Average wages retreat; government continues to employ 24 percent of workforce despite reforms
CAIRO: A new National Planning Institute (NPI) study shows the increase in public debt from 2001 to 2005 has been the main reason behind the increasing budget deficit, causing the government to have less money at its disposal for savings and investment.
The study marks the first of its kind to offer a comprehensive look at the four-year period, often used during the past year by government institutions to showcase growth in the economy. It also represents the second round of criticism by a government institution to the government in less than a week for misleading the public about its economic achievements.
Gawdat El Malt, head of the Central Agency for Public Mobilization and Statistics (Capmas) called the attention of the People’s Assembly Planning and Budget Committee last week to the skyrocketing domestic debt figure, reporting most of the money the government continues to borrow is spent rather than invested.
According to the NPI report, other negative economic indicators recorded in the four-year period include lower average wages driven by a decrease in the wages of farmers. Although they contribute more than 27 percent of the country’s gross domestic product (GDP), farmers account for less than 8 percent of total wages.
And despite the strong government drive begun in 2004 to liberalize the economy, employment figures have remained constant, with the government employing 24 percent of the country’s estimated 20 million-strong workforce, and paying nearly 30 percent of wages.
Responding to the study, Minister of Economic Development Othman Mohamed Othman said the study is accurate but only reflects on “the past. There have been many positive developments over the last few months which should reflect on NPI’s upcoming report, he adds.
According to Ministry of Finance (MOF) figures, public debt climbed from LE 246 billion in 2000, representing 72 percent of GDP, to LE 550 billion by Q3, 2006, representing 88 percent of GDP. Still, the government points out the 2006 number is a vast improvement as it only grew by 8 percent over the comparative period in 2005, compared with 17 percent growth the previous year. The LE 511 billion figure recorded in 2005 represented 95 percent of GDP and an LE 81 billion increase over the previous year.
Final 2006 figures have not yet been released, but most economists expect public debt to remain more than 90 percent of GDP. Meanwhile, the budget deficit is expected to remain more than 8 percent of GDP, despite the MOF’s announcement earlier this year of its plan to reduce it by 1 percent over the next five years.
Despite its negative outlook based on the recorded figures, the NPI report called for government action to implement policies aimed at increasing the growth rate of the industrial sector to 10 percent in order to reach and sustain high economic growth rates.
Othman said the government aims to achieve an 8 percent growth rate in 2007 to be sustained through 2012 by 10 percent growth in the industrial sector. He did not offer specific information on the government’s plans to reach those growth rates.
In early December, Minister of Trade and Industry Rachid Mohamed Rachid said the sector reached a 7.2 growth rate in Q1, 2007, surpassing the 7.1 economic growth rate reported by MOF over the same period.
Magdi Sobhy, economist at Al Ahram Center for Political and Strategic Studies agreed the government needs to find a way to boost industrial sector growth despite his criticism of the policies implemented to date.
Sobhy added finding a solution to the public debt and budget deficit problems requires the government to liberalize the local economy from the monopolies which now control it by effective implementation of the 2005 law and empowering the newly-formed Competition Commission. Doing so, he said, will force producers to become more competitive on the local market and, in turn, produce higher-quality goods able to compete on an international level.
“When you look at the cement and steel sectors for example, it is obvious very little competition exists which forces local prices up and gives little incentive to these producers to bring up the standards of their products to increase international sales, Sobhi said.
MTI’s Competition Commission began investigating both sectors in 2006 for possible monopolistic practices used by their main producers but is yet to announce results of the investigations.
NPI did not announce when it will issue its next report. According to the report, if it is unable to increase the role of the industrial sector, lower the budget deficit and public debt and increase national savings and investment rates, the government risks failing to maintain the growth rates it now reports, much less add to them as is planned.
