By Mohammed Ayyad
President Abdel Fattah Al-Sisi charged the government with making additional reductions to energy subsidies in the new budget for 2014-2015, and demanded price changes to petroleum products, said Ashraf Al-Arabi, Minister of Planning. He said that, “these measures, and that they are being applied quickly, are hard on citizens. It is the first time I’m seeing a president not seeking false popularity.”
Al-Sisi demanded that we review, Al-Arabi continued, items relating to “wages, subsidies, and government investments.” The main reason he rejected the budget was for it to be reconsidered. It is expected that the government will provide nearly 5 million smartcards over the next three months.
“I expect President Sisi to accept the additional reforms on the new budget and for it to be approved before the start of the new fiscal year,” said Al-Arabi. Only two days remain until the start of the new fiscal year.
“Reducing the government and improving the lives of the poor through support, even if it’s cash support, is a lie, and is not enough,” said Dr. Hania Sholkamy, professor of social economics at the American University in Cairo, adding there needs to be a system of social protection sufficient for the poor, unlike the present one, and one that includes improvements to pensions, cash transfers, and real reform to the education and health systems.
Sholkamy described the current system of subsidies as “corrupt,” and needing to be gradually dismantled by raising prices for high consumption electricity, petroleum, and gasoline users– both for individuals and for factories. But without building a parallel system for health insurance, education, and producing work opportunities, “the pain of the poor will be increased,” said Sholkamy, and the government must get rid of the policies and legislation producing poverty, ignorance, and disease.
Al-Arabi estimated the deficit in the new budget after reforms to be EGP 240bn, as compared to the expected budget deficit ranging from EGP 244bn to EGP 250bn in the current budget. The reduction is expected to come as a result of additional decreases in energy subsidies, which Al-Arabi declined to specify the final value of.
The government had reduced the deficit in the budget currently under review by more than EGP 30bn, to EGP 104bn, but the total reduction to energy subsidies could now be as much as EGP 60bn. The Minister of Planning refused to comment on the extent of the total reduction, saying only “there is an additional cut.”
President Sisi refused to approve the new budget last week, objecting to the EGP 292bn deficit in the budget, which would raise debt to over EGP 2tn.
In a joint report released in May 2013 by the World Food Programme (WFP), the International Food Policy Research Institute (IFPRI) and Egypt’s Central Agency for Public Mobilisation and Statistics (CAPMAS) stated that 13.7 million Egyptians suffered from food insecurity in 2011. According to the report, 15.2 per cent of the population moved below the poverty line between 2009 and 2011.
“The government will work quickly to increase the capacity of internal trade markets by adjusting prices and tightening control over private companies and providing quality goods at consumer complexes alongside the price increase for petroleum derivative products. If this does not occur, the poor will be harmed and hungrier than before,” said Mohammad Farid, Chairman of D-code Economic and Financial Consulting.
He continued: “The informational infrastructure for the poor must be continually developed in order for them to receive cash and in-kind support. They must also be included in the social protection system through the health, education, and social security sectors.”
Al-Arabi added, “The President demanded that the maximum wage rate, EGP 42,000, be implemented without exceptions in order to provide money to fund economic reform and bring the economy away from debilitating deficits and debt, slow growth, weak currency, and an exodus of foreign investors and tourists.”
In response to fears that the wage limit will lead potential government workers to seek employment in the private sector, Al-Arabi said, “I do not think that there is an Egyptian out there who does not want to sacrifice for his country.”
But a government banking leader who requested to remain anonymous said, “There are thousands that left their jobs in the private sector to join public banks at the same salaries who will be surprised after their success in bringing these banks out of financial ruin and turning them into profitable organisations that their salaries will be reduced.”
“These people pay for schooling, university, marriage, premiums, and living expenses, and cutting their salaries will be a disaster for them,” said the banking leader. He added that the move will reduce the public sector’s competitiveness, and wondered: “If the opportunity arose to work in the private sector and they pursue it, would they not be patriots?”
Al-Arabi expects government investments worth EGP 67bn to be included in the new budget as opposed to EGP 34bn only for the 2013/2014 fiscal year, saying, “We suffer from quite a bit of waste and corruption when implementing government investments and we will work to correct these errors.”
Al-Arabi mentioned that at the Arab donors conference, convened by the King of Saudi Arabia, the government will present an investment map for different sectors to investors and will also announce several pieces of legislation aimed at reforming business practices.