Austerity ahead

Gamal Essam El-Din , Tuesday 29 Mar 2022

The cabinet submitted a revised budget to parliament this week, reports Gamal Essam El-Din

Austerity ahead
Austerity ahead

“The restructured 2022-23 budget will prioritie social protection programmes targeting the poor and limited-income classes,” said Prime Minister Mustafa Madbouli.

In Egypt, as elsewhere, the increase in basic commodity and oil prices on the back of the war in Ukraine has forced the government to rethink its fiscal policy.

“The Finance Ministry will do everything possible to make impose spending discipline on all cabinet ministries in the new fiscal year, requiring each ministry to enact austerity measures, and until we get out of this crisis and get back to normal,” Madbouli announced following a cabinet meeting on 22 March to approve the revamped budget.

“Let me be frank,” he continued. “The economic impacts of the Russia-Ukraine crisis will be much worse than the coronavirus pandemic.”

To guarantee the availability of the basic commodities and food products the government will work to ensure factories producing basic commodities are able to work without facing any obstacles, added the prime minister.

Madbouli’s message was repeated by Cabinet SNader Saad who declared in a TV interview on 22 March that austerity was the main headline to be taken from the draft 2022-23 budget.

“The government is facing additional costs of billions of pounds due to rising commodity prices,” he explained. “It will need to find an additional LE15 billion in 2022-23 just to cover the increased cost of wheat imports.”

While the current 2021-22 budget assumed a $65 price per barrel of oil, the current price has now hit $120. Saad declined, however, to address how this will impact the new budget.

The cost of bringing forward seasonal bonuses for state employees which are usually distributed at the end of July but will now be disbursed in April will cost the budget a further LE8 billion, said Madbouli.

Civilian and military pensions will also be raised and disbursed in April instead of July.

Finance Minister Mohamed Maait told the cabinet that in the medium term the revised budget targets economic growth of 5.5 per cent (and not 5.7 as earlier expected), a budget deficit cut to 6.1 per cent of GDP, and a reduction in public debt to 80.5 per cent of GDP in 2022-23.

Maait further explained that while the budget seeks to support the most vulnerable and promote fiscal discipline it will also act to stimulate productive investment, preserve economic stability, and “support national growth driven by the private sector”.

Minister of Economic Development and Planning Hala Al-Said told Bloomberg on Monday that before the war in Ukraine the government had expected economic growth to reach 6.2 per cent in FY 2022-23 but had downgraded the assessment to 5.5 per cent in the revised 2022-23 budget. Public investment was similarly downgraded from 16.2 per cent to 15.2 per cent.

Al-Said also said the ministries of finance and planning would continue to work to contain inflation caused by the war in Ukraine and develop policies sufficiently flexible to absorb any shocks.

Yasser Omar, deputy chairman of the House of Representatives’ Budget Committee, said the committee will schedule a series of hearing sessions to review the revised budget.

“I think MPs’ primary interests will be to determine how the new budget will protect the poor, and how it will impose fiscal discipline,” said Omar.

“MPs will want to see details of increased spending on the Takaful and Karama social protection programmes, details of continued spending on bread subsidies, and just how the authorities will respond to unscrupulous traders who seek to use the situation to increase their own profits.”

MP Essam Al-Omda believes that the government could do more to reduce imports

“Fiscal discipline not only obliges ministries to reduce their spending, the government must also do more to curb the import of unnecessary items. It needs to spend more on local raw materials and less on foreign production inputs.”

The revised 2022-23 budget will be discussed by all of the House’s 25 committees, with each preparing recommendations. The Budget Committee will prepare a general report which will then be discussed and voted on in a plenary session before 1 July.

*A version of this article appears in print in the 31 March, 2022 edition of Al-Ahram Weekly.

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