Egypt new financial law: Tightening budgetary controls

Nahla Abul-Ezz , Tuesday 3 Aug 2021

Egypt’s new Unified Financial Law will help to tighten up controls over state spending and fight against administrative problems

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Parliament has recently approved a new Unified Financial Law that grants state agencies shares from the general budget based on their performance during the fiscal year and through programmes submitted to the Ministry of Finance determining their fiscal needs.

The law guarantees that state bodies are held accountable for their spending at the end of each fiscal year.

It puts an end to attempts by some agencies to use any remaining money in their annual budgets for routine refurbishment work and other activities, since it allows the Ministry of Finance to withhold outstanding sums.

When drafting the new law, the ministry sought advice from experts such as Hassan Ouda, a professor of accounting at the German University in Cairo who has participated in drafting laws in other countries such as Indonesia and Malaysia.

The new law will effect radical changes in the management of public finances in Egypt, Ouda said.

“For the first time in Egypt, a budgetary framework is being prepared for a period of three years to reflect the strategic goals of the state. This is translated into detailed budgets that take into account the time to achieve these goals. These are an indication of the allocations each government unit needs over a period of three years, allowing them to accurately assess their priorities,” he said.

The new law contains an article that helps to prevent any burning of remaining allocations in the state budget at the end of the fiscal year by carrying over unused appropriations to the next fiscal year. This helps to achieve any deferred strategic goals not achieved in the year before, he added.

Ouda said that the new law allocates credits based on the strategic goals to be achieved using a top-down approach, which allows total public spending to be determined in the light of strategic goals and resources available.

Previously, a bottom-up approach had been adopted that looked at each ministry’s request for financial resources without specifying spending goals and therefore not tying appropriations to results.

The new law defines ministers’ responsibilities in managing assets and the responsibility of each ministry in achieving its strategic goals. It thus emphasises the managerial role of each minister as well as their political role.

It helps to link actual state revenues with the cost of the services that government offices offer to the public. It also makes it possible to measure the financial performance of the government and to identify the value of state assets, fixed or current, and the value of state obligations.

“For the first time, we will be able to determine Egypt’s net wealth, the rights of each generation, and whether each is carrying out their responsibilities or carrying them over. We will also be able to tell whether different governments have added to the country’s wealth or reduced it,” Ouda said.

The law introduces performance budgeting and the linking of financing to targeted results and goals, Ouda explained, adding that this would help the Central Auditing Agency to review the performance of government units instead of focusing only on monitoring expenditure.

The new law will help to address the budget deficit and keep abreast of international developments and recommendations issued by government institutions, he said.

It aims to provide the financial and accounting information necessary to take appropriate decisions and to ensure efficiency in the use of state resources. It will help to combat administrative and financial corruption by allocating state resources to determined goals, outlining the responsibility of each governmental agency towards achieving them.

Mustafa Salem, a member of the Planning and Budget Committee in the House of Representatives, the lower house of Egypt’s parliament, said that the new law helps to hold government agencies to account and contributes to determining spending priorities.

Much of the current state budget is spent on salaries, he said, and these do not always help to serve development goals.

“We need to set goals on the basis of what spending will be made. Countries all over the world adopt this approach and achieve positive results. It is expected that within a few years of the new law’s implementation, the shape and goals of government agencies will change,” Salem  concluded.

*A version of this article appears in print in the 5 August, 2021 edition of Al-Ahram Weekly

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