Tuesday,25 September, 2018
Current issue | Issue 1400, (5 - 11 July 2018)
Tuesday,25 September, 2018
Issue 1400, (5 - 11 July 2018)

Ahram Weekly

Growing pains

This week began the implementation of the new budget for the 2018/19 fiscal year. The government plans to spend LE1.42 trillion, an increase of LE200 billion on last year. This year’s budget is yet again unprecedented in its size, but this is a natural development of the growing needs of the country with each passing year.

As President Abdel-Fattah Al-Sisi begins his second term in office, the new budget also reflects the priorities he targets. “The new budget reflects the directives of the political leadership and its mandates to the government,” the minister of finance said in a statement earlier this week. He pointed out that a growth rate of close to 5.8 per cent is targeted during the new fiscal year, rising to about 6.5 or seven per cent in the medium term.

The government has also set out to achieve its social justice targets by increasing spending on health and education to LE257.7 billion compared to LE222 billion last fiscal year. Of that sum LE98.7 billion is allocated to the health sector, LE108 billion to pre-university education, and LE51 billion to higher education.

The increase in the sums allocated to the two crucial sectors of health and education is a huge step in the way of improving living conditions for Egyptians. Since 2016, Egyptians have borne the brunt of the economic reform programme, withstanding skyrocketing price increases on the back of a currency floatation and cuts in fuel subsidies. The reforms are meant to improve the fiscal standing of the economy, thus attracting investment, creating jobs and boosting growth. The government had promised that savings from fuel subsidy cuts would be redirected to improve health and education services and so it needs to deliver on that promise.

In another move aimed at making life easier for Egyptians, the government has increased allocations for public sector wages by LE30 billion to reach LE270 billion, or around 20 per cent of the budget. The growth in wages is attributed to the addition of annual wage increases to some six million state employees, as well as exceptional bonuses to help them withstand the price hikes caused by fuel subsidy cuts and the subsequent increase in prices. Pensions for state employees and army personnel were set to increase by 15 per cent as of 1 July. In addition, employees who fall under the Civil Service Law of 2016 will receive a seven per cent increase in their basic salaries, while employees who do not fall under the law will get a 10 per cent pay raise.

Government investments will also increase by 42 per cent on last year to reach LE100 billion. These public investments have proven important in the past four years to boost growth and create jobs. And again, this year’s public investments, together with an expected recovery in private investment, will enable the government to achieve its growth targets.

But with the new budget comes the challenge of balancing between revenues and expenditures. With an eye to reduce the budget deficit to 8.4 per cent of GDP, the government must work harder on improving revenues not by imposing new taxes but by improving administration and collection.

By cutting fuel subsidies the government is restructuring public spending to create the fiscal space for spending on social services. It has already made progress last year, cutting the deficit to 9.8 per cent of GDP in 2017-18 compared to the 10.8 per cent of GDP deficit in 2016-17.

What the government must keep a close eye on is the growing size of the public debt, which has increased to around 100 per cent of GDP. While experts do see this as a short-term problem and that the size of the debt will shrink relatively as the economy grows, it is nonetheless an issue to be flagged.

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