The country's 2014-2015 budget was sent for endorsement by interim President Adli Mansour on Monday by the Ministry of Finance on the first day of the presidential elections. According to a ministry statement, expenditure in the new budget reaches LE807 billion, a 10 per cent increase on the previous year's level. Revenues have been falling to LE517 billion, leaving a gap of LE288 billion. The statement said the 12 per cent deficit compared with the 11.5 per cent predicted for this year takes “into consideration the possibility of declining grants from abroad.” The country has received exceptional grants and aid from abroad totalling $20 billion since the ouster of former president Mohamed Morsi, who hailed from the Muslim Brotherhood group, last year. “Tightening the deficit is the right approach, and if the government is able to implement the budget according to this plan the projected growth rate of 3.2 per cent will be doable,” said Wael Ziada, head of research at EFG-Hermes, an investment bank. The actual deficit for the current year is 14 per cent. Presenting the budget, Hani Kadri, the minister of finance, said in the statement that it was a crucial first step to bringing about social justice as it included two plans to save resources. The first was to reduce fuel subsidies by LE30 billion to reach LE104 billion and to increase energy prices in order to reduce the imbalances of previous budgets. Energy subsidies used to eat up around 25 per cent of the government budget, with 40 per cent of this figure going to those not in low-income brackets and at the expense of spending on education and health. “The energy subsidies were double the money directed to health and four times that channelled to education in the 2013-2014 budget,” the ministry said. The cabinet has also revealed a plan to cancel energy subsidies over the next five years starting with the coming fiscal year in addition to increasing electricity and cooking gas prices for the highest consumption brackets. Prime Minister Ibrahim Mehleb has said that the amount saved will be used to extend the piped gas network. The Ministry of Finance statement added that there would be an increase in spending on healthcare, education and scientific research to around ten per cent of GDP by 2017, according to the constitution passed last year. Another factor weighing on the budget deficit is the new minimum monthly wage of LE1,200 for public-sector workers. The second plan set out by the minister to save expenditures comes in the form of amendments to the tax system to increase income taxes, increase the tax base, and link the tax system to the overall growth rate in economic activity. Tax revenues as a percentage of the country's overall GDP are 14 per cent, among the lowest worldwide. The amendments to the income tax system comprise a new five per cent tax on individuals whose income exceeds LE1 million annually. The changes are expected to add LE10 billion to revenues. Commenting on the new budget, some experts have described it as a contractionary budget, despite the increase in some expenditures, due to the expected increases in prices and the new taxes. “As long as there is a hike in expenses we can't consider it to be contractionary. On the contrary, the new budget sees an increase in the allocations to education and health of LE12 and 10 billion, respectively,” Ziada countered. “The Egyptian economy has serious problems like increasing debt levels as well as decreases in resources, and the cabinet cannot afford more expansion of spending,” he added. Egypt's domestic debt has reached LE1.5 trillion, as the government has been borrowing from the banks to cover expenses because of ailing revenues, especially because of falling revenues from tourism and decreasing foreign investment in the light of the political turmoil following the ouster of Morsi. In light of the new budget, avoiding price inflation might be a hard task because of the pound's losing ground against the dollar. The latter has recently gained LE0.17 in the official market to reach LE7.17. The increases in prices, with inflation rates now reaching 10 per cent, are adding to the social woes in a country where 13.5 per cent of the population is officially unemployed and 25 per cent is living under the poverty line. It is feared that this may cause social unrest, but “we have to take things rationally and not get upset like a teenager who complains that because his father is borrowing money to cover day-to-day needs there is no money left to buy him a new car,” Ziada said, adding that the only alternative would be further deterioration in the economy. While the energy subsidies in the new budget are being reduced, the government is increasing its support in other fields as a way of helping the poor, according to Kadri. Subsidies on food have increased by 10 per cent to reach LE34 billion, and LE2.6 billion has been allocated to subsidise wheat prices. Allocations for social justice programmes include LE38.7 billion as the government's contribution to pension funds, a 33 per cent increase on last year. Another important feature is upping the allocations for the social solidarity pensions of those who have no other sources of income by LE8 billion to reach LE12 billion. The government aims to double the number of families receiving this pension to three million. This is in addition to increasing the allocations for supporting farmers by nine per cent this year. While the public investment figure comes out at LE 62.2 billion, LE1.5 billion less than last year, Ziada considered the decline to be very limited. Egypt's economy has been struggling since the 25 January Revolution that ousted former president Hosni Mubarak. Prior to Mubarak's removal, GDP growth was running at above five per cent per year.
