The Ministry of Finance announced that it had referred the fiscal year (FY) 2014/2015 general budget to the presidency for approval on Monday, following an almost two-month delay from the constitutional day of release. The budget witnessed some significant changes in public spending, health, education, electricity and petroleum product subsidies and expectations for investment.
According to the fiscal year (FY) 2014/2015 budget, the public spending increased by EGP 65bn, around 10% compared to the current year’s budget, to register EGP 807bn.
Cairo University economics professor Alia El-Mahdy stated that the percentage of increase in the public spending is “less than the rate of inflation” which means that the “real value of the budget has declined”.
The budget stated that expenditure on wages have increased by 13%, rising from the current year’s EGP 184bn to EGP 209bn.According to the International Monetary Fund (IMF), Egypt’s inflation rate is expected to be 10.4% during 2014 and 11.2% in 2015.
“This means that this is a deflationary budget,” El-Mahdy said, describing this as a “disaster because the country is entering a phase of inflationary recession”.
The finance ministry stated that the revenues targeted in the state’s budget are EGP 517bn, which is less that the revenues expected to be collected during the current fiscal year.
El-Mahdy pointed out that this is “another mistake as the government is seeking to decrease the budget deficit through the decrease of the expenditure and not the increase of revenues”. Discussing means to increase the country’s revenues, El-Mahdy added that the government can issue licenses for mobile, fertilizers and cement to attract new investors.
Petroleum subsidies have been cut to EGP 104bn, compared to last year’s EGP 134.429bn – an approximate EGP 30bn decrease. Medhat Youssef, the former vice president of the Egyptian General Petroleum Corporation (EGPC), said that the “timing of this decision is to not place the burden of it on Al-Sisi [referring to him as the next president] or the coming government”.
A minimal EGP 200m increase was seen in the subsidies for necessary commodities, which according to El-Mahdy will represent “deterioration and not an increase due to the rate of inflation”.
An EGP 1.5bn decrease in the volume of investments was targeted in the new budget, with investments dropping from 63.7bn to EGP 62.2bn. Former Minister of Finance Momtaz El-Saeed said that this is an “attainable goal”.
“This is the investment set for governmental bodies and it aims to represent the minimum goal of attracting investments,” El-Saeed.
Angus Blair, the CEO of Signet Institute, said that the government is just being “cautious”. “The government is just being realistic and is looking at the worst case scenario.”
El-Madhy said, however, that the government has not taken into consideration the stimulus plans it has previously announced, which mainly target an investment increase.
The healthcare budget increased by EGP9.5bn, surging from EGP 42.1bn in the FY 2013/2014 budget to EGP 51.6bn in the coming fiscal year’s budget. Expenditure on education jumped from EGP 93bn to EGP 105bn while expenditure on scientific research ascended by EGP 400m to reach EGP 1.8bn.
Minister of Finance Hany Kadry Dimian said that the government aims to increase the expenditure on healthcare, education and scientific research to reach 10% of the GDP by 2017, what would require an additional EGP 100bn.
The government is targeting a 3.2% growth rate in the GDP and an EGP 288bn budget deficit, around 12% of the GDP. The expected budget deficit for the current fiscal year is around 14% of the GDP. Around EGP 202bn is allocated to the interest payment of the public debts, which account for 25% of the total public expenditure.