Draft budget sent to president, calls for 12% deficit

On Sunday evening, while public attention focused on the elections for Egypt’s new president, the cabinet quietly passed to current president Adly Mansour a draft budget for the 2014/15 financial year, which begins July 1.

According to existing legislation, the budget should be presented to the legislature for approval 90 days before the beginning of the new fiscal year. In the absence of a parliament, civil society groups called for the public release of a draft budget, in order to allow public review and comment. However, the Cabinet elected to send the budget directly to the president for approval.

Full details are not yet available, but a statement on the Ministry of Finance website outlines some of the highlights of this year’s budget. 

The budget for the upcoming year calls for LE807 billion in public spending, a 10 percent increase over the previous year, according to the statement.

Public revenue was set at around LE517 billion, less than the estimated revenue for the current fiscal year. The difference is attributed to an anticipated decline in foreign aid, from US$20 billion this year to just an estimated US$2.4 billion, as per the draft budget. On the upside, the ministry estimates that a proposed 5 percent tax hike on those earning more than LE1 million per year will net the state around LE10 billion.

Overall, the draft budget anticipates a deficit of LE288 billion, or 12 percent of GDP, said the Ministry of Finance. Given revenue of LE517 billion, and expenditures of LE807 billion, the expected deficit would be LE290 billion.

This discrepancy is not explained, nor are other seemingly odd calculations.

The bulk of increases in expenditure are attributed to an increase in public sector minimum wage, social spending to cushion the impact of hard times on the poor and constitutionally mandated quotas for healthcare, education and research.

The wage bill is set to rise by 13 percent, from LE184 this year to LE209 in 2014/15, to meet higher wage requirements workers in the public sector. In line with a constitutional imperative to increase the rate of spending on healthcare, education and research from 6 percent of GDP to 10 percent of GDP by 2017, the budget allocates LE100 billion to upgrading public hospitals, building new schools and increasing salaries for teachers and doctors.

Social spending, which includes grants and social benefits will increase to LE253 billion, a 19 percent increase on the current allocation of LE212 billion. The government will take gradual steps to provide direct cash support to needy families, as well as increasing spending for food, healthcare and housing.

The draft budget calls for LE62.2 billion pounds in public investment, including LE9.5 billion for social housing, LE35 billion to support the electricity sector, LE1.5 billion for the development of poor villages and districts and LE1.9 billion pounds to help connect additional households to the natural gas grid.

Allocations for petroleum subsidies are reduced to LE104 billion, reflecting an anticipated savings of LE40 billion to be achieved through subsidy reform.

Without such reforms, the ministry estimates the deficit would exceed 14 percent.

Since Egypt does not currently have an elected parliament, the budget will become law upon Mansour’s approval. If passed, not only will the budget have come into law without significant public oversight, but it will also be approved only by the interim government, making it difficult to hold the soon-to-be elected president and parliament accountable for its provisions.

An earlier version of this article incorrectly stated that the Cabinet passed a budget drafted by interim President Adly Mansour. This was corrected on June 5, 2014.

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