Egypt’s new 2024-25 state budget has received cabinet approval and will now be presented to parliament. It is the first budget to be formulated after the amendments in the Unified Budget Act.

The amendments consolidate the budgets of all 59 state economic bodies into the single state budget. This will take place gradually over five years, with the budgets of 40 economic bodies added in the fiscal year 2024-25.

As a result, the government is submitting two budgets to the House of Representatives, the lower house of Egypt’s parliament, for approval, the regular one and the new public government budget. 

According to Finance Minister Mohamed Maait, the aim is to “show the real financial capabilities of the state through consolidating all its revenues and expenditures with those of the economic bodies.”  

These bodies include the Suez Canal Authority, the General Authority for the Supply of Commodities, and the New Urban Communities Authority.

The aim is to make public finances more transparent. While the regular state budget projects revenues of LE2.1 trillion over the next fiscal year, the consolidated one also includes revenues from the 40 economic bodies amounting to LE2.9 trillion.

The total comes to around LE5 trillion.

Both budgets are monitored by the Ministry of Finance, and the latter puts a ceiling on the economic bodies’ debts while restructuring current ones by extending average maturities.

Preliminary figures from the new budget reflect recent regional political developments and the economic reforms introduced under the terms of the new loan agreement with the International Monetary Fund (IMF).

The eight per cent increase in interest rates that has been introduced since the beginning of the year as part of a policy of monetary tightening will be translated into a major jump in debt interest and payments.

According to one economic commentator who spoke to Al-Ahram Weekly, every one per cent increase in interest rates leads to an LE80 billion increase in interest payments. This means that a six per cent increase will result in upping interest payments by LE480 billion per year.

The government is trying to cushion the aftermath of the IMF-prescribed devaluation of the currency by increasing spending on social protections. The new budget includes a 30 per cent increase in allocations for the health and education sectors, according to directions given by President Abdel-Fattah Al-Sisi.

The 2023-24 budget allocated LE230 billion to education, equivalent to one-third of what should be spent on the sector to meet the constitutional requirement of six per cent of GDP being spent on it. 

About 70 per cent of government spending on education is absorbed by the salaries of teachers and the ministry’s administrative apparatus.

The current budget’s expenditure on healthcare does not exceed 1.2 per cent of GDP, compared to the three per cent requirement in the constitution. Government health spending as a percentage of total spending decreased from six per cent in 2019-20 to 4.9 per cent in 2023-24, according to a report by Alternative Policy Solutions, an AUC research centre.

The rising prices of oil and wheat made it inevitable for the government to increase fuel and food subsidies in the new budget.

Egypt is a net importer of food and oil, and the 51 per cent decline in the pound’s value due to the 6 March devaluation will inflate the imports bill and inflation figures. The new budget sets aside LE134 billion for commodity subsidies, including LE125 billion for bread.

The food subsidies provide staples like bread, rice, and sugar at reduced prices to nearly 60 million ration-card holders.

A Finance Ministry statement quoted Maait as saying that the petroleum product subsidies were needed because of the rise in global oil prices and the impact of the exchange-rate changes.

The new budget projects more than LE147 billion in subsidies on fuel products, compared to LE119 billion penciled in for the current fiscal year. 

International oil prices have increased by 12 per cent so far this year, and a Reuters poll of oil analysts expected that they will maintain this level until March, fuelled by geopolitical tensions in the Middle East, Houthi attacks on Red Sea shipping, and recent Ukrainian drone attacks on Russian refineries. 

Egypt increased fuel prices by 12 to 33 per cent two weeks ago.

The Takaful and Karama social security programmes will receive more than LE40 billion in the new budget compared to LE31 billion in the current fiscal year. It is not clear if this increase is to up the number of beneficiaries, which currently stands at around 20 million people from 4.6 million families, or to increase monthly allowances. 

Experts have praised the programmes for protecting beneficiaries from falling into the poverty trap. However, some have called to increase the monthly assistance from its current LE600 (LE7,200 annually) figure, which is almost half the national poverty line of LE10,300 per year.

The government wants to realise $6.5 billion of privatisation receipts in 2024. It said that it would direct 50 per cent of the proceeds to reducing government debt in the next fiscal year, intending to realise a six per cent budget deficit in the medium term.

In February 2023, Egypt embarked on a plan to sell 35 state-owned companies as part of IMF recommendations to increase the role of the private sector in the economy.

Companies in the pipeline for privatisation include the military-owned water bottling company Wataniya, the Gabal Al-Zeit wind farm, the United Bank, and the Port Said and Damietta Container and Cargo Handling Companies.

Some $5.6 billion was raised between April 2022 and December 2023 from selling part or the whole of 14 companies, including seven historic hotels and stakes in Egypt’s largest fertiliser producers and maritime services companies.

The new budget reflects the government’s fiscal tightening by reducing state investments to only LE1 trillion.

This aims at increasing the contribution of the private sector to economic activity and to reducing public expenditure to control the budget deficit and achieve a high primary surplus. It will maintain dollar liquidity by not starting any new projects, according to statements by members of the cabinet.

The cabinet decided two weeks ago to trim state expenditure by 15 per cent, in addition to annulling the preferential tax treatment given to state and military bodies.

On the revenues side of the new budget, it is expected that tax revenues will increase by 30 per cent to LE2 trillion. Maait said that this will be realised without imposing new taxes and through expanding the tax base by optimising the use of electronic tax systems in integrating the informal economy into the formal economy.

Tax receipts are the largest source of government revenues at some 75 per cent of the total.

The Madbouli government has downgraded its growth forecast for the fiscal year 2024-25 to four per cent, which is 0.2 per cent lower than its projections in February.

* A version of this article appears in print in the 4 April, 2024 edition of Al-Ahram Weekly