Q&A: Egypt finance minister rules out austerity

Interim Finance Minister, Ahmed Galal says he does not plan any emergency measures for the troubled economy. Will seek fiscal discipline and social justice

Minister of Finance Ahmed Galal is to pursue his original plan of boosting the economy. Galal doesn't see the need for any special measures to counteract the negative effects of the current political instability, he told Ahram Online in a telephone interview
Ahram Online: Will the government develop any emergency economic plan, in light of the current ascending political instability?
Ahmed Galal: No, this interim government was appointed to deal with this transitory period and all its difficulties on both tracks, economic and political. On the economic side, the mandate is to improve fiscal discipline and social justice.
AO: Don't you see the current political instability as an obstacle to achieve these goals?
AG: I don't see why would some people refusing to join the roadmap of political transition hamper our objectives. Some of these problems were anticipated, some were not. But I see this as if I am on a train to Aswan (a southern city): the train won't derail because it broke down. We fix it and we go on to our destination.
AO: How do you intend to overcome the panic of investors because of the current violence?
AG: My vision didn't change. We cannot afford any austerity measures, so no new taxes and on the other side, the government will increase its investment spending. But in order to avoid a surge in the budget deficit, we can only rely on foreign aid. Luckily, many Arab countries offered their help - whatever their reasons are - and it allows us to buy some time.
AO: During the past year, Morsi's government also bought time by relying on foreign debt. It ended up with a deeper budget deficit, more debts to reimburse, etc. How would you plan to escape that fate?
AG: The old government used the borrowed amounts to cover current public spending, to pay the bills. I don't have any intentions of doing so. First, a good part of this money comes as non-refundable aid. Second, the debt part will mainly be used to finance public infrastructure projects (along with supporting the international reserves). I see that the main tool to social justice at the time being is to provide job opportunities. That is what I offer by multiplying the public investment allocations, even in low labor density projects like the sewage projects the government is currently building in rural areas. Few jobs are better than none.
AO: You said earlier, you don't intend to impose any new taxes, how do you plan to narrow the budget deficit, standing currently above 11%?
AG: The ministry is currently mulling new pricing contracts for the energy bought by “our big clients,” as I like to call them. These clients are mainly a number of big buyers of diesel and natural gas in both the industrial and the tourism sectors. The new pricing mechanism involves raising the price gradually and in phases to these clients. We are also preceding in our plan of introducing smart cards to distribute fuel, in order to narrow down the margins of subsidized fuel smuggling, estimated at 20% of total consumption.
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