Al-Ahram Weekly   Al-Ahram Weekly
3 - 9 February 2000
Issue No. 467
Published in Cairo by AL-AHRAM established in 1875 Issues navigation Current Issue Previous Issue Back Issues

Front Page

Whose gravy train?

By Gamal Essam El-Din

Prime Minister Atef Ebeid, delivering his government's policy statement before parliament last month, surprised economic analysts with an announcement that the government, in an attempt to ease financial burdens, has decided to separate the budget of the economic authorities from the state budget.

"Over the next few years we plan to rationalise public spending through a series of measures, foremost among which is separating the budget of economic authorities from the state budget to ease financial burdens and bring domestic debts under control," said Ebeid.

On Friday the prime minister indicated that most economic authorities, with the exception of the Suez Canal and Petroleum authorities, are loss-making.

"These two authorities generate as much as LE8 billion in annual revenues. We could boost such revenues by separating some 67 economic authorities from the state budget. This will relieve the government of paying LE16 billion, much of it servicing loans amounting to LE34 billion. It will be also relieved of the LE2.8 billion worth of annual subsidies currently swallowed by these authorities."

Ebeid revealed that beginning in the new fiscal year 2000/2001, this LE16 billion will be earmarked to expand social services, including education, health and food supplies.

The decision has met with general applause in economic circles. A number of financial analysts support the separation of budgets. "At a time when the state is moving towards greater efficiency in budgetary allocations, the role of economic authorities needs to be reconsidered. In a market-economy, they have to be entirely restructured to fully depend on themselves financially," said former Finance Minister Ahmed Abu Ismail.

Last week the current Finance Minister Medhat Hassanein, speaking before parliament indicated that separation had been recommended by several recent studies.

"They revealed that the annual turnover of economic authorities stands at just LE800 million. In economic terms, this is very modest compared to the size of their investments and assets [estimated at LE100 billion]. This is a distressing fact we have to face in our drive to rationalise public spending and bring the budget deficit within acceptable limits," said Hassanein.

Several work groups, formed to scrutinise each authority with the objective of increasing efficiency and rationalising financial revenues, have been working for some time now.

"As regards the Social Insurance Authority, for example, strategies are being explored as to how huge cash reserves held in pension funds can be utilised in profitable areas and high-return investment fields such as the stock market," said Hassanein.

The decision to separate budgets, however, met with opposition from the leftist Tagammu party, who argue that it is a first step towards privatising the authorities.

Many economic authorities, they argue, were initially established to offer social services to limited-income groups. "This is why they have been receiving state subsidies. The phasing out of these subsidies means that they will have to offer these services at new prices, which are unlikely to be affordable for many groups," said Mohamed El-Doheiri, a Tagammu deputy on the parliamentary Planning and Budget Committee. A similar strategy was adopted, he said, when the government decided to privatise industrial public sector companies. "The separation of their budget from the state budget was the measure that opened the door for privatisation."

Leftists highlighted their objections by citing the recent decision to privatise some of the services offered by the Egyptian National Railway (ENR).

Prime Minister Atef Ebeid took observers by surprise when, in a recent announcement, he divulged that the government, distressed by ENR's losses -- estimated at LE1.6 billion -- is planning to privatise some of its services.

"Over the last 11 years the state has given ENR a staggering LE11 billion in the form of direct and indirect subsidies. This has neither improved ENR's financial revenues nor halted the deterioration in its services. For example, its cargo transport operations fell last year by 15 per cent," said Ebeid.

At the beginning of last month ENR surprised its passengers, estimated at 200 million per year, by raising first, second and third-class rates by one hundred per cent. This raised an outcry as parliamentary deputies accused the government of ignoring its social responsibilities.

Rafaat Seif, a Tagammu MP, argues that the government is merely continuing policies in place for some time. "In the last few years, ENR has reduced the number of third-class train coaches while raising the prices of second and first-class trains. To many limited-income citizens, train prices are now unaffordable," said Seif.

However, according to Mustafa Maher, ENR's chairman, the renovation of third and second class trains will require LE320 million, while periodical maintenance works for trains cost LE450 million.

"In a liberal economy, the government should no longer be involved in these activities. The government will remain committed to the ownership and running of ENR but the private sector should also be granted a role in the form of providing a number of services, including maintenance and cleaning operations. ENR has already invited investors to manage some railway stations, including Cairo's main terminus, and undertake the marketing of train-transported cargo. Investors will also be contracted under the BOOT (Build, Own, Operate, Transfer) system to run ENR's large workshops and establish a reliable telecommunication system between trains and stations," said Maher.

While there has been parliamentary criticism of privatising ENR services, deputies at the same time seem keen on the privatisation of services offered by Health Insurance Authority (HIA). The parliamentary Planning and State Budget Committee reported that the authority's debts have reached LE300 million while services have been deteriorating. In light of this fact, the committee suggested either phasing out the state subsidies offered to HIA or privatising its services.


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