In a policy statement before parliament on Monday, Minister of Finance Mohamed Maait boasted that Egypt’s wise financial and economic policies had helped mitigate the impact of the coronavirus pandemic on Egypt’s finances and growth rates.
“I would like to inform MPs that the 2016-19 economic reform programme helped to a large extent in cushioning the economy from the impact of the coronavirus despite the adverse impact of the crisis on the tourism and civil aviation sectors,” said Maait.
According to Maait, strong political will and public support were the main factors behind the success of the International Monetary Fund-inspired economic programme.
“We are one of the few countries to have engineered higher growth rates, largely thanks to the economic reform programme,” said Maait. “Egypt achieved an economic growth rate of 5.6 per cent during fiscal year (FY) 2018-19, the highest in the Arab world.
“Since President Abdel-Fattah Al-Sisi took office in 2014 consecutive governments have shouldered the burden of moving Egypt from economic crises to safe shores.”
Maait pointed to a World Bank report issued two days earlier. “The World Bank said the country’s economic reforms in recent years had allowed it to absorb two major shocks in two years. The first was the crisis that engulfed emerging markets in 2018 and the second was the coronavirus crisis in 2020.
“The state’s preventative measures such as cutting interest rates and stimulating businesses made it more capable of containing the negative impact of the coronavirus. We were also able to cut the budget deficit from 11 per cent of GDP in 2017 to 9.2 per cent in 2018-19 and then to 8.2 per cent. We had targeted a budget deficit of just six per cent of GDP this year, but the coronavirus killed our plans. Now we have a budget deficit of 8.4 per cent.”
Maait also boasted about Egypt’s ability to cut public debt.
“Our public debt has fallen by 18 per cent in two years, from 108 per cent of GDP in 2017 to 90.2 per cent in 2019. The government had hoped to reduce public debt to 82 per cent of GDP by the end of June 2020 but owing to the coronavirus the debt came at 88 per cent of GDP.”
Maait also disclosed a budget surplus of LE105.6 billion (1.8 per cent of GDP) in FY 2019-20, the second-best figure in the region.
The surplus, Maait continued, will be used to service debts, meaning the government will not have to borrow from banks as happened in previous years.
Maait said state revenues had increased by 16 per cent in the first half of the current fiscal year while over the same period state expenditure increased by 10 per cent, largely a result of increased spending on healthcare, pensions, and social protection programmes.
One of the main objectives of the economic programme, according to Maait, was the structural reform of subsidy and social protection programmes. “The first step in this direction was to rationalise fuel subsidies. Subsidies directed to petroleum products were reduced from LE120.8 billion in 2017-18 to LE28.2 billion in 2020-21,” he said.
The money saved from reducing fuel subsidies was then allocated to social protection programmes. “LE1.8 billion was directed to social protection pensions, and allocations to the Takaful and Karama programmes have increased by 200 per cent over the last six years and covered 3.8 million families in 2019-20.”
Cash subsidies were earmarked for an increase to LE19 billion in the 2020-21 budget, up from LE6.7 billion in 2014-15.
Maait said money saved from cuts in fuel subsidies also helped increase allocations to the healthcare and education sectors.
“The education sector’s budget increased from LE208.2 billion in 2017-18 to LE363.6 billion in 2020-21, and healthcare spending has grown from LE107.3 billion in 2017-18 to LE258.4 billion in 2020-21. Total allocations to the healthcare, education, and scientific research sectors increased from LE352.6 billion in 2017-18 to LE682.4 billion in 2020-21.”
Maait said the government’s goals are now to achieve macroeconomic stability, activate sustainable development programmes, deepen structural reforms to raise the economy’s competitive edge, and implement more social protection programmes to improve the living conditions of the poor. The government is targeting a fall in public debt to 87 per cent of GDP in 2020-21, 84 per cent in 2022-23, and 79 per cent in 2023-24.
“To achieve these objectives we will focus on reducing debt servicing costs,” said Maait, “and aim to decrease external debt to below 30 per cent of GDP in the medium term.”
By exchanging debt for strategic state-owned assets, the government hopes to reduce public debt by LE100 billion annually over the next four years, and will seek to reduce the budget deficit gradually to 5.3 per cent in 2022-23, and 4.6 per cent in 2023-24.
“The Ministry of Finance will work to restore the budget’s primary surplus to pre-pandemic levels, ie two per cent of GDP, in the medium term,” said Maait.
Commenting on Maait’s medium-term strategy, Ashraf Rashad, parliamentary spokesman of the majority Mostaqbal Watan (Future of the Homeland) Party, wondered why the Finance Ministry had introduced nine amendments to the income tax law over the last three years.
Mustafa Salem, the Budget Committee’s deputy chairman, criticised the resort to and misuse of foreign loans. “These loans place a burden on the economy and should be efficiently used, but reports issued by the Central Auditing Agency suggest this is not happening,” said Salem.
Deputy speaker Mohamed Abul-Enein argued fiscal policy in the coming stage should focus on attracting foreign investments and that “in order to stimulate the economy, fiscal legislation needed to be amended and new economic policies forged.” Abul-Enein also pressed for “the post of the minister of economy to be restored in any future cabinet reshuffle”.
Meanwhile, Minister of Social Solidarity Nevine Al-Kabbaj indicated that the government aims to expand social protection programmes, insisting the “basic job of the ministry is to help the poor in terms of expanding social safety nets and cash subsidies programmes.”
Al-Kabbaj added that the expansion of social protection programmes had led to a reduction in poverty rates from 32.4 per cent in 2018 to 29.7 per cent in 2020.
*A version of this article appears in print in the 4 February , 2021 edition of Al-Ahram Weekly