Egypt: Coronavirus budget

xx Al-Ahram Weekly Editorial
Thursday 9 Jul 2020

A new fiscal year has begun with challenges that are hard to quantify. While it is cliché to say that this is the biggest budget ever, this year may really prove significant in every way, given the challenges posed by the fallout from the coronavirus pandemic. 

The state budget for the fiscal year 2020-2021 is estimated at LE2.2 trillion, with some LE1.7 trillion in expenses, an increase of around LE139 billion on last year’s budget. 

The first thing that stands out is the greater allocations to health and education and higher education. Combined they will receive almost LE683 billion, up from LE545 billion in last year’s budget. The new budget meets Egypt’s 2014 constitution stipulation that the state allocate 10 per cent of GDP to the health and education sectors, as Egypt’s Minister of Finance Mohamed Maait has said.

The additional health spending was a must in these trying times. As Maait indicated, the new Health Ministry budget was necessary to help fight the coronavirus, adding that the government has done its best to give all the necessary funding to this vital sector.

Among the outstanding increases this year is that of investment. Government investments are slated to reach around LE281 billion, with the portion funded by government coffers reaching LE177 billion compared to LE140 billion last year. This unprecedented increase is intended to ensure a rapid restart of the economy and create jobs, the government said.

There are not, however, enough resources to meet the additional spending, as much needed as it may be. Vital hard currency earners such as tourism and remittances are bound to be affected by the Covid-19 crisis. 

The budget deficit will widen to 7.8 per cent of GDP from a previously projected 6.2 per cent if the coronavirus crisis continues until the end of December, the finance minister had told parliament early in May. A primary surplus of two per cent will drop by more than half to 0.6 per cent should the crisis continue, he said. These estimates are liable to change as the situation unfolds. The ministry itself has said that the budget will be revised at the end of the first quarter when things are clearer.

In the meantime, to bridge the gap of the deficit the government has imposed emergency measures such as additional levies on fuel, mobile phones, pet food and sporting contracts. Within that framework, one per cent of the monthly net income of state employees and 0.5 per cent of the net pension of retired employees will be deducted for one year. Towards that same purpose as well came the borrowing from the International Monetary Fund (IMF). The $5.2 billion one-year standby arrangement aims to help Egypt cope with the challenges posed by the coronavirus pandemic by providing resources to meet balance of payments needs and to finance the budget deficit, the IMF said.

The agreement will help Egypt “preserve the achievements made over the past four years, support health and social spending to protect vulnerable groups, and advance a set of key structural reforms to put Egypt on a strong footing for sustained recovery with higher and more inclusive growth and job creation over the medium term,” the IMF stated.

Since the beginning of the crisis in March the Egyptian government has been proactive with measures intended to make life easier for businesses and for the protection of people. But the road to recovery from the coronavirus effect is long, not only for Egypt, but also globally. A policy brief issued by the United Nations Economic and Social Commission for Western Asia (ESCWA) showed that the Arab region’s average government fiscal stimulus as a share of GDP is nearly four per cent, which is about one third only of the global stimulus share of GDP. 

The study estimates that about $15 billion in foreign currency can be freed up if official creditors extend a debt service moratorium to highly indebted Arab middle-income and least developed countries. ESCWA also called for increased access to concessional loans for improved Sustainable Development Goals (SDG) financing.

According to ESCWA’s executive secretary, the region is in dire need for more, and for its appropriate channelling through smart spending into the survival of people and survival of businesses.


*A version of this article appears in print in the 9 July, 2020 edition of Al-Ahram Weekly under headline: Coronavirus budget

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