Two parliamentary reports this week rang alarm bells over Egypt's excessive public debts. Gamal Essam El-Din writes The two houses of parliament -- the lower People's Assembly and the upper consultative Shura Council -- this week raised the alarm over the rapidly deteriorating condition of Egypt's public debts, urging the government of Prime Minister Atef Ebeid to implement an immediate change of policy to ease the crisis. On 31 December 2003, a 25-page Shura Council report said, the government's domestic debts stood at LE266.3 billion. "By adding this debt to the LE174.4 billion the government owes the Social Pensions Authority, the total domestic debt will climb to a total LE440.7 billion," said the report. It concluded that "as the value of Gross Domestic Product [GDP] in fiscal year [FY] 2003/ 2004 is estimated at LE407.7 billion, this means that the total domestic debt has exceeded the value of GDP by 8.3 per cent, or has come to 108.3 per cent of GDP". The Shura report, which was prepared in light of debates over the new 2004/2005 state budget, said the above distressing fact must be addressed not only because the value of domestic debt should not exceed the internationally-recognised safe limit of 60 per cent of GDP, but also because the heavy burden of servicing the spiralling domestic debt has been a major reason for the rapidly widening gap between state revenues and expenditure and for the increasing budget deficits. According to the Shura report, the value of domestic debt soared from LE217 billion (67.8 per cent of GDP) in 30 June 1999 to LE329 billion (85.1 per cent of GDP) in 30 June 2002, and again rose to LE371 billion (90.7 per cent of GDP) by 30 June 2003. "From 30 June to 31 December 2003, it skyrocketed by around LE70 billion, or to LE440.7 billion (108.3 per cent of GDP)," the report said. Even the blunt Shura report, however, is mild compared to a paper which was prepared by the People's Assembly Budget and Plan Committee on the balance sheet of 2001/2002's budget. According to Chairman of the Central Accounting Organisation (CAO) Gawdat El-Malt, the five years of Egypt's fourth five-year development plan (1997/1998 to 2001/2002) witnessed domestic debts increasing by 15 per cent on average per year or by 74.8 per cent in all. In other words, El-Malt added, the total domestic debt escalated from LE177.8 billion in FY 1997/1998 to LE329 billion (86.4 per cent) in FY 2001/2002. El-Malt, addressing the People's Assembly on Sunday, said this debt includes a government debt estimated at LE221.2 billion (58 per cent of GDP), a LE41.2 billion (10.8 per cent) owed by economic authorities (such as the National Railway Authority) to the National Investment Bank, and LE67.5 billion (17.6 per cent of GDP) owed by the National Investment Bank to several state agencies (such as the Insurance Organisation). El-Malt said that Egypt's foreign debts stood at $28.7 billion or LE129 billion in 30 June 2002. "This figure includes a government debt estimated at $10.9 billion (38 per cent), and foreign debt borrowed under guarantees from the government and commercial banks," said El-Malt, showing that the latter is estimated at $17.3 billion (60 per cent). Foreign debts, El-Malt said, also include private sector debts estimated at $500 million (two per cent). As a result, El-Malt put Egypt's total public debt in FY2001/2002 (both domestic and foreign) at LE458.9 billion or 120 per cent of GDP. "This is a very alarming figure because it means that the heavy cost of debt servicing is accelerating all the time," he said. The above figures gave opposition members of parliament a golden opportunity to escalate their fiery attacks against Ebeid's government. On Sunday the government was set to respond to two interpellations, 39 information requests and two questions about the rise in value of public debts. The government, however, said it would be ready to respond only after the report prepared by the Budget Committee on FY 2001/2002's balance sheet is first debated. Finance Minister Medhat Hassanein, addressing the assembly on Sunday, argued that the public debt is not solely shouldered by the government. The government's net domestic debt stands at just LE221.2 billion (or 58 per cent of GDP) in 30 June 2002. "This means that this debt is at a safe limit because it has not yet exceeded 60 per cent of GDP," he said. Hassanein also contended that out of the foreign debt standing at $28.7 billion, the government only has $10.9 billion (LE49 billion) to service, as the remaining $17.8 billion are owed by economic authorities and the private sector. The committee's report lamented that this fact brings the total government's net debt (both domestic and foreign) to LE270.2 billion. "Because of this high level of debt, the government was obliged to earmark LE31 billion or 23.1 per cent of the total FY 2001/ 2002 budget expenditure to servicing this debt," the report said. This distressing fact always strips the government of having the financial resources required to fund development programmes, said the report. The report said the United States, Japan and the European Union are Egypt's largest foreign creditors. "While these three groups account for 68.3 per cent of Egypt's foreign debt, Arab countries and international and regional lending institutions charge for the remaining 31.7 per cent," the report said. The Shura report said debt servicing in the new FY 2004/2005 budget will gobble up around LE50.21 billion (or 40 per cent) of total expenditure estimated at LE125.1 billion. Hassanein attributed the excessive public debts to an accumulation of several historical factors. The first, he said, is the ever-widening gap between expenditure and revenue. "In the new budget, expenditure will increase by 11.2 per cent, while revenues will be boosted by just 7.4 per cent. This means a gap of 3.8 per cent which is usually covered by borrowing," Hassanein said. The problem, he explained, is that most of the budget's expenditure is allocated to "inevitable channels". "We cannot dispense with raising salaries and wages, modernising our armed and security forces, and providing subsidies to low and limited-income citizens," said Hassanein. Another reason, Hassanein said, is that tax reform efforts have yet to pay off. "We have exerted tremendous efforts in the recent few years to boost our tax revenues. We will introduce more reforms in order to boost tax proceeds. The next major reform is that the government will scrap giving any kind of tax incentives to investment projects," he said. A third reason for the ballooning of domestic debts, Hassanein explained, is that the government was obliged in the last three years to pay LE10.4 billion in arrears to vital services provided by such state agencies as the Electricity Authority. "Although this exacerbated the domestic debt, it was important to give these agencies the value of services they provided the government in order to help them restructure themselves and inject more money aimed at improving their services," he said. Hassanein also explained that economic authorities, which are mainly to blame for the worsening of domestic debts, is a big thorn in the government's side. "These organisations are called economic because they are supposed to be market-oriented and able to cover their expenses and secure profits. The problem is that they have turned out to be big borrowers because they are forced to sell their products and services at subsidised prices," he said. According to the finance minister, the government is doing its best to improve the economic performance of these organisations (of which there are around 60) through rectifying their financial conditions and preparing them to become profitable entities.
