(AFP PHOTO / HO / EGYPTIAN PRESIDENCY )
By Mohamed Ayyad
President Abdel Fattah Al-Sisi is currently studying next year’s budget presented to him by Prime Minister Ibrahim Mehleb’s government prior to the latter’s resignation from the former Interim Government. The plan corresponded to his economic orientations, according to the Minister of Finance’s Adviser for Public Outreach Mosbah Qotb, who could not confirm amendments to the budget.
“It is very natural for the president to reexamine the budget to conform with the ideas on which his economic programme is based,” Qotb added, especially as sweeping reforms recently occurred.
Changes included a reduction in energy subsidies, comprehensive tax system reform through a capital gains tax, and a tax on stock market dividends. A new tax on individuals and companies with annual incomes exceeding EGP 1m has also been introduced.
He declined to comment on whether Al-Sisi would eliminate energy subsidy cuts for fear of angering the poor at projected price increases. He did, however, say the government will utilise a portion of the subsidy savings for education system reforms and to strengthen social safety nets for health insurance and pensions. Cash support will also be provided to the poorest families, all measures to relieve some anger in the street if prices surge due to increases in diesel and petrol rates.
The ministry reduced subsidies for petroleum products in the new budget from EGP 134.29bn to EGP 104bn.
“Al-Sisi’s re-examining the energy subsidy cuts is politically impossible for fear of the anger of the poor, but the government must be serious about economic reform, restructuring subsidies, and enhancing educational and health services provided to citizens,” said Walid Al-Hilal, Chairman of the Chemicals Export Council.
He added: “Factories would be able to absorb a gas price increase under the condition that the government continues to supply the necessary amounts at the specified times, as a lack of industrial fuel supplies delivered in a timely manner reduces supply and raises the final production prices.”
Hilal fears the consequences of diesel price increases on basic goods, but he expects that the markets will accommodate a gradual increase. This will happen if the government intervenes to resolve logistical problems relating to transport and storage, which leads to 30% losses and a price increase.
“The government should use the savings from subsidies to reform the education system and strengthen social safety nets of health insurance, pensions, and providing cash support to the poorest families,” said Hilal, “This will decrease popular anger if prices jump due to increases in diesel fuel and gasoline prices.”
The new budget revealed that half of petroleum subsidies provisions will be allocated to subsidise electricity in the new budget, an amount worth EGP 33.492bn. This represents an increase of 85.6% from subsidies in the current fiscal year, after repeated electricity cuts because of a deficit of fuel for power plants.
Hilal said that power subsidy cuts, expansion of smart cards for fuel distribution, consumption rationing, and developing solar energy messages are all vital to economic reform. The economy currently suffers from a weak currency, increasing unemployment, and a worsening budget deficit.
In a move aimed at reducing the impact of energy subsidy cuts on the poor, the government raised social welfare programme allocations by 200% in the new budget.
“A reduction of energy subsidies will not lead to prosperity and represents a risk in light of worsening growth slowdown, weak currency, feeble business transactions, and the economy’s inability to produce jobs to decrease unemployment rates,” said Wael Ziada, President of the Research Department of the Hermes Financial Group.
He continued: “The government needs aid and grants at least half the size of the budget deficit to maintain solvency, so it must not shy away from taxes on the stock market or wealth through a comprehensive reform of the tax system.”
Regarding the budget, he said that the financial deficit will amount to EGP 287.6bn, 12% of GDP. Future revenues are estimated to be EGP 516.8bn, while government spending is valued at EGP 807.2bn.
Egypt received aid worth EGP 66bn throughout the current fiscal year, but the current version of next year’s budget only included EGP 18.4bn. A number of austerity measures are necessary on the back of this shortfall to control runaway deficits.
