Fuel Station in Egypt - File Photo Fuel Station in Egypt - File Photo

How would Egypt’s 2019/20 budget benefit from subsidies cut?

Sun, Jul. 7, 2019
CAIRO – 7 July 2019: After applying the fifth and final tranche of subsidies cut in Egypt, a question popped up about how the budget would benefit from the surplus of these cuts.

The subsidies cut would help in raising wages and salaries, and in redirecting subsidies to supply cards which benefit the most-needy persons amounting to 76 million citizens.

That is in addition to raising the allocations of the health and education sectors.

President Abdel Fatah al-Sisi ratified Sunday evening the country's budget for fiscal year 2019/2020, according to the Egyptian official gazette, Al-Wakaa’ Al-Masrya, after the budget has been approved by the Parliament.

In April, Minister of Finance Mohamed Ma'it reviewed Egypt's draft budget for new fiscal year 2019/2020 in the Parliament, stating that the draft budget aims to increase the growth rate to about 6 percent, at a cost of LE 6.163 trillion.

Ma'it added that the new budget focuses on the growth of containment and sustainability to result in reducing inflation to 10.5 percent, and the unemployment rate to 9 percent.
The minister stated that it also aims at reducing the total budget deficit to about 7.2 percent of GDP, compared to 8.4 percent in FY17/2018.

Petroleum subsidies in 2019/2020 budget amounted to LE 52.96 billion, compared to LE 89.07 billion in 2018/2019, with a decrease of LE 36 billion or 40.5 percent.

By reviewing the 2019/20 budget, the numbers revealed that a hike in allocations of health, education and salaries resulted from the subsidies cut.

The wages in current budget reached LE 301 billion, and by applying the subsidies cut, it would help the state to apply the minimum wage at LE 2000 from LE 1200 in previous budget.

Former IMF adviser Fakhry el-Fekky pointed out that subsidies cut contributed to the increase in wages for the public sector and the increase of pensions for the elderly and the incapacitated, who represent about 65 million citizens, in addition to the continuity of subsidies in food and living materials.

Economic Expert Ali al-Edrisy told a local newspaper that the new budget of the state witnessed several advantages aiming at building the Egyptian citizen by providing government support for fuel and other areas, including increasing the state budget in the areas of health and education to promote them.

Edrisy pointed out that there are other national projects, including the road network, which helps investments and facilitates the life of citizens, pointing out to the Takaful and Karama project which aims to improve the lives of Egyptian families.

Takaful and Karama project covers about 2 million families, about 9 million people. The project reached disadvantaged families in all of Egypt's 27 governorates, in which 88 percent of the total beneficiaries so far goes for women.

The allocations of the health sector in the general budget amounted to LE 73.063 billion, marking an increase of LE 11.252 billion, compared to the budget of 2018/2019.

Moreover, LE 35.9 billion were allocated for the item of wages and compensation of the health sector, followed by LE 15.39 billion for the purchase of goods and services and LE 13.5 billion for the purchase of non-financial assets investments.

Education allocations rose by LE 16.37 billion, recording LE 132.04 billion, compared to LE 115.68 billion in previous budget.

The wages and compensation of employees for the education sector hit a total of LE 97.28 billion.

Professor of investment and finance at Cairo University, Hisham Ibrahim, said that the liberalization of energy prices and the rationalization of subsidies gradually contributed significantly to encouraging investment in energy production projects, as the support was an obstacle to the investor, whether foreign or Egyptian, because it did not achieve the margin required for the investor.

He pointed out that new projects have been implemented in the energy sector, including but not limited to a project to produce wind energy in Aswan, which will save energy and create surplus to export those goods.

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