The bare necessities

Gamal Essam El-Din , Tuesday 21 May 2024

A government-drafted amendment to increase 2023-24 budget expenditure by LE320 billion was approved by the House of Representatives on Monday, reports Gamal Essam El-Din

The bare necessities


MPs have agreed a supplementary allocation of LE320 billion to the 2023-24 budget. Finance Minister Mohamed Maait told the House LE32 billion will go on increasing wages, LE244 billion to paying higher interest rates, and LE44 billion will be spent on subsidies, grants, and social support programmes.

“Because of the inflationary wave which hit the world we have had to change the current budget and increase allocations,” said Maait. “The inflationary wave, triggered by a rise in international oil prices and armed conflicts which have negatively impacted Suez Canal revenues, have really squeezed the budget.”

Inflation caused by global and regional crises, Maait continued, had pushed up Egypt’s import bill by an extra $4 billion a month. And liberalising the exchange rate in March, he added, “meant we have to spend even more on petroleum products and subsidised fuel.”

At the beginning of FY 2023-24, allocations to cover wage increase were estimated at LE6 billion, “but later we had to raise the amount to LE38 billion to help state employees keep pace with rising living costs.”

According to Maait, the government initially opted to double the “social bonus” for state employees to LE 600 in line with presidential directives. Later, it decided to increase the minimum wage to LE 6,000, up from LE 4,000, increase Takaful and Karama allocations by 15 per cent, provide additional incentive payments of LE1,000-1,200 to doctors, teachers and university professors, and increase tax exemption thresholds. At the same time, the government’s decision to buy local wheat at LE2,000 per ardeb to encourage growers to increase production further stretched the budget.

Spiralling inflation also forced the Central Bank of Egypt to raise interest rates three times within 12 months, increasing the cost of borrowing from 18 to more than 30 per cent. Over the same period allocations for subsidies, initially estimated at LE234 billion, rose to LE320 billion for the state to fulfil its social obligations.

The government will not, however, need to increase borrowing to fund the additional LE320 billion allocation. The money will come from the proceeds of the $35 billion Ras Al-Hekma investment deal.

Fakhri Al-Fiqi, head of the House’s Budget Committee, said the additional allocation was needed to soften the impact of economic shocks on society’s vulnerable classes.

“Unprecedented global economic crises caused hikes in the international price of oil and food and in financing costs, exerting tremendous pressure on the state treasury,” said Al-Fiqi.

Al-Fiqi told reporters that MPs were encouraged to agree to the additional allocation when they knew it would not involve any more government debt. The Ras Al-Hekma deal, signed by Egypt in February, brought LE179 billion into the treasury, equivalent to 1.3 per cent of Egypt’s GDP, and MPs were happy to see the Finance Ministry use part of the proceeds to fund the budget shortfall.

* A version of this article appears in print in the 23 May, 2024 edition of Al-Ahram Weekly

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