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Farah Halime

Farah Halime

EGYPT’S BUDGET DEFICIT: WHY NO ONE WANTS CUTS

By Farah Halime, Rebel Economy

While many people generally agree that governments faced with deficits must cut spending, most do not like cuts to specific programmes.

It’s the same everywhere, not least in the US where a national survey found that for 18 of 19 programs tested, the majority wanted either to increase spending or maintain it at current levels.  The only exception where people wanted to see cuts was humanitarian foreign aid, which accounts for about 0.5% of the US budget.

However the long-term trend over the past quarter of a century is, for the most part, away from spending growth.

The survey goes a little way to showing how society is happy for a government to make the cuts necessary to rightside a budget, but when areas that affect them are on the radar, the public are likely to lobby against these cuts.

Now, if we snap back to Egypt, where public debt is about 80% of GDP at $220bn versus the US where government debt is at $11.7tn (and 75% of GDP), it is like comparing apples to pears.

But the public perception is the same.

Egyptians generally agree that there must be cuts to balance the budget, but it is difficult to convince the public that wages take up a huge chunk of government spending, and that spending on some welfare programmes, like the energy subsidy system, needs to be drastically reined in.

This is what happens when Egypt decides to increase wages and continue to feed its addiction to energy subsidies:

Dcode, a consultancy that specialises in “Dcoding” the Egyptian economy, explains that the reason the budget deficit widened during July and December of the current fiscal year to stand at EGP 91.5bn (5.3% of GDP), up from EGP 74bn a year earlier (4.8% of GDP) is a simple financing problem: Revenues grew at a faster rate than expenditure.

Even though government revenues from taxes grew, it was not enough to make up for the “debt service payments, higher subsidies and wages to accommodate popular demands and high international commodity prices”.

This is where a seasoned politician usually comes in to explain to the public that this is unsustainable and that spending on public sector wages (26% of the state budget is currently spent on paying the wages of almost one-third of the total labour force) and energy subsidies (20% of government spending) must slow down.

This can be done by actually going ahead with energy subsidy reforms, and redirecting funding to the private sector where jobs are more lucrative and dynamic and the government does not have to support millions of wages.

But, as we have come to realise, there are no experienced politicians in Egypt, just airheads who bump heads rather than engage in a real dialogue.

Why not take time to compile a diagram that shows the real impact of tax increases, subsidy reform and public sector cuts on Egypt’s neediest? If correctly enforced (and that’s a big if), Egypt’s struggling households will find restructuring the budget will, by and large, give them better access to bread and fuel (at cheaper rates than today), and will exempt them from paying taxes.


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