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Al-Ahram Weekly 18 - 24 May 2000 Issue No. 482 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 18 - 24 May 2000 Issue No. 482
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Focus Features Heritage Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Pumping the message
By Gamal Essam El-DinAlthough it eventually gained easy passage in parliament last week, Prime Minister Atef Ebeid's first budget came in for heavy criticism from up to100 MPs, a reflection of the escalating recession and liquidity crisis. MPs were keen to take the opportunity to scrutinise the government's economic and fiscal policies seven months into its term. And by and large, the new budget did not go down particularly well with 15 deputies.
The 2000/2001 budget includes total expenditures of LE111.7 billion while revenues are estimated at LE108.3 billion, creating an overall deficit of one per cent. The budget also allocates LE80 billion to implementing the state's development plan for the year 2000/01.
Aware of the negative impact of the recession on public opinion and parliament, Prime Minister Atef Ebeid vowed that the government would strive to improve its performance in the coming period. "This improvement will be accelerated through admitting the distortions that occur in periods of socio-economic transition. Rates of growth never remain as they are, and almost inevitably face a setback at one stage or the other," said Ebeid. The Egyptian economy, he added, has grown for more than 17 years. "This growth is now hampered by a lack of liquidity. The recession requires us to be patient, though I predict an improvement in economic performance in the next few months."
"The recession," Ebeid told MPs, "is temporary and we will get out of it quickly, at which point we will see an increase in productivity, sales, domestic products and government revenues."
He added that the budget includes increases in resources in real terms, reflecting government commitment to reducing the burdens faced by low income groups.
The government faced criticism on several fronts. Deputies of the leftist-oriented Tagammu and the liberal-oriented Wafd parties appeared to be in agreement that the budget failed to directly address the underlying causes of the recession, arguing that the budget throws little light on the means that will be adopted to pump a promised LE25 billion into the market over the next eight months.
Feelings among opposition deputies ran high when Finance Minister Medhat Hassanein announced that LE14 billion, out of the promised LE25 billion, was included in the budget. The remaining LE11 billion, he added, will be procured from a mix of sources, including international borrowing, the collection of existing tax arrears, privatisation proceeds, oil sales receipts and treasury bills.
Foreign loans came under heavy fire with Tagammu Party leader Khaled Mohieddin questioning the wisdom of incurring more external debts when the government is already facing a ballooning debt problem.
"In the new fiscal year the government has been forced to allocate LE27.5 billion to service foreign and internal debts. This is a huge sum, despite the fact that it excludes the debts of the economic authorities and public companies," Mohieddin said, as he warned against resorting to foreign borrowing. He continued by urging the government to stop using deposits at the National Investment Bank and the Public Savings Fund to finance the public budget.
In response, Hassanein pointed out that foreign debts stand at $28.2 billion of which only $10 billion was borrowed by the government, over a period of 16 years and at an interest rate of 3.5 per cent. The remaining $18.2 billion comprises loans secured by public companies and private businesses. "There is no shame attached to foreign borrowing," Hassanein insisted, "as long as indebtedness remains at manageable levels."
Wafdist Fouad Badrawi questioned the wisdom of counting on privatisation proceeds to alleviate short term problems. "It is dangerous," he said, "to sell precious public assets for the purpose of meeting short-term ends such as alleviating the liquidity shortfall."
In return, Hassanein stated that half of privatisation proceeds were, as earlier agreed, to be set apart to fund investments and the necessary readjustment of public sector companies. "You approved this before, and you also approved that the other half go to meeting a part of domestic debts," said Hassanein.
Some MPs warned against the government pinning its hopes on a rise in oil prices, pointing to the constant fluctuation in price which mitigates against any coherent long term planning.
Reliance on a new issue of treasury bills also came in for criticism. Salah Abdel-Ghani, a businessman and MP for Ismailia, argued that treasury bills were a mixed blessing, "a financial tool aimed to serve short-term ends that in the long run will only exacerbate the domestic debt." The collection of existing tax arrears, on the other hand, received almost unanimous support, though the consensus was that such a move would need to be reinforced by a series of complementary measures.
Ahmed Nasser, a prominent Wafdist deputy, blamed the LE17 billion of tax arrears on the government's failure to introduce much needed reforms to the tax system. MPs further argued that substantial reductions in the budgetary allocations directed to mega-projects must be made, and that the banking system needs to adopt a more coherent policy towards granting credit.
NDP spokesman Ahmed Abu Zeid urged the prime minister to clarify both the status of mega projects, and the quantities of money that the government claims it has injected into the market since February.
The government was also urged to begin separating the budget of economic authorities from the state budget. "Although Ebeid promised in last December's policy statement that this was an urgent priority, the new budget allocated LE3.2 billion to financing these authorities. It is frustrating that the estimated revenue of these authorities last year stood at only LE531 million, with the exception of revenues from the Suez Canal Authority and the Egyptian General Peroleum Organisation's companies . They are a drain on the budget," said MP Salah Abdel-Ghani.
"The new budget is full of jargon but lacking in content. It is just ink on paper, and fails to address existing conditions," argued Wafdist MP Ayman Nour, a view that drew a curt response from several NDP MPs who sought, somewhat predictably, to paint a far more rosy picture.
