Egypt’s 2022-23 budget will come into effect on Friday, having been drafted during a time of challenges that have engulfed Egypt and the rest of the world. They include the repercussions of the Covid-19 pandemic, an unprecedented inflationary wave, and the Russia-Ukraine war, all events which have sent ripples and caused disruption across the globe.
This is how the government sought to present the new budget in its opening statement, explaining that it had been drafted after consultations with hundreds of organisations. It said that it had made its priorities social protection and living conditions, the healthcare and education sectors, fiscal stability, and supporting economic activities with a special focus on industry and exports.
The government has also looked into ways to handle the global events that are negatively affecting the national economy. These include studies of the potential impact of the various global challenges on the national economy, with a view to helping to achieve financial sustainability, implement measures that support the most vulnerable groups, and ensure transparency.
In the new budget, the state aims to draw in foreign financial assistance of the equivalent of around LE146 billion (around $8 billion), up from LE78.4 billion expected by the end of the 2021-22 budget, which translates into an increase by 87 per cent.
It intends to issue international bonds worth around LE92 billion (around $5 billion) and borrow around LE55 billion (around $3 billion) from international financial institutions other than the International Monetary Fund (IMF).
Egypt’s external debt jumped to $145.5 billion in the second quarter of the 2021-22 fiscal year, up from the $137.4 billion recorded in the first quarter. According to the Central Bank of Egypt (CBE), the debt “remains within manageable limits”.
But the growth of foreign debt in a short period of time is a cause for concern, Youssef Salam, a researcher in international economics, told Al-Ahram Weekly. He worries about the consequences of hard-currency debt, especially in the light of recent rises in global interest rates.
Expenditure in the new budget is estimated at LE2 trillion, up from LE1.84 trillion in 2021-22. The government aims to reduce the budget deficit to 6.1 per cent of GDP, down from 6.2 per cent in the current fiscal year, while GDP growth is targeted at 5.5 per cent.
Hani Al-Husseini, vice president of the leftist Tagammu Party, believes the new budget is too optimistic as it deals with the current situation, which is in response to an international crisis, as if it were a “passing problem”.
Al-Husseini said that the Egyptian economy had been greatly affected like the rest of the world’s economies not only by Covid-19 and the Russian invasion of Ukraine, but also by the US central bank the Federal Reserve raising interest rates, triggering foreign investors to withdraw their money and flee the emerging markets.
Without the intervention of the Gulf states to support Egypt with investments and deposits of about $22 billion, the situation would have been more difficult, he said.
In the new budget, the government has set oil prices at $80 a barrel, up from $60 this year, and wheat prices at $330 per ton, up from $255 per ton in 2021-22.
Meanwhile, the average interest rate is calculated at 14.5 per cent, up from 13.7 per cent in 2021-22. Every rise in interest rates costs the budget about LE30 billion, Minister of finance Mohamed Maait said this week.
Regarding revenue, the government expects tax proceeds to increase by 23.5 per cent to record LE1.168 trillion. It intends to collect this amount through integrating the informal sector into the formal economy to expand the tax base and expanding the use of technological solutions.
Amr Al-Mounayer, a former deputy to the minister of finance for tax policies, said it could be difficult to attain the targeted revenues, especially since the 2021-22 targeted revenues — which were lower — were not achieved. Taxes are based on companies’ profits, and with the current economic crisis, businesses are not doing well, he added.
The government has increased allocations for social-protection benefits and subsidies to LE356 billion, up from LE301 billion, last year. Public-sector wages have been increased by LE43 billion to reach LE400 billion, raising the incomes of 4.5 million public-sector employees. Some LE90 billion has been allocated for subsidised food commodities and bread to ensure their availability to 71 million citizens.
In addition, the new budget earmarks LE22 billion to increase the number of beneficiaries of the Takaful and Karama social-protection programmes and social security schemes to four million families.
Supporting low-income brackets amid the current international events was very important, Hassan Ouda, a professor of public finance at the German University in Cairo, told the Weekly.
However, he lamented that the budget had been drafted in a regular fashion and called for performance-based budgeting to enable follow-up on programmes and performance and on the basis of which departments and organisations would be given their share of spending.
Ouda said that some figures in the budget may have to be altered during the coming fiscal year to cope with expected changes in global conditions, and for this reason LE130 billion had been allocated as a reserve.
A version of this article appears in print in the 30 June, 2022 edition of Al-Ahram Weekly.