The government is laying out its stall for an expansionary budget, reports Niveen Wahish "The more we spend the bigger the burden on future generations," is how Youssef Boutros Ghali, minister of finance, summed up the difficulties facing the government as it finalises the 2009/ 2010 budget against the backdrop of an economy strained by the global economic crisis. He was addressing a press conference following Tuesday's meeting of the National Democratic Party's Supreme Policies Council. During the press conference Ghali repeatedly stressed that the government remained committed to increased social and investment spending even if this meant a larger budget deficit. Yet he still hoped the deficit would remain within "safe" limits and allow for non-inflationary growth. The government is predicting a budget deficit of 8.2 per cent of GDP, almost two points up on this year's 6.5 per cent. Ghali stressed that by not overspending the government was seeking to "retain what it has achieved in terms of reform in the past five years". Ministry of Finance statistics suggest spending will reach LE319 billion the next fiscal year while revenues are unlikely to exceed LE225 billion. This means the government will need to borrow LE100 billion in the next fiscal year, and a similar sum the year after, to cover the gap between revenues and expenditure. Reigning in the budget deficit is one of four main priorities, said Gamal Mubarak, chairman of the NDP's Policies Committee. "Given the current circumstances we are accepting a deficit higher than was originally planned," he said. Sultan Abu Ali, chairman of the economic committee of the Arabic Language Academy and a former minister of economy, worries that the borrowing will bring increased government indebtedness and debt service payments. "This reduces the government's ability to direct more funds towards areas such as education and health," he said. He recommended revising spending to eliminate unnecessary waste and free up more resources. A February 2009 Global Investment House (GIH) report said that in June 2008 gross domestic public debt reached LE536.6 billion, around 64 per cent of GDP. Ghali is determined that borrowing should remain around the same level. Mubarak listed the second priority of the new budget as being social spending, subsidies and poverty alleviation programmes, for which LE170 billion, or 53 per cent of total expenditure, had been allocated. In addressing social spending both Mubarak and Ghali could not escape reference to the annual bonus with Mubarak stressing that the allowance will be distributed. In a meeting on Wednesday, the Ministry of Finance and members of the ruling party agreed that this year's bonus will not exceed five per cent -- as opposed to last year's 30 per cent increase. Mubarak also announced that civil service salaries will be increased in addition to the bonus. Ghali used the press conference to reiterate that a choice existed between granting a higher social allowance to 5.7 million civil servants who had guaranteed jobs and will receive their annual raise and settling for a lower allowance to allow remaining funds to be directed towards investment that would create jobs. Doha Mounir, professor of finance at the American University in Cairo, believes that granting the social allowance is a duty given that "government employees are the most punctual taxpayers -- income tax payments are deducted at source -- and they have been subject to salary freezes for 30 years." A third priority is increased investment spending on infrastructure projects which, says Ghali, will create jobs by boosting local demand as well as improve services in areas such as water provision and sanitation, roads and ports. He predicted that the resulting infrastructure improvements will benefit production by boosting growth from 7.5 per cent to nine per cent once the crisis is over. "Increased growth will make up for the money we are borrowing today," Ghali said. He also revealed that 80 per cent of the government's LE15 billion stimulus package earmarked for the current fiscal year has already been spent. With the bulk of the amount spent on infrastructure programmes, steel production grew by 40 per cent during the past six months at a time when steel production worldwide has dropped by 15 per cent. While "spending will ease the effect of the slowdown" Ghali insisted, "it will not take it away altogether". Recognising that alone it cannot afford to fund its ambitious infrastructure programmes, the government's fourth priority is to attract greater private sector participation. Of the estimated LE242 billion in investments needed to support growth of between four and 4.5 per cent in 2009/10, the government can provide LE97 billion. The private sector is expected to contribute LE100 billion, leaving an additional LE45 billion which, Mubarak argued, will only be forthcoming if legislation is enacted to support the private sector and encourage it to take part in specific infrastructure projects. Ghali gave the example of schools where private public partnership projects are already underway. A total of 340 schools are being built by the private sector, which will be responsible for their day-to-day running and maintenance while leasing the buildings to the Ministry of Education. Mubarak expects both the government and private sector to seek any borrowing needs in the local market. Abu Ali thinks the position is "feasible", pointing out that the Egyptian banking system still enjoys liquidity. The GIH report said that in November 2008 Egypt's loans to deposits ratio was 56 per cent. Both the government and private sector are thus likely to be spared having to compete for funding in an international market where, Ghali remarked, developed countries, in their attempts to fund their budget deficits, are crowding out developing poorer nations.
