Public Egyptian Budget and the absent optimum solution of the economic recovery vision in the Egyptian economy and the budget structuring
An article by Mohamed Reda
After we have the hopes restored through the decree issued by the President rejecting the Public Egyptian Budget proposed by the government for the next financial year 2014/2015- and after we have considered this to be change of the country s policy in addressing the economic problems, thinking that the government has considered the dire economic situation in Egypt which is the worst on record, as I have already mentioned in my article of June 26, 2014 titled "The Egyptian economic situation between a painful reality and a budget doubling its pains"; our expectations here were that the government has adopted a new trend within a clear economic vision starting with a real step in the way of economic reform by drafting a long-term plan of economic reform and issuing a budget for the next financial year 2014/2015 to serve as a starting point for introduction of virtual economic reform plan for our national economy.
Today, however, the amended Public Egyptian Budget for the next financial year 2014/2015 is being ratified and approved with only slight change by reducing the budget deficit down to 240 billion pounds (33.57 billion dollars), at 10% of GDP, compared to the Public Egyptian Budget that has been rejected by the President of the Republic, the deficit of which has amounted to 292 billion pounds at 12% of GDP, thereby decreasing the deficit by 52 billion Egyptian pounds at only 2% of GDP without the issuance of the prospective long-term economic reform plan. In this way, we shall keep moving in the same vicious cycle of thinking in a closed compartment and continue with the policy of traditional and partial solutions for more social pressures, thereby doubling the problems of the national economy with more burdens to be endured by the future generations. It is to be known that according to article 124 of the Constitution “the budget should in no case include any provision that might load the citizens with new burdens”, which means that we would have a conflict with constitutionality of the next budget. There is no doubt that this austerity budget would increase the depth of the stagflation due to reduction of the actual spending and the cutting of subsidization without having mechanisms to provide a control over the market, and without developing a social welfare network, the case in which a great deal of pressures would be exerted on the low-income and the zero-income citizens whose conditions have strongly been worsened over the last three years.
Here, I hope that the government would re-assess the situation as the economic condition of Egypt has become dreadful, with an economic revolution to be launched through the formulation of a long-term plan of economic reform, and through restructuring of the budget of the next financial year 2014/2015. I extend this view which I have already proposed for a long-term plan for economic reform titled " Egypt’s Economic Road Map" which consists of ten issues to be considered in parallel rather than in series, which Egyptians will gradually benefit in just one year after the start thereof, to eventually end up with an Egyptian economy having a place on the map of the world economy. The plan include: Linkage between education and the labor market & improving the productive skills and capabilities of the workforces as a whole; development of crafts and incorporating them into the formal economy; development of the agricultural and the industrial sectors; integrating the informal economy into formal economy; restructuring the government subsidization system; restructuring the legislative system of economic laws; restructuring the taxation system; provision of security and the expansion and improvement of the infrastructure; development of funding mechanisms based on the investment participation rather than leveraged; and improving corporate governance, transparency, and effectiveness of the regulatory authorities. All of these issues would have definite mechanisms with specific timetable for implementation thereof.
I also suggest restructuring the budget of the next financial year 2014/2015, through restructuring of the wages item by applying the maximum wage. This would cover 42 thousand government officials including all advisors with no exception. It would further include re-employment of public sector employees in the productive sectors; rationalization of the government spending and determining the limits thereof, and reducing the allocations being appropriated for some ministries and commercial and diplomatic representation; incorporating the private governmental funds into the Public Egyptian Budget which have amounted according to the Egyptian CAO’s report almost 6,373 funds containing 66 billion Egyptian pounds, with all to be fallen under the supervision of the Ministry of Finance; proceeding with incorporation of the informal economy into the formal economy; conducting a comprehensive review of the 13 funds, which receive subsidies through the Public Egyptian budget, including the Exports Support Fund and Tourism Promotion Fund, and others; with the proceeds of sale of public lands to be all reverted to the public treasury and not to such entities as the Industrial and Tourism Authority, and the like.
There should also be a restructuring of the tax scheme through the development of procedures for collecting the taxes and reducing the arrears, which have amounted to L.E. 70 billion. The process of determining tax liability and estimation thereof should be independent of the process of collection of taxes; that is, there should be an authority acting under the supervision of the Ministry of Justice and having the competences of tax collection, prosecuting evaders, issuance of laws warranting stringent penal actions to be taken against evaders through seizure and imprisonment, and collecting all fees and charges that are paid under different categories (such as roads fees, development of the state treasury fees, stamps, and others) under one category, i.e. «tax».
I also suggest restructuring of the budget spending on subsidies, especially energy subsidies, which benefits are primarily utilized by the well-off citizens, and on industries of intensive use of energy that devoured up 61% of the electricity subsidies and 75% of natural gas subsidies. Although the government allocates one third of its budget for subsidization, there are still 26% of the citizens living below the poverty line and are thus classified as zero-income people. There is no clear targeting of those who deserve subsidies and there is a waste of the country’s resources. The energy subsidization should, therefore, be restructured in a way that achieves social welfare rather than just ending the subsidization, with this to be done through an evident vision and integrated mechanisms, considering that the ending of subsidization without developing social welfare network and without measures for providing control over the market and fighting against the black market would lead to a wave of inflation and would terribly increase the prices, which may substantially affect stability of the national currency, propagation of the black market, and social wide unrest.
I would, therefore, suggest that the energy subsidization is to be re-structured through expansion of the social welfare scope and adoption of targeting plans for those citizens who deserve subsidization, with this to be done in a manner that is more evident and effective in order to minimize wastes and rationalize expenses. I would also suggest gradual ending of the governmental subsidization of energy starting first from the industrial sector, in order to minimize the effects on the industrial sectors by gradual ending of subsidization for those projects with intensive energy consumption, and those with intensive capital enterprises, with such subsidization to be eventually appropriated for the small and medium projects and for those having intensive labor, provided that subsidization of these projects is to be effectuated for a time period specified on the basis of achieving certain profit margin. As regards structuring of energy subsidization for the citizens, it is suggested here that development of the social welfare network is to constitute an integral part of the rectification program, in order to alleviate its effects on the limited-income and the zero-income people, with a part of the saved funds to be used for improving education and health services. The gradual ending of subsidization should be associated with an evident obligation by the government that the ending of subsidization would lead to reduced prices and improved services, with a direct focus on the limited-income and the zero-income citizens who shall then be subsidized through direct monetary indemnities in addition to the direct aids, the increased minimum wages, the improved funding of health care programs in the neglected areas, the investment in electricity and gas supply to the rural and the neglected areas, along with reduced taxes to be applied for a limited time period to those who are severely affected by the ending of subsidization, and with such reduction to be ended after the stability restore of market and after it becomes no longer affected by ending the subsidization. Fair identification method should also be adopted for determining the local energy prices in accordance with the global price fluctuations, with this action to be undertaken by an organizational authority independent of the government.
In order to face the state of inflation which shall be associated with the ending of subsidization, a new law should be issued for specifying the profit margins for the strategic products, with a governmental body to be established for protection of consumers by providing direct control over the market and by pricing the strategic products and services all over the country in order to put an end of the black market. This shall be done through 200 thousand governmental supervisors appointed through the re-employment of non-productive governmental labor force, with further laborers to be added thereto. In addition, establish a price-control fund financed by a portion of the funds appropriated for subsidization, in order to directly influence the supply and demand trends in the market for the strategic products.