MPs charge that Ebeid's government has left Egypt in a quagmire of public debts. Gamal Essam El-Din reports For most of his four-and-a-half years in office, the issue of public debts has been Prime Minister Atef Ebeid's biggest headache on the domestic front. Opposition and independent MPs have always made a point of attacking Ebeid for what they claimed was his tendency to take parliamentary criticism lightly and paint a rosy picture of the country's economic conditions. On Saturday, however, things were different. When parliament convened to discuss four interpellations (charges that must be refuted by cabinet ministers) that took the government to task for the proliferation of public debts to unprecedented and historical levels, Ebeid decided at last to stand up to his most aggressive critics. Ebeid said although the criticism he faced was focussed on the issue of public debts, he would seize the opportunity to address the People's Assembly on three pressing issues. In addition to public debts, he said he would deliver a review of the economic performance of his government, and of the progress of privatisation in particular. According to Ebeid, the World Bank and International Monetary Fund's (IMF) evaluations for the Egyptian economy in 2003 and outlook for 2004 say that Egypt has ably absorbed all external shocks, notably those of the 1997 southeast Asian financial meltdown, the 1997 Luxor attacks, 1998's world recession, the 11 September 2001 attacks, and the current regional conflicts in Palestine and Iraq. "Egypt has been able to stay steadfast in the face of all these shocks and even raise national growth rates from two per cent to almost four per cent at the present time. This is ... expected to climb to five per cent next year," said Ebeid. Ebeid asserted that his government's major four-year strategy in reducing imports and boosting exports has at last borne fruit. A case in point, Ebeid said, is that in 1975, Egypt was importing 88 per cent of its hotel construction needs. "This [rate] fell to just 12 per cent and we are determined to reduce it to the minimum," he said. Ebeid added that Egypt has become a giant producer of electric power and equipment. "While 98 per cent of Egyptian homes enjoy access to electricity in 2004, up to 40 per cent of the components of electric equipment are now locally produced," said Ebeid. According to Ebeid, the spurt in Egypt's electric generation power led to boosting its industrial capacity. "From 33 factories in 1956, Egypt now boasts of having an integrated network of more than 23,000 factories that produce all kinds of goods," he said. He also argued that his government's achievements in the areas of telecommunications, tourism, and oil production are unprecedented. "The last six months saw foreign investments estimated at $7 billion that led to 35 oil and natural gas discoveries. These discoveries will generate $300 billion in returns, or three times the value of public debts," said Ebeid. Ebeid said borrowing could be a blessing or a curse. "In the case of Egypt, borrowing has always been more a blessing than a curse," he said. In certain periods of Egypt's history, he said, there was a need to resort to foreign borrowing in order to import the industrial machinery necessary to operate factories and because national savings were not enough to be mobilised for achieving development plans. "The money we borrowed helped us reduce imports and establish a range of projects that raised our productive capacities to remarkable levels," he said. Ebeid added that President Hosni Mubarak's policy during the Gulf War in 1991 led major creditors to forgive Egypt almost $25 billion in debts. Ebeid said his government managed to stabilise Egypt's foreign debt at $28.7 billion. Ebeid said the government's strategy is based on the notion that if there is a need for borrowing in a certain year, the amount must be smaller than what is being paid towards settling old debts. "In the last 10 months, for example, we borrowed $800 million, but we paid LE1.6 billion towards the settlement of old debts," Ebeid said. He indicated that while foreign debt servicing accounts for 9.5 per cent of foreign exchange revenues, his government was able to generate $2.5 billion in revenues in the last three years. "This is a remarkable achievement considering all the shocks which hit the country in this period," he said. Ebeid concluded by emphasising that Egypt's privatisation programme was the best in the world in terms of transparency and efficiency. The prime minister's criticis, however, did not share his optimistic view. All of them painted a very gloomy picture of economic conditions. Hamdi Hassan, a Muslim Brotherhood MP, argued that the debt crisis is as alarming and severe as that of 1876, during which Egypt went bankrupt and was forced into accepting a joint Anglo-French control on its public finances. "The reaction of Ebeid's government is similar to that of Khedive Ismail in 1876. Both refused to admit the crisis and opted instead to plunge into a flurry of excessive borrowing," said Hassan. The result, he said, is that as much as LE56 billion -- more than 50 per cent -- of national revenues now goes to servicing foreign debts. According to Hassan, when Ebeid took office in 1999, the growth rate was as high as 5.1 per cent. "Now, it is as low as 2.4 per cent. Worse, the value of domestic debts soared from LE215.1 billion in 1999 to LE440.7 billion at the end of last year," he said. Hassan added that the poor performance of Ebeid's government also resulted in two failures: the budget deficit skyrocketed from LE5.5 billion in 1999 to LE53 billion in 2004, while foreign investment fell from $1.6 billion in 1999 to a mere $429 million this year. All of these bad omens, he concluded, show that Egypt has become on top of countries suffering from the highest levels of debts in the world. "While the public debts of Argentina, which went bankrupt in 2002, account for only 45 per cent of its GDP, those of Egypt account for 133 per cent of GDP," asserted Hassan. Ayman Nour, a liberal-oriented MP, attributed the astronomical rise in public debts to rampant corruption. Nour cited Transparency International, a German-based organisation, that placed Egypt as number 62 out of 105 countries fighting corruption and for financial transparency. He charged the government with going soft on public debts by making "a separation between the government debts on the one hand and the debts owed by economic authorities to the National Investment Bank [NIB] and those owed by NIB itself to several state agencies on the other". "We all know that chairmen of economic authorities and NIB are appointed by the government and this is why it must be held responsible for their debts," he said. El-Badri Farghali, a leftist MP, said the debt crisis has become so severe that domestic debts skyrocketed by LE17 billion in just three months or from LE370 billion at the end of December 2003 to LE387 billion at the end of March, 2004. According to Farghali, public debts -- foreign and domestic -- come to exactly LE580 billion. "This immense figure is expected to rise whenever the country moves towards liberalisation," he said. Saber Abdel-Sadeq, another Muslim Brotherhood MP, attributed the debt crisis to poor government performance, economic mismanagement and lack of democracy. "A case in point is that while LE25 billion was spent on building new housing communities, only 1.5 million people now live in these communities," he said. Responding to the above attacks, Finance Minister Medhat Hassanein attributed the rise in domestic debts to the fact that while annual budgetary spending is increasing by 11 per cent, the revenues are increasing by a mere 7.4 per cent. "This gap not only exacerbates domestic debts, but leads to aggravating the budget deficit as well," he said. A case in point, he added, is that budgetary spending rose from LE16.2 billion in 1983-1984 to LE177.4 billion in the new fiscal year 2004-2005. Hassanein argued that government debts must be separated from those saddled by NIB and economic authorities. "NIB takes charge of settling its own debts, and the economic authorities generate enough revenues to pay their debts," he said. In light of this fact, Hassanein indicated that the government's net domestic debt rose from LE252.2 in 30 June 2003 to LE266.3 billion at the end of December of the same year (or 58.2 per cent of GDP). "This means that this debt stands at a safe limit because it has not yet exceeded 60 per cent of GDP," he said. Hassanein attributed the dramatic accumulation of debts to the inevitable raising of salaries, providing subsidies to low and limited-income classes and funding national development projects that led to an impressive modernisation of Egypt's infrastructure in the last few years.
