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Tuesday, 24 May 2022

Subsidies + social safety net allocations dominate House budget debate

MPs raise flags on FY 2022-2023 budget allocations for subsidy + social safety net spending: Members of the House Planning and Budgeting Committee appear to be divided on whether the state should be upping its spend on commodity subsidies and expanding social safety programs, particularly as the Russia-Ukraine war has led to a jump in global food prices and inflationary pressures. The proposed budget, which Finance Minister Mohamed Maait presented to the House of Representatives earlier this month, penciled in EGP 90 bn for food subsidies next fiscal year, rising slightly from EGP 86 bn allocated for the current fiscal year.

“The budget’s food subsidy allocation is by no means enough to contain the dramatic spike in global food prices caused by the war,” Rep. Mostafa Salem, co-deputy chairman of the committee, said at a meeting last week.

On the flipside, a restructured welfare system has brought down our subsidy spending needs, which partially explains why the subsidy bill for next fiscal year hasn’t ballooned, General Authority for Supply Commodities (GASC) Chairman Ahmed Youssef Mansour told MPs. “We cut spending on ration cards by EGP 600 mn during the current fiscal year, not to mention that many subsidized bread bakeries were forced to cut costs by using natural gas instead of gasoline,” he said.

MPs raised eyebrows at the ministry’s wheat price forecast: The Finance Ministry has earmarked EGP 43 bn to cover wheat purchases through the year, based on projections that imported wheat will cost USD 330 per ton on average through the year. “These allocations are by no means sufficient — local wheat procurement alone is expected to cost EGP 15 bn, and the remaining EGP 28 bn budgeted is not enough to cover the cost of imported wheat, the price of which has skyrocketed,” said Yasser Omar, co-deputy chairman of the committee. Omar also pointed out that the ministry’s price forecast for wheat falls far below the current global market price, which stands at USD 435 per ton.

GASC thinks it’s enough: Local and imported wheat have cost state coffers around EGP 38 bn so far during the current fiscal year, suggesting that next year’s wheat budget should be sufficient, the wheat buyer’s Mansour said. The government has paid on average USD 335 per ton of imported wheat so far this year, spending EGP 25 bn on 4.7 mn tons, while local wheat purchases have cost around EGP 13 bn.

And the Planning Ministry insists that it has done its math: The budget allocation for foreign wheat purchases in the upcoming fiscal year “were revised several times to make sure they are in line with global wheat prices,” said Sherine Khallaf, director of the Planning Ministry’s Central Administration of Trade and Industry.

REMEMBER- Budget allocations can still be changed. “Most of the figures in the budget, particularly those related to subsidies and wheat purchases, should be considered tentative,” said Mansour. “The budget was already revised because the Russia-Ukraine war made it difficult to come up with fixed figures,” he said.

WHAT’S NEXT- Maait is expected to attend committee meetings this week to discuss the draft budget. The minister was originally scheduled to appear last week, but was traveling to London for the Financial Times’ Moral Money Summit.

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