Wednesday,20 June, 2018
Current issue | Issue 1231, (29 January - 4 February 2015)
Wednesday,20 June, 2018
Issue 1231, (29 January - 4 February 2015)

Ahram Weekly

Mixed performances

The government of former prime minister Hazem Al-Beblawi was unable to fire up the economy, while that of Ibrahim Mehleb has had a mixed performance. Sherine Abdel-Razek reports

Al-Ahram Weekly

Writing in the 14th “Strategic Economic Trends Report” released this week, Ahmed Al-Naggar, an economist and chairman of Al-Ahram, says that the government of former prime minister Hazem Al-Beblawi failed in its attempts to kick-start the country’s economy.

The government received generous Gulf aid, $11 billion, during the one year of Beblawi’s government. This was in addition to the 1991 gift from Gulf countries of a LE60.8 billion deposit. The money was originally given to support the former Mubarak regime because of its stance in the 1991 Gulf War. Importantly, these funds were never used until Al-Beblawi came to office.

While the government used the $11 billion and the LE60.8 billion deposit, according to Al-Naggar, the main author and editor of the report for the past 14 years, the government did not allocate the money towards projects designed to revitalise the economy.

This year’s report dedicates a chapter to the performance of Al-Beblawi’s government, the first following the 30 June Revolution. It also examines the performance of the present government, led by Prime Minister Ibrahim Mehleb.

According to the report, Al-Beblawi used most of the Gulf funding to shore up the country’s international reserves. Just before the toppling of ousted former president Mohamed Morsi in the summer of 2013, the government increased the international reserves from $13 billion to $20 billion.

The international reserves fell a few months later as a result of the need to fund the country’s huge trade deficit: more than $15 billion in the first six months of Al-Beblawi’s tenure.

“The negative economic indicators Egypt inherited from Mubarak’s rule worsened under the rule of the Supreme Council of the Armed Forces and during Morsi’s one year in office, and the deterioration continued during the period Al-Beblawi spent in office,” Al-Naggar writes.

Al-Naggar described the performance of the Mehleb government as mixed. While it introduced a minimum wage of LE1,200 for government employees, the minimum wage does not extend to workers in the private sector or those working for public enterprises.

According to Al-Naggar, the decision to set a maximum wage of LE42,000 has acted as a disincentive for the retention of high-level staff. He writes that, in order to offset the wage limit, the management of public-sector banks and companies should have been given the right to an additional percentage of the profits, in order to compensate them for the gap in incomes with their peers in the private sector.

The government’s 234 per cent increase in social security pensions is a good step, he said, as it will both increase the number of beneficiaries and their monthly incomes. But Al-Naggar criticised keeping the threshold of income tax exemptions at LE12,000 per year. This means that workers receiving the minimum wage of LE1,200 per month, or LE14,400 per year, will be subject to taxation.

This did not take into account the inflation rate, Al-Naggar said, adding that the LE12,000 threshold is less generous than the LE9,000 threshold set by the Ahmed Nazif government in 2005, because the purchasing power of LE9,000 in 2005 was equivalent to LE20,000 today.

On the positive side, Al-Naggar said that while the loans and foreign assistance figures in the 2014-2015 budget have declined from LE117 billion in 2013-2014 to LE23.5 billion in 2014-2015, government revenues are still 35 per cent higher than the previous year, which is a positive indicator.

The bulk of government revenues come from taxes, with the largest amounts coming from taxes imposed on commodities and service purchases, as well as income taxes on salaries. The latter are imposed on both those with limited incomes and the wealthy, a shortcoming that Al-Naggar criticised.

On the expenditure side, Al-Naggar said that real reforms in the energy subsidies system have yet to happen, since the government is still providing large private and foreign companies with subsidised energy. He stressed that raising energy prices will not affect the level of foreign investment as other countries competing with Egypt to attract such investment do not subsidise energy costs.

The sudden imposition of high price increases, after maintaining stable fuel prices since 2008, was described by Al-Naggar as an “inefficient” policy. He said that incremental increases over a longer period would have been less agonising for consumers.

He called for wider subsidy reforms that do not increase inflation, as happened after the government increased fuel prices by an average of 76 per cent last July. He gave the example of private transportation costs, which have increased by at least 50 per cent for microbuses.

Shifting to natural gas instead of diesel in bakeries and cars would save LE30 billion per year out of the LE45 billion the country pays to subsidise diesel, according to Al-Naggar.

He praised the changes in electricity prices, as according to the new pricing model, dubbed as “fair,” the price of a kilowatt of electricity in the highest consumption bracket is ten times the value paid by the lowest bracket, which consumes fewer than 50 kilowatts monthly.

On social questions, Al-Naggar said that spending on health in the budget had increased by 26.6 per cent over the previous year, almost twice the inflation rate. However, the spending, equivalent to 1.75 per cent of GDP, is still less than the three per cent of GDP set by the new constitution as the minimum spending on health. Global average spending on this item is 6.6 per cent of GDP.

As for spending on education, the allocation in the budget for both university and secondary education is still less than the four per cent of GDP set by the new constitution, Al-Naggar said.

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