015 compared to the previous year and the preliminary deficit suggested by the Ministry of Finance before it was revised as per the president's orders, it still remains very high. It threatens the sustainability of the budget and there must be a clear plan to develop revenues and control spending to gradually reach a deficit no higher than three per cent before trying to balance the budget in the long term.

Budget revenues for 2013/2014 included foreign grants amounting to LE117 billion while the 2014/2015 budget only includes LE23.5 billion in grants. If we remove these grants and special emergency resources, state revenues for 2014/2015 would rise by 35 per cent compared to 2013/2014. This means the budget for 2014/2015 is in fact much better than its predecessor in terms of self-reliance for funding public spending. This is a promising shift that needs greater support. More importantly, is the need for stern steps to reduce the budget deficit that is behind a high domestic debt (at LE1.9 trillion), and a foreign debt that soared from $34.4 trillion in mid-2012 - at the start of the deposed president's rule - to more than $50 billion currently. Thus, cutting the deficit was essential to start taking serious steps for sharper reductions once Egypt's economy stabilises and growth improves.

Economic and social rights, a constant controversy

The budget varies on social and economic rights. There was great improvement in assisting the very poor through social security pensions that rose to LE10.7 billion from LE3.2 billion in the 2013/2014 budget - as planned by the deposed president before he left power. This means it rose by 234 percent or 3.3 times from the previous year. Accordingly, the coverage of social security will expand to cover three million more families, or double the number of beneficiaries in the previous fiscal year. Despite the increase in the number of families benefiting from this, the larger budget will also raise the share of each family and individual.

Public spending on healthcare is a pressing need to guarantee healthcare for poor and lower middle groups who cannot afford the cost of health services because of their limited income. This spending mainly aims to raise the wages of those working in this sector to guarantee them a dignified life to match their work and effort. Healthcare is a right of poor and low income groups as part of their share of the country's natural resources. Nonetheless, spending on Egypt's health sector dropped sharply under Mubarak, leaving healthcare for the poor at risky lows. Mohamed Morsi's government subsequently continued to neglect healthcare spending to pave the way for this sector to shift from being the responsibility of the state towards its citizens to become a "business" in the hands of the private sector.

In the 2014/15 budget, public spending on healthcare will reach LE42.4 billion - 26.6 percent more than the previous budget which allocated LE33.5 billion for healthcare. This increase in healthcare spending is more than twice the rate of inflation, which means there is a real increase in public spending on healthcare. This increase may be spent on improving healthcare for the poor or low income groups, and will also contribute to raising the wages of health workers. Spending on healthcare in the new budget is 1.75 per cent of GDP, compared to 1.64 per cent in the previous one. While the amount allocated is larger, it still remains well below the level stipulated in the constitution for public spending on healthcare. Article 18 of the Constitution adopted this year stipulates: "The state is committed to allocating a share of government spending on healthcare that is no less than three per cent of GDP, which will gradually rise to reach global spending rates". The incumbent government has an excuse because of current dire economic conditions Egypt inherited during two tenures of the deposed and ousted presidents, and Beblawi's cabinet after them. Nonetheless, everyone must always remember the need to respect the economic and social rights stipulated in the new constitution, including the right of poor and low income groups to state-funded healthcare through spending on this sector.

In 2010, the average global rate for healthcare expenditure was 6.6 percent of GDP; nearly two percent in poor countries; three percent in middle-income states; 2.9 percent in sub-Saharan African states; and in the Middle East - mostly composed of Arab countries - at 2.4 percent. Public spending on education in the 2014/2015 budget will be LE94.4 billion with an increase of 14.3 percent compared to the previous year at LE82.6 billion. This rate is slightly more than the official inflation rate, which means there is a real increase in this expenditure albeit slight. Government spending on education amounts to 3.9 per cent of GDP forecast for 2014/2015, while last year it was 4.1 per cent.

Articles 19 and 21 of the new Constitution discuss the state's responsibilities for spending on education. Article 19 referring to pre-university education notes: "The state is committed to allocating a portion of public spending of no less than four per cent of GDP, which will gradually increase to global rates." University-level education was discussed in Article 21: "The state is committed to allocating a portion of public spending no less than two per cent of GDP, which will gradually increase to global levels." It is certain that education expenditures in the new budget are much lower than constitutionally allowed. Although extraordinarily difficult economic conditions justifies this for the government, the importance of education as the gateway to enlightenment, civilisation, advancement and improving production and living standards requires us to respect constitutional stipulations on this matter. Low spending on education under Mubarak occurred when the state was paving the way for the private sector to control the "business" of education. It adopted a poor formula to this end, instead of viewing it as a fundamental element for human development to boost scientific knowledge and capabilities in all fields, and achieve social and human advances. Also, to give graduates life skills and prepare them for the labour market so they are able to earn a living with dignity, and contribute to building the economies of their country as the foundation of its overall power and glory on all fronts.

Among economic and social rights, wages were allocated LE207.2 billion in the 2014/2015 budget with a 14.6 percent increase. In 2010/2011, wages were slotted at LE96.3 billion; rose to LE122.8 billion in 2011/2012; and once again to LE143 billion in 2012/2013; and finally to LE180.8 billion in 2013/2014. This means allocations for wages more than doubled over the past four years, or rose by 115 per cent.

The budget was approved at the same time measures were adopted to apply maximum wages for government employees without exception, which was preceded by a decision to raise overall minimum wage for workers to LE1,200 as part of reforming the wages system. A key observation here is that this gradual reform was not accompanied by reforming the employment system that should obligate workers to work sincerely and with focus during work hours. Hence, wasting time continues under a variety of excuses and pretences. One work hour should be allowed for food and prayer and workers should work for another hour in its place, and all times before and after this hour should be firmly dedicated to work alone. If wages improved greatly in recent years and minimum and maximum wages are applied for government employees, then it is necessary to define clear job descriptions as a basis to fairly assess wages for those doing the same job for the government, irrespective of the ministry they work for. Meanwhile, low basic wage rates continue to be contingent on commissions, allowances, bonuses, incentives and profits and such income, which also needs reform to raise the status of basic wage and minimise volition in deciding the income of workers. There must also be firm rules for reward and punishment on basic wages and such income. There are many issues in the 2014/2015 budget that need to be addressed, whether regarding subsidies or their reform, the structure of public revenues and other matters. But these topics need one or more articles in the future.

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