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Budget deficit widens as analysts blame lack of political will
Published in Daily News Egypt on 25 - 12 - 2011

CAIRO: Egypt's budget deficit is expected to peak to LE 182 billion from LE 134 billion, the Central Bank governor said Sunday, according to the state official news portal.
As state revenue tax is expected to be lower this year, government reserves decrease, and the country's debt remain to be a pressing issue, Minister of Finance Mumtaz Al-Saeed said he will be “studying measures to contain the problem.”
Al-Saeed pointed out that there are instructions from the Prime Minister, stressing the need to pursue tax evaders and take more serious steps against the practice, according to the report.
Recently, the finance minister decided to impose a tax on tobacco products in order to save about LE 2 billion.
Just last week, Prime Minister Kamal El-Ganzoury announced that there would be a maximum wage set at 35 times the minimum wage in order to battle the country's swelling budget deficit. The government is also in the process of cutting down salaries for employees at the executive level.
Through discussions at the Economic Commission, Egypt's government concluded that borrowing at least $10 to $12 billion, about LE 72 billion, has become “inevitable and unavoidable,” according to the report by the official news portal, Egynews.net.
“Borrowing is the easy way out; it is not the only way out. Investment and a better economy is what we need,” Monette Doss, senior banking analyst at Prime Group, told Daily News Egypt. “To reach investment and higher production, there has to be a concrete economic policy, but of course the political will is not there. The real solution is in that area; it would not be in borrowing per say.”
The state has been borrowing at a rate reaching about 15 percent from local lenders.
“We borrow already at a very high rate. Locally, we have reached 15 percent,” Doss added.
In order to alleviate the current state deficit, government officials have been speculating accepting loans from the IMF, however, no concrete decisions have been taken yet.
“I don't think it will be easy to get other loans at the moment; everything is not stable. The political situation is not stable at all. It is still very unclear what kind of rules will be in place, and loans from the IMF or World Bank, for example, will have stricter guidelines in these circumstances,” she said.
Just last Wednesday, Moody's Investors Service downgraded Egypt's overall sovereign rating to B2 from B1, pushing the country's ranking further towards junk status.
The agency also placed the country under review for another possible downgrade citing political instability, which continues to “undermine investor confidence” as well as increasing pressures on the government's finances, “deterioration” in the country's external balance of payments position, and “absence of a meaningful level of exceptional, external financial support to restore confidence in the transitional period ahead of a return to civilian rule.”
Many economists and investors have argued over the past 10 months that the country's political transition has prolonged longer than expected. Today, Doss reiterates this message.
“I do not see this as economic decision; they are taking a political decision,” Doss said, referring to the government's moves towards the same path.
The key to Egypt's ailing economy, which is reaching its breaking point, is concrete economic policies.
“If there was a real political will, of course it will be easy to have some sort of economic policy but this is purely political. I don't think the decision makers want stability, obviously,” she stressed.
Minoush AbdelMeguid, managing director of Union Capital, previously told DNE the problem lies in the fact that the economy, which has been deteriorating over the past 10 months, is not in the “expertise” of Supreme Council of Armed Forces, who assumed power after the ouster of Hosni Mubarak in February.
The country's stock exchange has significantly suffered over the past year after constant protests against the ruling military council have turned deadly, as security forces crackdown on pro-democracy protesters.
The year-to-date change on EGX 30, Egypt's main benchmark index, has lost about 48.31 percent.
In addition to Moody's Investors Services, Standard & Poor and Fitch Ratings have all downgraded Egypt's credit ratings several times in the past months as a result of the instability.
In addition to the government downgrade by Moody's last week, the agency also downgraded five of Egypt's top local banks, which include Commercial International Bank, Bank of Alexandria, Banque du Caire, National Bank of Egypt and Banque Misr.
“The FC deposit ratings of all five banks were also downgraded to B3 from B2, constrained by Egypt's FC bank deposit ceiling which was lowered to B3,” Moody's said in a statement.
“All of the banks' long-term deposit ratings remain on review for further downgrade, reflecting Moody's ongoing review of the sovereign debt ratings and the country ceiling on foreign-currency (FC) deposit ratings.”
According to Doss, the murkiness, which lies ahead for Egypt's political future, is the reason behind such downgrades.
“High unemployment, the state of the country and pressures all affect retail loans and our banking system,” said Doss. “These downgrades are just a reflection of the situation that we are in, they are a consequence.”


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