The 2011/2012 state general budget bill was approved this morning by the Egyptian Cabinet, presided over by Prime Minister, Dr. Essam Sharaf. The approved bill will be submitted to the Armed Forces Su...

The 2011/2012 state general budget bill was approved this morning by the Egyptian Cabinet, presided over by Prime Minister, Dr. Essam Sharaf. The approved bill will be submitted to the Armed Forces Supreme Council for ratification to be put into force starting next July. The new budget will see the light of day in exceptional circumstances surrounding the Egyptian economy. Growth rate is expected not to exceed 3-3.5% in the new fiscal year, a low rate which cannot create adequate job opportunities required to cater for the needs of the new comers to the labour market. The government, however, was keen to set a balanced bill which covers the inevitable expenditures and provides enough funds to spend on the social dimension, in addition to boosting the economic activities through augmenting investment expenditure by a rate of 16.3%. The government has, moreover, exerted great efforts to keep the total deficit of the budget within safe limits to maintain the ratio of the general debt to GDP of the state without increases. Consequently, the targeted deficit rate is 8.6% of the GDP, compared to 9.5% expected for the current fiscal year, 2010/2011. The government asserts that achieving economic and social stability is a main priority at this stage and that the different agencies of the state will be committed to setting their priorities according to the funds allocated to each of them as reflected in the spirit of the general budget bill for the new fiscal year. Total public spending in the new budget is LE 490.6 billion, an increase of 14.7% over the expected sum for the current fiscal year. Total expenditure of the social dimension of education, health, subsidies, etc., is LE 263.5 billion, i.e., around 54% of the total spending figure. Wages and salaries enjoy a hike of 23% to LE 117.5 billion, considering the additional funds needed for the special raise of 15% of April 2011, costing LE 3 billion, and financing the first stage of the comprehensive program of reforming the matrix of wages and salaries. The lowest rate of variable wages was raised from 75% to 200% which set the minimum wage limit at LE 700, and narrowed the gap between the wages of workers occupying the same vocational rank in the state apparatus. This measure will cost the state an additional LE 9 billion annually. The Cabinet asserted that reforming the wages matrix is part of a comprehensive program aiming at social justice and raising standards of living in addition to linking wages to productivity and avoiding exacerbating inflation in the local economy. Approved as well is increasing allocated figures for purchasing goods and services by 5% to LE 30.3 billion, including around LE 5.2 billion to cover the costs of medicines, foods for schools, hospitals and prisons, in addition to one billion pounds for printing school books. All funds required to meet financing needs to pay off interests and principles of debts have been allocated, the cabinet statement revealed. Total sums allocated to cover interests are LE 106.3 billion. However, around 96% of these interests are due locally, which means the funds are recycled for the benefit of the local economy. The fourth clause of the budget, concerning subsidies, grants and social benefits, amounts to LE 157.8 billion. There is a special emphasis to secure the necessary funds for subsidising alimentary goods, especially bread. Total funds for alimentary commodities are LE 22.4 billion. The same clause includes around LE 1.5 billion in subsidies for housing units for low-income brackets, an increase of LE 250 million over the expected figure of the current fiscal year, LE 850 million to subsidise passenger transportation, LE 420 million subsidising medicines, in addition to LE 3.5 billion to provide free medical care. Meanwhile, subsidies allocated to petroleum derivatives are around LE 95.5 billion. Interestingly, the national dialogue conducted by the Ministry of Finance with spectra of political trends has proven the necessity of rationalising such subsidies since a portion of the subsidies leaks where it is not supposed to go. The surplus could be re-directed to spending on other aspects with better social returns or could be saved to cut down deficit. The government has already taken measures to achieve such purpose. The Cabinet agreed to start converting bakeries and brick kilns to the use of natural gas instead of kerosene and butane which are subsidised for other uses. It also approved providing commercial and industrial establishments with butane at non-subsidised prices since they offer their services at commercial non-subsidised prices. These measures are expected to gain returns of around LE 3.5 billion in the fiscal year 2011/2012, which will rise to between five and 5.5 billion starting the fiscal year following converting these establishments to the use of natural gas. The Ministry of Petroleum has already adopted measures to review the prices of exporting natural gas. It is expected that the first stage of the review will result in an increase in revenues of around four billion Egyptian pounds. Furthermore, one billion Egyptian pounds was allocated to retraining manpower to combat unemployment within an integrated matrix to solve the problem of unemployment through granting aid and incentive to find jobs. As for pensions, the Cabinet decided that the general state budget, rather than the social security funds, should cover the cost of the raise of 15% ratified last April. Additionally, the Cabinet decided to allocate LE 2.8 billion to cover the difference of the special raise set by Law 114 of 2008 to be at 30% instead of 20% with a ceiling of LE 100. The Cabinet has as well decided to raise the sums allocated to social security pension by around LE 1.6 billion so that the number of families covered by this system will reach 1.5 million families. This increased fund will cover raising the value of the pension by 25%. Moreover, the Cabinet decided to raise the volume of government investment by 16% to LE 47.2 billion, compared to LE 40 billion this fiscal year aiming at boosting economic growth. This investment helps in implementing infrastructure projects and housing. They are not only industries related to various other dependent industries, but they are also responsible for engaging very high rates of employment. Revenues are LE 349.6 billion in total, a rise of LE 55.2 billion over the expected sum of this year. Most of the rise comes from increases in revenues of sovereign bodies such as the Minister of Petroleum, Suez Canal, the Central Bank, in addition to taxes due on stocks and treasury bonds. A part comes from expected revenues as a result of applying certain measures such as escalating taxes, by adding a fourth bracket of 25% on revenues exceeding LE 10 million, and raising sales tax on cigarettes from 40% to 50%. The Cabinet asserted the newly introduced elements aim at securing the social aspect of the budget through maintaining subsidies on alimentary goods, introducing a new tax bracket of 25% on high incomes while avoiding any adverse effects on investment and the economy in general. The social aspect is also apparent in the increases that took place in the income of employees at 15%, and bridging the gap between salaries of the same-rank workers. Consequently, the final result reflects a retreat of the total deficit from 9.5% of the GDP expected for the current year to 8.6% at LE 134.3 billion, and a reduction of the total ratio of the debt in the general budget from 83% expected for the current year to 81% at the end of June 2012. The Cabinet emphasises that the state general budget allocates clauses of public spending very carefully so that the deficit would not rise by more than LE 4 billion, which shows a reordering of the priorities of spending on the part of the government and its agencies and the setting of limits imposed on each agency which will do its best to utilize self financing resources of their special funds.