By Sara Aggour and Doaa Farid
The interim government has raised concerns over its ability to bring about economic reforms, through its adoption of costly populist projects while simultaneously attempting to bridge a widening budget deficit, experts say.
A series of populist policymaking decisions, seen most recently in an increase in pensions for government workers, has come at the expense of concrete steps to stimulate an ailing economy, analysts say.
While the government recently announced a EGP 29.6bn stimulus plan, it failed to detail its sources of financing, prompting many analysts to question its viability.
Economic analyst Sherif El-Kheriby said this failure to detail financing decisions is misleading. “No government declares an increase in its spending without mentioning how they will cover this increase,” he said.
El-Kheriby, who is also the CEO of Comesa Company for Trade and Marketing, said that the government may increase taxes or public transportation fares to cover these expenses. Whatever the case, he stressed, the government “should prioritise its decisions and not take it upon itself to shape the country’s economic system.”
Labeling the government an “economic failure,” El-Kheriby explained that it failed in addressing problems in a rational way and instead has been focusing on “relieving pain.”
The interim government, which is aiming to ameliorate the 13.8% of GDP budget deficit to 9.1% by the end of the current fiscal year, has not disclosed any information on how it intends to finance EGP 16bn-worth of investment projects that it pledges to undertake to boost the economy, while trying to keep the increasing expenditures and debts under control.
“Egypt has many economic experts who can conduct studies, why isn’t the government depending on them?” El Kheriby asked, referring to plans detailing the project’s expenses.
Last Tuesday, the Ministry of Finance announced the increase of the tax limit for personal tax exemption from EGP 4,000 to EGP 7,000 annually, bringing the total number of public sector families who will benefit from this decision to 6.2 million, state-run news agency MENA reported on Tuesday.
“We need to distinguish between national projects and the social support project,” said finance professor Alaa Mostafa.
Mostafa added that implementing these projects could burden the already ailing Egyptian economy. “The social support projects such as the pensions and tax exception are mainly driven by political reasons and are undertaken in an attempt to absorb the people’s anger,” he said.
Prime Minister Hazem El-Beblawi announced in September that the cabinet’s decision to set minimum income at EGP 1,200 would be implemented starting January 2014. A financial report released by the finance ministry earlier in September showed that public expenditure included EGP 141bn for wages and compensations, representing a 14.8% increase from the preceding year.
In an attempt to alleviate the financial burden on citizens, the interim government issued a decision to exempt public school students from paying the tuition fees this year. The Minister of Education said earlier in September that this decision would cost the government EGP 700m.
Reda Mosaad, the head of General Education Sector at the Ministry of Education had previously said that this decision constitutes a burden on the government “especially in the current depleted economy”, but that social justice is the government’s current priority.
In terms of financing sources, Mostafa speculated on two main potentials. The first, which he deemed unlikely, would be additional taxes. The second and more likely option, he said, would be to offer treasury bills.
As for the timeframe of the project’s implementation, Mostafa said the projects are “not dependent on the government. So whether or not the current government stays till the announced initiation phase of the project, it will proceed with the vision with which it was first set.”