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Al-Ahram Weekly 22 - 28 April 1999 Issue No. 426 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 22 - 28 April 1999 Issue No. 426
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Profile Special Travel Sports People Time Out Chronicles Cartoons Letters Parliament debates domestic debt
by Gamal Essam El-Din
The Egyptian government's monetary and fiscal reform programme has proven to be a big success as is often emphasised by such international lending institutions as the World Bank. In less than six years, inflation has dropped from 21 per cent to less than four per cent, the budget deficit has fallen to one per cent of GDP while foreign exchange reserves in banks now exceed $28 billion. To some observers and parliamentarians on the left, however, this success is still marred by a ballooning of domestic debt, which has risen to alarming levels.
On Sunday, the leftist Tagammu Party member El-Badri Farghali lashed out at the government, charging it with adopting fiscal policies which have led to widespread poverty, rampant unemployment and the rise of domestic debts to perilous heights. In a parliamentary interpellation -- a question that must be answered by the government -- directed to Prime Minister Kamal El-Ganzouri, Farghali asserted that the size of the domestic debt this year has reached "the dangerous level" of LE240 billion. This amount, he added, incurs interest rate payments of LE24 billion per year. "These figures mean that the annual payments of this mounting debt not only pose a dangerous threat to the performance of the national economy and development plans, but also lead to riddling Egyptian families with huge financial burdens and costs," Farghali said.
Finance Minister Mohieddin El-Gharib, speaking on behalf of El-Ganzouri, emphasised that the statistics cited by Farghali on domestic debts are entirely unfounded. According to El-Gharib, the statistics published by the Central Bank of Egypt at the end of June 1998 show that the size of domestic and foreign debts combined is estimated at LE187.7 billion. "Out of this amount, domestic debts account for LE136.7 billion. This amount includes LE68.7 billion borrowed from the National Investment Bank to implement a number of development projects. It also includes LE45 billion worth of treasury bills and treasury bonds and LE23 billion as the value of loans borrowed by public sector companies from national banks," El-Gharib said.
Domestic debts were primarily incurred to fund projects for the rehabilitation of infrastructure, El-Gharib said. "These kinds of projects were inevitable in order to attract investment and raise national growth rates," El-Gharib said. In 1981, he added, the government faced two options for rehabilitating infrastructure. "It was suggested either to fund these projects by imposing higher taxes or by borrowing heavily from foreign institutions. At last, it was agreed that borrowing from domestic and foreign sources is far better than imposing burdensome taxes on citizens," he said.
According to El-Gharib, the government has taken several actions to keep domestic debts at safe levels. "Privatisation was the most important of these measures. It is the policy of the government to divest itself of debt-burdened and loss-making public sector companies. The privatisation proceeds this year have reached a total of LE10.5 billion. One third of this amount is set apart to pay the debts owed by public companies slated for privatisation, and another third is allocated to settle the payment of treasury bonds," El-Gharib said.
El-Gharib also explained that most of the domestic debts are owed to national banks and insurance companies. "As you most probably know, the financial resources of these institutions are directed toward funding national development projects."
For his part, Farghali insisted that the government's figures on domestic debts are far from accurate. "The figures cited by the government exclude the debts of state-owned economic institutions, such as the Egyptian Railway Authority, from the volume of total domestic debts. The debts of these institutions stand at LE23 billion."
Farghali attributed the ballooning of domestic debts to the government's practice of taking loans from public banks without seeking the prior approval of the People's Assembly. "In this respect, it is clear that the government violated article number 21 of the constitution which obligates it to seek the prior approval of the People's Assembly in concluding any kind of loan arrangements and embarking on the construction of mega-development projects. For instance, the new mega-development of Toshka in South Egypt was unilaterally taken by the government without involving parliament in any kind of debate about it. We only know about these projects from the information media. We, as the people's representatives, know nothing about how these giant projects will be implemented and funded," Farghali said.
In response, El-Gharib accused Farghali of wasting time "in a futile effort to defame the government's achievements". He said that the funding of development projects is always conducted in a transparent way, and figures about these projects are available to all. El-Gharib also insisted that the volume of domestic debts stands at very safe levels. "In 1991, the servicing of domestic debts equalled LE50 billion while the value of the gross domestic product (GDP) was estimated at LE225 billion. In 1998, the servicing of domestic debts dropped to LE49 billion while the value of GDP soared to LE278 billion. This means that servicing domestic debts is by no means a burden to the state budget and the national economy," El-Gharib concluded.
In a statement delivered before parliament two weeks ago, Prime Minister Kamal El-Ganzouri stated that domestic debts account for only 49 per cent of GDP. "This is a very safe level, especially since we know that the Maastricht Agreement stipulated for European countries seeking to join the European Union that their domestic debts account for no more than 60 per cent of GDP. This means that the position of domestic debts in Egypt is far better than that in Europe," said El-Ganzouri. However, he insisted on excluding the debts of economic institutions from the total value of domestic debts. He concluded that servicing the domestic and foreign debts combined accounts for a mere nine per cent of new budgetary allocations for the fiscal year 1999/2000.
