CAIRO: “Egypt’s new budget for Fiscal Year 2014-15 is conventional and very similar to its counterparts over the past 20 years,” Mohsen Adel, an economic expert and EG-Finance Association member told The Cairo Post in a phone interview Monday.
Adel, who also serves as managing director at Pioneers Holding, said the new budget did not highlight the government’s tendency to adopt austerity measures, expansionary policies or new short-term fiscal policies to handle the deficit.
“I was expecting some exceptional procedures in the new budget, such as the 5 percent tax imposed last month on those gaining more than 1 million EGP annually,” Adel said.
This comes while Minister of Finance Hani Kadry is set to sign the new financial year budget to be submitted to the Cabinet, which will then refer it to the new president for ratification.
The financial sheet is a technical detailed copy of the total revenues and expenses included in the State budget. In the budget draft, state expenses rose to 807 billion EGP ($112.9 billion) compared to 742 billion EGP in the current fiscal year.
Usually the financial sheet of the new budget is submitted to parliament for discussion, but the absence of an elected parliament forces Egypt’s newly elected President Abdel Fatah al-Sisi to endorse it quickly since the new fiscal year starts July 1.
Accordingly, Egyptians will be deprived of reviewing the budget details that will determine government spending for a full year due to the absence of a parliament to discuss and review the budget before its ratification in a public session.
On May 26, the first day of the presidential election, the Cabinet submitted the budget to former interim President Adly Mansour for formal ratification before implementation in July, a week before Mansour’s successor, Sisi, took office.
The government received widespread criticism for this move, on the grounds that an elected president or parliament should endorse the budget. This approval is particularly important for this budget as it entails a number of reform procedures to fill the growing deficit.
Adel said the new budget made no mention of important strategic projects like the Suez Canal Development Project, or any policies to stimulate the limping economy.
With the aim of restructuring energy subsidies, the interim government cut around 40 billion EGP of energy allocation in the FY 2014-15 budget, totaling 105 billion EGP.
“This is the biggest downsizing of energy subsidies in one step, but the government’s vision to apply such a decision is not clear yet,” Adel said, adding the move will have a negative impact on inflation rates.
The interim government “failed” to address the dramatic deficit in the budget which amounted to 288 billion EGP, representing 12 percent of GDP, higher than the targeted 10 percent, Adel said.
The deficit was trimmed down to 288 billion EGP from 350 billion EGP through cutting energy subsidies, in addition to mulling a number of tax laws including a 5 percent tax on people with annual incomes exceeding 1 million EGP and a 10 percent capital gains tax on stock market profits and dividends.
“This is a dramatic deficit,” Adel said, blaming the government for not proposing any short-term plans to handle the issue.
He added that allocations of wages are still high as the new budget did not cap the maximum wage, while tax revenues are not expected to add more than 10 billion EGP in the new budget.
In the budget draft, the minimum wage is maintained at 1,200 EGP a month for public employees.
Public debt services make up roughly 190 billion EGP of the total deficit and are a heavy burden on the budget.
“This requires a new strategy to restructure the public debt and diversify financial resources,” Adel added.
He also proposed auctioning long-term bonds and allowing individuals to dip into this market which is currently limited to the primary dealers of local banks.
Expanding borrowing from abroad and resuming serious talks with the International Monetary Fund (IMF) now that Sisi is in office are also among proposed solutions to restructure the public debt.
In a recent report released May 30, Fitch Ratings said “Egypt’s public finances are the main weakness for its sovereign credit profile.”
The report added that Sisi’s victory in the presidential election does not alter “Fitch expectations that the authorities will be cautious in addressing the large fiscal deficit.”