Government comes under fire ADMINISTRATIVE corruption and government profligacy are the main causes of the spiralling increase in the budget deficit and public debt, according to Gawdat El-Mult, head of the Central Auditing Agency. Speaking during the People Assembly's Planning and Budget Committee meeting on Monday to discuss the 2004/2005 balance sheet, El-Malt ruled out claims that the deficit is widening due to increase in subsidies. "All governments worldwide do borrow, but here in Egypt we don't borrow to bolster investments, but to feed the people". According to the 2004/2005 figures, the government used 64 per cent of the money it borrowed during the year to repay its fiscal deficit, while only 34 per cent was channelled to investments. Egypt's public debt stood at LE511 billion at the end of June 2005 marking an LE83 billion increase from its level in the previous year. The trifling revenues realised by the economic authorities compared unfavourably to the large investments directed to these entities, El-Malt highlighted, stating that the yield on the LE430 worth of investments would not exceed 5.6 per cent, a meagre figure that is diminished to only two per cent after tax deductions. This wretched yield stems out of ill prepared feasibility studies for projects that the authorities, like the General Authority for Housing Cooperatives, Endowment Authority and New Urbanisation Communities, are involved in. El-Malt also criticised the absence of surveillance and scrutiny during the implementation of many public sector projects, which in some cases can be considered examples of squandering public money. Responding to El Malt's comments, Minister of Finance Youssef Boutros Ghali said that while the fiscal deficit is increasing, it does not exceed 10 per cent of GDP and that reducing this deficit could only be done at the expense of social welfare. This would involve lifting subsidies and introducing no increases to salaries and wages. "In this case, half the population will not be capable of buying even their daily bread," said Boutros Ghali. Interest rates hike FOR THE SECOND month in a row, the Central Bank of Egypt (CBE) raised local interest rates, citing high inflation as the reason. The CBE's Monetary Policy Committee increased both the overnight deposit rates and overnight lending rates by a further 0.25 per to 8.75 per cent and 10.75 per cent respectively. This came only one month after a 0.5 per cent hike was introduced to both rates on the back of increasing inflationary pressure that hit a high of 11.8 per cent in October; an increase of almost nine per cent when compared to the same time last year. The move was expected as the CBE intimated last month that the direction of interest rates will be determined according to developments in economic growth and inflation rates. Given a high inflation rate of 11.8 per cent, the real interest rates on local Treasury bills and bonds are negative, something which decreases the appeal of the Egyptian government's treasury securities. The reason behind the persistent inflationary rises is, according to statements given by Prime Minister Ahmed Nazif, the increase in growth rates. This was further compounded by the outbreak of Avian Flu and an increase in agricultural exports, which led to shortages in the local market. Reductions in energy subsidies have also contributed the rise in prices. The robust economic activity pushed GDP growth rates to 7.1 per cent in the first quarter of 2007, up from five per cent in the same period of last year. The decrease in income taxes has also helped in bolstering local demand, thus pushing inflation further forward. The move widened the differential between interest rates on the dollar and the Egyptian pound to 350 percentage points, up from 325 in November. In its mid-December meeting, the US Federal Reserve kept its rates static due to the sluggish UN economy. Commenting on the move, HC Securities Brokerage said that the wide spread between the Egyptian pound and the dollar calms down fears of dollarisation. However, it said that the move "mounts pressure on the Egyptian pound and increases demand on the pound-denominated deposits, therefore risking its appreciation in the short term and depreciation in the long term as real interest rates normalise." Debt-free public companies REVENUES made from selling Bank of Alexandria will be used to pay off the debts of 54 public enterprise companies. Among the 54 public sector businesses benefiting from the bank's sale are chemical products, foodstuffs, and construction. Minister of Finance Youssef Boutros Ghali said the LE9.2 billion gained from the sale will be used to increase productivity in these companies as well as increasing wages and capacity. The purpose of all this is to enable the companies to expand and thus increase their market share. Talking in a joint press conference that also included Central bank of Egypt's Governor Farouk El-Okda and investment minister, Mahmoud Mohieddin, Boutros Ghali added that the transaction will inject more cash in banks thereby increasing their competitive edge. Mohieddin pointed out that using this money to pay off debts will help decrease public sector debts to banks to LE10 billion, from the previous high of LE31.5 billion in 2004. El Okda emphasised that the government's move to pay off the businesses' debts sends a clear message to the private sector that the government is keen on protecting investors' rights, thereby providing a safe environment for investors, and ensuring increased investment. Siemens lights up the Grand Museum SIEMENS Industrial Solutions and Services (SISS) have won a contract to execute the electromechanical works related to the auxiliary buildings of the Grand Egyptian Museum. The company was chosen as a subcontractor to the Industrial Construction and Engineering Company, which was awarded the main contract from the Ministry of Culture. The contract is considered a key project for Siemens in the infrastructure sector. SISS will perform all the engineering, procurement, and construction activities to serve the auxiliary buildings of the museum, namely the conservation centre, energy buildings, security buildings and the fire station. The scope of works includes the supply, installation, testing and commissioning of electromechanical components such as power supply and distribution, light current systems (fire alarm, CCTV, access control, etc), HVAC, plumbiang, fire fighting and building management systems. "This is only the first phase of the museum which accounts for about 10 per cent of the total project and tenders for the remaining two buildings are expected to be announced some time during the first quarter of 2007," explained Wael Abu Bakr, business development manager in Siemens. Preparing for 2010 AS THE COUNTDOWN to the year 2010 approaches, Egypt is coming closer to becoming a part of the Euro-Mediterranean Partnership -- a trans-continental free trade area. The first EU-Egyptian stakeholders' meeting was held in Cairo on December the 13th to discuss the implementation of the Euro-Med charter for enterprises. The purpose of the meeting is to define specific priorities that Egypt is willing to commit to under the charter and to agree on concrete performance indicators to assess progress. Europe's partners in this initiative will face a number of challenges, including job creation, competitiveness in light of the more open economic atmosphere the initiative will bring and the articulation of development strategies. The recently issued charter also included a roadmap for Europe's Mediterranean partners, declaring common principles on which enterprise policy will be based. The common principles aim to increase cooperation between the partners, which include Algeria, Egypt, Israel, Jordan, Lebanon, Morocco, Palestine, Syrian and Tunisia. Pre-requisites to the charter's implementation include the creation of an environment conducive to investment, a stable macro-economic framework and a fair and transparent judicial system. Public-private participation in the implementation process is also outlined as key for the success of these policy initiatives. According to the European Commission, each of the Mediterranean partners will be committed to the application of the charter's principles, based on each nation's priorities and conditions. The charter does not cover small and medium enterprise (SME) development policies, which will be left to municipal governments to manage. Systematic information sharing between partners will also work to bring them closer while progress in implementation will be monitored on a periodical basis. The charter's areas of action will include; the simplification of procedures for enterprises, education and training for entrepreneurship, skill improvement, and easier access to finance together with investment friendly taxation, better market access, encouragement of enterprise innovation and the development of strong business associations. In the area of regulatory simplification, the charter will introduce common practices to improve governance, the setting up of online administration and the development of user- friendly documents. The impact of the new legislation will also be gauged in an attempt to ameliorate burdensome business requirements.
