Finance Minister Mohamed Maait and Planning and Economic Development Minister Hala Al-Said presented the draft FY 2022-23 budget and socio-economic development plan to the House of Representatives in a plenary session on Monday.
In a one-hour statement, Maait described the draft as a revised “crisis” budget. He explained that the new budget was prepared amid difficult global conditions.
“Just as we were recovering from the negative economic impact of the Covid-19 pandemic, we were hit by the global inflationary pressures caused by the Russia-Ukraine crisis as fuel and wheat prices skyrocketed,” Maait said.
Prime Minister Mustafa Madbouli revealed at the end of March that a revised crisis budget was being prepared to prioritise social protection programmes targeting the poor and those on limited-incomes.
Maait vowed that “the government will do its best to weather the crisis and continue to implement economic reforms in order to build a modern and resilient economy capable of standing up to any further shocks.”
The dramatic spike in world food and energy prices, he added, had compelled the government to spend more on subsidies and social protection programmes to cushion their negative effect on the most vulnerable members of society.
Preliminary figures show that allocations to subsidy and social protection programmes will be increased by 11 per cent, reaching LE356 billion in the new 2022-23 budget.
According to the draft 2022-23 budget report, “fuel subsidies will be increased from LE18.4 billion to LE28.9 billion, while food subsidies, which cover bread and basic food commodities for 71 million citizens holding ration cards, will climb from LE87.2 billion to LE90 billion.”
Funding for social protection programmes, which include social insurance and the Takaful and Karama initiatives, will be increased by LE3 billion to LE22 billion and cover four million families.
Maait also said the budgetary allocations for public sector salaries will increase by LE43 billion to reach LE400 billion, revealing “the increase was ordered by President Abdel-Fattah Al-Sisi to improve the financial position of 4.5 million state employees.”
Despite severe pressure on the budget, spending on healthcare will increase by LE34.4 billion to reach LE321 billion, and on pre-university education by LE61 billion to reach LE317 billion. Higher education will also receive more government support, with the allocation due to rise by LE27.1 billion to reach LE159.2 billion, while spending on scientific research will increase by LE15.2 billion to LE79.3 billion.
While the revised budget targets a 20 per cent increase in tax revenues, spending commitments mean the budget deficit will increase to LE553 billion, up from LE475 billion in FY 2021-22.
Maait also said that the government had been forced to ask parliament to approve an additional allocation of LE6 billion in the current 2021-22 budget in order to cover the increased cost of debt servicing as a result of the Ukraine war and the Central Bank of Egypt’s decision to devalue the Egyptian pound.
While Ahmed Samir, head of the House’s Economic Affairs Committee, said on Monday that the government might resort to asking for additional allocations to the current budget due to the US Federal Reserve’s decision on 4 May to raise interest rates by half-percentage point, the largest increase in two decades, Maait said he was optimistic, insisting that the economic reforms of recent years will help the economy withstand further shocks.
He pointed out that growth is expected to reach 5.7 per cent by the end of the current fiscal year, up from 3.3 per cent last year, and that fiscal discipline had reduced the budget deficit to 5.07 per cent of GDP in the fourth quarter of 2021-22, down from 5.13 per cent during the same period in 2020.
During preliminary discussion of the revised budget by the House’s Economic Affairs Committee on Monday afternoon, MPs expressed concern that foreign debt had hit a new record, reaching $146 billion in April.
“The government has to decrease the budget deficit and at the same time allocate more cash to subsidies and social protection programmes,” said Samir. “I fear that Minister Maait’s statement was a little bit rosy and unrealistically optimistic.”
Samir said that while MPs know that global inflationary pressures have led to a dramatic spike in the prices of basic commodities, and are aware of the disruption in food supply chains, foreign exchange fluctuations, and other problems caused by the war in Ukraine, “what we want is to assure poor citizens that subsidies will remain, and that the government will rationalise its spending on receptions and other costly events and direct the money to the most vulnerable.”
Maait responded by stating that “the statement was optimistic because the Egyptian economy has so far shown a lot of resilience… we were able to achieve higher growth rates and bring the budget deficit under control.”
He also pointed out that the government was able to reduce public debt from 103 per cent of GDP in June 2016 to 84 per cent in the current fiscal year, and aims to cut it to less than 75 within four years.
Minister of Planning Al-Said said that while Egypt had been on target to achieve a growth rate of 6.4 per cent in 2021-22, and of nine per cent during the first half of the current fiscal year, the Russia-Ukraine crisis had led the growth rate to be downgraded to six per cent at the end of the current fiscal year, and to 5.7 per cent in FY 2022-23.
“We do, however, expect it to begin climbing again to reach 6.2 per cent and 6.5 per cent in the following two years,” she said.
“At the same time, we expect that investments will exceed LE1 trillion for a second year, reaching LE1.45 trillion in the new fiscal year, a growth rate of 17 per cent, with LE1.1 trillion going to public investments, and LE350 billion to private investments.”
In terms of public investments, she said priority will be given to completing national projects.
She added that higher economic growth rate is not the only objective of the new socio-economic development plan. It also aims to reduce the unemployment rate to 7.05 per cent, to “be achieved by implementing infrastructural reforms and modernising technical education”.
*A version of this article appears in print in the 12 May, 2022 edition of Al-Ahram Weekly.