Concern grows over Egypt's Budget deficit

Egypt’s increasing Budget deficit caused by its living above its means for years is now ringing alarm bells in the government, which is facing unpalatable measures to lower the national debt.

A number of parliamentary deputies, including members of the ruling National Democratic Party, have begun pressing the authorities in public speeches to take radical steps.

The minister responsible for parliamentary affairs, Kamal Esh-Shazli, for his part has denied rumours that the government is planning to raise taxes on fuel, cigarettes, tourism and mobile telephones in a bid to make ends meet.

But the deficit has been growing more swiftly than the gross domestic product, standing at an estimated 370-billion Egyptian pounds ($59,6-billion) this fiscal year.

Of this sum, 266-billion pounds is directly imputed to the government and the rest to state authorities.

Foreign debt, meanwhile, has hit $28,7-billion, according to Minister of Finance Medhat Hassanein, who insists, however, that “the red line has not been reached”.

The 2004/05 Budget currently being debated in Parliament is expected to provide for a deficit of 52-billion pounds ($8,1-billion), up from 20-billion pounds in 2002/03 and 40-billion pounds in 2003/04.

Experts say revenue, including taxes, customs duties and profits of state-owned companies but not including income from investments, is well below expenditure on wages, subsidies on basic goods, debt servicing and the likes.

Mohammed Abdelhalim, economics professor at Cairo’s Al-Azhar university, says this gap will reach 20-billion Egyptian pounds at the end of the current fiscal year.

This will oblige the state to borrow just to get by, he said.

“Egypt is living way above its means,” commented Ibrahim Issawi, a consultant at the National Planning Institute.

He said that far from contributing to national savings, the state is now borrowing from the contributions of individuals and companies to meet its own needs.

The government has managed to plug the hole in recent years by calling on the banks, to the detriment of private borrowers and investors.

Issawi said that supporters of a freer market system and those who back more state intervention to help the underprivileged agree that the budget deficit must be reduced, but not on how to do it.

The former want privatisation, deep cuts in subsidies on basic goods, the introduction of fees for secondary education and health care and increases in contributions by both wage-earners and the state to bring social-security funds back into the black.

The latter want cutbacks in state spending on such items as luxury cars and offices for officials, an end to overstaffing and the cancellation of tax breaks for companies.

Issawi said the tax breaks have failed to prove effective in stimulating investment and reviving the economy.—Sapa-AFP


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