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People, the government and businessmen: Who drafts the budget and who stands to benefit?
A discussion with Salma Hussein on how a more transparent and participatory budget can promote economic justice
 
 
 
Saad Zaghloul market outside a Finance Ministry building - Courtesy: Hazem Abdel Hamid - Photograph:
 

In the Saad Zaghloul market, a buzzing downtown thoroughfare that mainly caters to government employees, a young man in his 20s stands by his cart peeling prickly pears for sale. Mohamed complains of everyday hardships, which have worsened as living costs continue to rise.

Mohamed, who financially supports his mother and his married sisters, is worried he won’t be able to afford to get married himself. But when asked his opinion regarding public spending and whether he believes the government could redistribute spending in a way that would ease his burdens, Mohamed responds with bafflement.

“If only life could become less expensive! This is what is making people exhausted,” he says. He doesn’t make an explicit connection, however, between rising prices and decisions made by the government.

The Finance Ministry re-launched what it calls the “citizen budget” in October 2014, a few months after the first fuel price hikes led the way into an austerity program that has taken its toll on people’s livelihoods. First released in 2010, the “citizen budget” is a visually appealing set of infographics summarizing the main figures in the state budget. With the announcement of the relaunch, former Finance Minister Hany Kadry Dimian stated that the publication would be distributed in schools, universities and social clubs to guarantee that it reaches the public and improves transparency.

Nonetheless, in the area surrounding the Ministry of Finance’s historic downtown building, both sellers and buyers currently doing business in the Saad Zaghloul market remain oblivious to the publication of the state budget altogether.

Right under the sign that marks the Ministry of Finance’s offices, Hoda*, an administrator in the Education Ministry, tells Mada Masr that she heard that the education sector receives the highest proportion of government spending, but expresses bewilderment as to why this is not reflected in practice. Hoda does not read the budget herself — she says she gets her information from statements made by President Abdel Fattah al-Sisi. But unlike Mohamed, she has an opinion regarding the government’s spending choices: “The state focuses on mega-projects without thinking of the population,” she says.

“In every country in the world, [during the preparation of] the state budget, there are discussions around what the government will take from people’s pockets during a certain year. The same applies to what the government will spend. As such, this issue is always very important and very heated,” says Salma Hussein, a senior economic researcher at the Egyptian Initiative for Personal Rights, in a June interview.

Hussein is an adamant advocate for greater transparency and participation in the preparation of the state budget. She published a report on this matter in 2016. The report — based on a discussion group with international institutions, the government, non-government representatives and other bodies and individuals — concluded that the budget needs to be more transparent and that local councils need to be developed to allow for better public participation.

“For us [in Egypt], ‘budget preparation’ refers to the government’s submission of certain figures to Parliament and to [its obligation] to implement what it has pledged to do, without public discussions and without any real interest on the part of wider society,” says Hussein.

Investor’s budget

While the infographic format of the “citizen budget” offered the public an aesthetically pleasing summary of key figures, this information largely remained out of reach for people outside the walls of the Finance Ministry’s headquarters, located in the heart of the capital.

But the failure to reach a wider segment of society is not the only shortcoming in the budgetary process — public participation is a key missing element in Egypt.

To achieve transparency in a state budget, a government must publicly report information regarding its financial position and performance in a manner that is relevant, comprehensive, timely and reliable, Hussein tells Mada Masr, quoting the definition provided by the International Monetary Fund (IMF). Additionally, it is important that the process is open to the public to allow for a general discussion. Hussein believes that, in Egypt, these issues are “absent from the state budget.”

But the issue of transparency hinges on the parties that are represented in the preparation process, which ultimately impacts the government’s priorities and the biases that become inherent in the state budget, according to Hussein.

“Think of the budget as a coin pouch sitting on a table. And imagine there are five individuals sitting around the table, discussing how they’ll distribute the money from this coin pouch among themselves. The people sitting around the table make up society: the government, the public sector, the private sector and, of course, citizens. The more voices there are around the table, the more the budget, or that little pouch of money on the table, is distributed in a rational and fair manner,” Hussein says.

However, in practice, what happens in Egypt is that “the government and the private sector are usually the two parties most present in discussions regarding the distribution of the state budget. As a result, these two parties — which have very specific interests — are the only ones sitting around the table, leaving public interests completely absent from the list of priorities.”

In this light, Hussein explains that the process of distributing resources through the budget is not a technical one, but is “in fact, a political issue marked by a very tense power struggle, because [the process] involves billions going into the pockets of certain individuals every year, who don’t want to lose out on this money.” A clear example of this dynamic, according to Hussein, is the absence of information on how the energy subsidy bill is distributed among the different beneficiaries.

For Hussein, if energy subsidies are being directed to factories and large companies in the form of subsidized electricity, diesel or natural gas, at a cost of around LE100 billion a year, and if these factories draft their budgets and profit projections accordingly, then the question becomes, who will convince them to give up these subsidies? Given that Egypt’s education sector requires approximately the same sum to meet its basic needs, as per the Constitution, then who will convince the companies in question to withstand the shock in order for the money to be reallocated to the education sector?

“This is not an easy decision, and is one which requires a lot of negotiations and pressure,” she says.

This power struggle is just as evident on the revenue side of the equation, namely in the form of discussions over who will bear the brunt of financing the budget.

“Who are we going to tax? This is a very important question,” Hussein says.

Over the past decade at least, the government has chosen to borrow from the rich, instead of imposing taxes on them. With the rich benefiting tremendously from generous tax exemptions, which were originally meant as an incentive for increased investment on their part, the government has chosen to take out more loans in order to cover the budget’s financing needs. This debt is then financed by taxing the wider population, according to Hussein.

Consequently, Hussein states that this situation is akin to “[the government] redistributing [income] from the poor to the rich, through the budget.”

“This situation needs to be reversed,” Hussein argues. “The rich need to pay their fair share of taxes, eliminating all of these immense exemptions and reducing the size of debt.”

“The fear of transparency almost always comes from people with interests to protect,” she explains. If there are only a few parties represented in the decision-making process, it becomes very difficult to push these parties to share resources with other stakeholders. This explains why there is such resistance to increasing transparency and including more parties in the preparation process, she adds.

Prioritizing austerity not growth

Necessary for the implementation of a more transparent and open budget is ultimately the move toward a more inclusive and representative process that counteracts the existing power dynamics.

If the budgetary process is rendered more transparent, however, the private sector and the wealthier classes risk losing existing benefits, including energy subsidies, low-risk loans to the government with high returns — in the form of debt securities, such as treasury bills and bonds — and the tax exemptions that they currently enjoy. A lack of transparency also means that the government is able to sidestep publicly announcing program objectives that differ widely from what is implemented on the ground.

“The budget is government’s way of expressing its intentions and plans for the coming year. Hence, [the budget] reveals the government’s priorities — it can say that it wants to prioritize accelerating growth and reducing unemployment, but when we look at the figures, we find that [the government] is actually following an austerity policy to cut the deficit,” says Hussein. “Reducing the deficit in economics is a policy that counteracts growth, meaning that it lowers growth rather than raises it. In this way, the figures become the real translation of the government’s plans.”

More transparent?

Egypt’s position in the open budget index for transparency improved in 2017. However, it remains lower than its levels prior to the 2011 revolution, which led to a plunge in the index.

The open budget survey is issued for several countries around the world every two years and shows that, even as Egypt’s index has improved, the availability of information on the budget remains “limited” and opportunities for the public to engage with the budgetary process are “few.”

The improvement in 2017 came as a result of the discussion of the budget by Parliament for the first time since 2011. The absence of the legislative body in the process was one of the main reasons for the plunge in Egypt’s position afterward, says Hussein.

However, Hussein warns that, despite this slight improvement in the index, “the level of transparency remains in a dangerous zone,” and that there is still a need to improve “the quality, openness and reach of discussions, all of which are political issues, rather than technical ones.”

“We won’t be able to improve the level of transparency until we engage with these issues, which are all about real participation,” she says.  

Even improvements in the level of transparency up until 2010 were the result of a wave of expansion in the information disclosed as part of budget-related documents, which began in 2005 as a Finance Ministry-led initiative. This came within the wider context of government measures that sought to liberalize the economy and give the private sector a larger role within it, as well as to collect more taxes, says Hussein.

Leaving the decision to improve budget transparency up to the discretion of the government, in this sense, means accepting that these improvements will be limited to ones that serve government purposes, such as tax-collecting — as opposed to better public participation in a budgetary process that keeps the needs of the broader population in mind. In this sense, returning to what appear to be better indicators for budget transparency — those that took place prior to 2011 —is a short-sighted goal.

But a similar economic environment after the 2016 agreement between the IMF and Egypt was not enough for the government to enter into a second wave of improvements regarding budget transparency, despite mandates in the IMF agreement on the issue.

“The role of the International Monetary Fund is very poor in this regard,” says Hussein, in reference to the IMF’s undeployed ability, in accordance to the agreement, to impose more budget transparency.

A popularly drafted budget

According to Hussein, all improvements in transparency and access to information have been led by government bodies so far, because effective collective demand for more access to budgetary information is largely absent.

“Budget transparency remains something that happens when the government decides it wants to bestow the public more information for its own purposes, and is not the result of popular pressure on the government to do so,” she says.

This issue points to the significance of bottom-up participation when it comes to determining the needs of the budget, which can happen through local councils, according to the World Bank’s “best practice” guidlines.

But local councils in Egypt were dissolved after 2011, and their return hinges upon passing of a bill regulating municipal elections.

“[In Egypt], our whole lives are managed from the top down. This means that [the budget] is often not representative of people’s aspirations, which can sometimes lead to misspending.”

But so far, there has not been much popular demand for a larger public role in the budget despite the importance of this type of participation in order to protect public interests. Hussein sees this as a consequence of the absence of the role of “civil society, in its wider meaning, which encompasses political parties, movements, citizen groups, households, etc.”

Hussein believes that the lack of participation on the part of civil society institutions stems from the absence of channels through which people can express their demands. “For example, the existence of elected local councils would result in more interest in the state budget.”

“The idea is that the more people are included in the budget process, the more impact this will have on the budget’s biases and priorities,” she says. “Hence, this could reduce the damage inflicted on lower-income segments of the population, without having a negative impact on growth.”

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