Budgetary jitters

Gamal Essam El-Din , Thursday 24 Mar 2022

Parliamentarians and government officials gathered in Hurghada this week to discuss the impact of the war in Ukraine on Egypt and its new budget.

Budgetary jitters
MPs with senior government officials in Hurghada

Egypt’s majority party Mostaqbal Watan organised a four-day parliamentary forum this week to discuss recently adopted government measures to mitigate the economic impact of the war in Ukraine on Egypt.

 Ashraf Rashad, Mostaqbal Watan’s deputy chairman and parliamentary spokesperson, said the forum would examine how the House of Representatives and the government could cooperate in formulating a package of measures to cushion the economic and social impact of rising inflation caused by the war.

Rashad said the outlawed Muslim Brotherhood and its media outlets were exploiting the war by claiming it could push Egypt into bankruptcy.

“Our role now must be to stand up to these malicious rumours and disseminate an optimistic message. Egypt is economically strong and the government, in cooperation with the two chambers of parliament, will do everything possible to protect poor citizens,” he said.

The forum, according to Rashad, has been timed to allow for a dialogue between MPs and government officials before the House begins discussions of the 2022-23 budget next month.

The war in Ukraine is likely to weigh heavy on state finances, said MP Mustafa Salem, as the budget comes under pressure from surging commodity prices and the decline in tourists from Ukraine and Russia impacts economic growth and foreign exchange receipts.

More than 80 per cent of Egypt’s wheat imports come from Ukraine and Russia, and nationals from the two countries have recently accounted for 85 per cent of tourist arrivals in the major resorts of Sharm El-Sheikh and Hurghada.

“We need to make sure that the 2022-23 budget is flexible enough to contain any economic damage,” said Salem.

Deputy Finance Minister Ahmed Koshok said earlier this week that the draft 2022-23 budget, scheduled to be submitted to parliament before the end of March, is being compiled against a backdrop of complex international conditions that threaten a disruption of food supplies and rising inflation.

War-related global price hikes will strain on the state budget. Koshok estimates that an additional LE16-17 billion will be needed to cover the cost of wheat imports and the financial incentives the government is offering local farmers to increase domestic wheat supplies.

The price the government pays local farmers per ardeb (150 kg) of wheat will increase from LE820 to LE885, a move that is hoped to increase domestic wheat production from four million tons in 2021 to more than 10 million tons within five years, said Minister of Supply and Internal Trade Ali Moselhi.

Farmers who deliver a minimum of 12 ardebs of wheat per feddan will have access to subsidised fertilisers and credit lines, while those who hoard crops or sell wheat to middlemen will lose access to fertiliser subsidies, cheap loans, and other production inputs.

Local production of wheat currently covers 50 per cent of Egypt’s annual needs, with the remaining 50 per cent, or 10 million tons, imported.

Minister of Agriculture Mohamed Al-Qusseir says local wheat needs are covered until the end of this year, by which time global wheat prices will have hopefully normalised.

Global prices of basic commodities, including oil products, have increased between 20 to 25 per cent on the back of the war in Ukraine. “The draft 2022-23 budget,” says Koshok, “reflects these new financial challenges while simultaneously focusing on maintaining comprehensive development plans and implementing a package of social protection programmes.”

According to Koshok, while the draft will be amended in light of international developments, the government “needs cooperation from MPs in order to reach common ground on allocations to sensitive items like bread subsidies and social protection initiatives, including Takaful and Karama”.

Commenting on rumours that the government has decided to scrap the Takaful and Karama cash subsidy programmes in a bid to reduce the budget deficit, Minister of Social Solidarity Nevine Gamea said the opposite was true.

“We aim to include more people in the Takaful and Karama programmes, which will receive an allocation of LE20 billion in the new budget and cover as many as 3.8 million families,” she said.  

Despite economic jitters caused by the war in Ukraine, Koshok says the preliminary draft of the 2022-23 budget targets a reduction in the overall deficit to 6.3 per cent of GDP, a fall in public debt to 80.5 per cent of GDP, and a 17 per cent increase in sovereign revenues to reach LE1.447 trillion.

“At the same time, the initial draft aims to increase government spending by 16 per cent to reach LE2.07 trillion, directing LE365 billion of the total to investments, LE400 billion to wages, and LE323 billion to state subsidy programmes,” said Koshok.

*A version of this article appears in print in the 24 March, 2022 edition of Al-Ahram Weekly.

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