CAIRO: Egypt’s government revenues rose .02 percent to LE 22.7 billion, while expenditures increased 26.1 percent to LE 47.4 billion from August to September 2009, Al-Ahram reported.
The budget deficit swelled accordingly, at LE 24.4 billion now comprising 2.1 percent of Egypt’s GDP, as opposed to LE 14.8 billion during the same period last year.
Although revenues posted 14 percent higher for July-August fiscal year 2008/09 than for the corresponding period last year, the question of why the government would revert to its old Keynesian habits, despite Egypt’s allegedly strong economic position, remains.
Hany Genena, research director at Pharos Holding, explained the upswing in spending. “The two major causes behind the increase in government expenditure were the annual increase in wages for government employees and interest on public debt. Of the total LE 300 billion in expenditures, increasing civil servants’ wages accounted for around LE 75 billion, while an increase of 60 percent in the interest paid on public debt came to about LE 70 billion. Together they make up half of total spending for the period.
On the revenue side, Genena pointed out that tax revenues at this time of the year are typically low. “The government can expect an increase in tax revenue from private entities at the beginning of 2010.
Yet he cautioned that government tax revenues also rely heavily on income from the Suez Canal and Egyptian Petroleum Company, which come in on a monthly rather than an annual basis. Revenues from both sectors remain low in the wake of the financial crisis.
Both factors in expenditures also have ties to the global economic crisis, whose lasting effects on the Egyptian economy cast a long shadow despite the optimistic outlook for many sectors, including tourism, telecom and Suez Canal revenues. Yet both are rooted in long-term structural dilemmas in government spending.
Since the passage of Law 47 in 1978, government wages have been augmented annually to account for inflation. Despite this, wages of public sector employees remain low enough to require many to seek additional work.
As prices of basic goods have risen over 2008/09, the government’s plan to pursue further privatization measures and reduce subsidies has kept the liberalization policy unpopular.
Equally difficult to overcome, public debt spending jumped in the past year as the government sought to reduce the shocks of the crisis. Although public debt underwent major restructuring in 2004 when government banks assumed LE 20 billion owed by public enterprises, the remaining debt remains a burden.
Combined, the two factors provide a substantial enough drain on government funds to belie the optimistic mood that has followed the announcement of Egypt’s strong positive growth in GDP.
Because Egypt was able to sustain a growth rate of 4.7 percent despite the global credit crunch and subsequent financial crisis, it has been possible for the business sector to look at the economic situation with rose-colored glasses. At the Euromoney conference in September, for example, the language remained aggressively bullish from ministers and panelists alike.
Yet unexpected stability in a volatile global economy does not necessarily translate into positive balance sheets. Nor, as it turns out, into satisfaction from Egyptian citizens.
MP Mohamed Kwaiteh reflected this when he spoke with Daily News Egypt about parliament’s budget decisions. Regardless of optimism about their projected recoveries, he emphasized that “revenues from the Suez Canal and tourism are down. Foreign investment has decreased and the government has had to make up the difference.
Addressing Egyptian citizens’ concerns about subsidies, particularly from his constituents in Farscor, Damietta, Kwaiteh offered reassurances that “subsidies are not the issue here, subsidies will continue.
“Government expenditure is increasing within limits, he continued, but added that “the [National Democratic Party] NDP needs to talk to the government about privatization.
