Budgeting for increasing exports

Nahla Abul-Ezz , Tuesday 25 Apr 2023

Deputy Chair of parliament’s Budget Committee Mustafa Salem explains the main features of Egypt’s 2023-24 budget to Nahla Abul-Ezz

Budgeting for increasing exports


No voice speaks more clearly about the state of a nation than the voice of the economy, as it affects every aspect of life. And nothing gives a better picture of the economy than the national budget, whose many facts and figures offer important insights into the government’s spending and investment plans for the future.

Egypt’s new 2023-24 budget has been described by many as one of the hardest ever made, not surprising given problems in the global economy and the troubles and hardships that have characterised the country’s economic life over the past year. In this context, Mustafa Salem, deputy chair of parliament’s Budget Committee, spoke to Al-Ahram Weekly about the main features of the new budget.

The unpredictability and uncertainty that characterise the global economic climate at present have made it difficult to draw up financial and fiscal policies, Salem said, applying not only to Egypt, but also to other countries, whether developed or developing and regardless of structural factors and varying degrees of resilience to shocks.

It was impossible to predict the value of the top-up appropriations needed for the current 2022-23 budget, which ends in June, for the purposes of social relief, he said. Parliament has approved a LE165 billion supplementary allocation divided into LE10 billion for salary hikes, LE85 billion for interest payments, and LE70 billion for social support and protection.

Egypt’s new budget, which will go into effect on 1 July, details expenses amounting to around LE3 trillion, up 44.4 per cent from the previous year, while total projected revenues come in at LE2.1 trillion. This means there is a deficit of around LE900 million.

In order to cover the latter, “we have to think about increasing tax revenues, which the estimates suggest will come to around 31 per cent of total revenues,” Salem said. “We should expand the taxpayer base and register new taxpayers. We also need to take more serious steps to sell state assets and expand the role of the private sector. The state should act as a regulator, putting in place the necessary laws and legislation needed to spur investments.”

The new budget seeks to boost employment and support people in other ways through unprecedented public-spending allocations, Salem said. LE586.7 billion has been earmarked for job creation and improving public services, up from LE376 billion last year which is a praiseworthy step in the light of the decline in foreign direct investment (FDI), he said.

In addition, the government has suspended the gradual lifting of subsidies on petroleum products and has increased allocations for subsidies, grants and social benefits to LE529.7 billion. This includes LE127.7 billion to subsidise food commodities, up 41.9 per cent from last year, and LE119.4 billion to subsidise petroleum products.

The purpose is to support citizens in the face of fluctuations in international oil and gas prices, Salem said. The budget has set the price of oil at $86 per barrel on the basis of an anticipated rise in prices. Should oil prices drop, this will ease budgetary pressures.

For calculation purposes, the budget has set the exchange rate to the dollar at LE30.64, the rate listed by the Central Bank of Egypt (CBE) at the time the budget was being prepared. A budgetary reserve is established every year in order to accommodate possible changes in the exchange rate.

Other public spending allocations include LE6 billion for health insurance and healthcare, up 58.2 per cent from the current fiscal year, LE10.2 billion for low-income and social housing, up 31.5 per cent from last year, LE31 billion for social security (up 25 per cent), and LE202 billion for contributions to pension funds (up six per cent) and more than LE8 billion for medical treatment at state expense (up 14.3 per cent).

Salem said that the higher allocations would help to ensure that there will be the necessary liquidity to meet the needs of pensioners, the insured, and other beneficiaries of social-protection programmes. The budget has earmarked LE470 billion for wages, up 17.5 per cent over the current fiscal year.

Several external factors have had adverse impacts on Egypt over the past year, Salem said. The US Federal Reserve interest rate hike to an unprecedented five per cent has sapped dollar investments from emerging economies such as Egypt. And the war in Ukraine continues to have detrimental economic impacts directly and indirectly.

According to Salem, Egypt has lost more than $20 billion in foreign investments in government securities. The Gulf countries’ support has declined and investment plans in Egypt have in some cases not materialised.

“But we shouldn’t succumb to the belief that the symptoms are the disease,” Salem said, referring to the decline in the exchange rate of the Egyptian pound to the dollar, the currently high inflation rate, and mounting foreign debt. “We can surmount all these symptoms if we have a strong balance of trade in which exports outstrip imports and the production available for export exceeds our consumption and import needs.”

Although Egypt experienced a boom in export revenues of about $53 billion last year, Salem said this was relative to previously modest figures. “Unfortunately, it was not until recently that we had the infrastructure to support a major expansion in production. We didn’t have the energy resources in electricity or gas, we didn’t have seaports equipped for real trade, and we didn’t have the appropriate transportation networks to move products,” he said.

 “We also didn’t have the industrial base to produce them as during previous decades most of our industrial base had given way to import companies that flooded the country with products from abroad to the benefit of a narrow class of businessmen. This was aided by a fixed exchange rate, but it was a disaster for domestic production.”

Salem stressed the need to mobilise the country’s resources to increase exports. “We should export everything that is exportable,” he said. “But we should focus in particular on products with a high added value and those that have the potential to find growing markets abroad.

“We must start doing what other countries in the region have done before us, which is to list our exportable real estate, the properties we can sell to foreigners, on an online platform, so as to facilitate the purchase, registration, and payment for a property in record time and with a full guarantee from the government to the purchaser.”

Salem also urged the development of automated mechanisms to increase the efficiency of tax collection and prevent evasion. It was important to target the informal economy and take measures to enforce real-estate tax compliance such as linking the databases of utility companies to national ID numbers and obliging businesses and other economic entities to declare their bank accounts to ensure these match their tax returns.

“An overview of the national budget shows that despite the current crisis Egypt is rising to the challenge with all its available capacities, while supporting the limited-income sectors, expanding the social-protection umbrella, and continuing the Decent Life initiative, that great national programme that aims to improve life in Egyptian villages.

“I am confident we can overcome the current crisis with diverse, innovative, and rapidly implemented solutions that are commensurate with Egypt’s important place in the world,” Salem concluded.

* A version of this article appears in print in the 27 April, 2023 edition of Al-Ahram Weekly

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