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Monday, 20 June 2022

MPs want … more austerity?

MPs aren’t happy with borrowing plans in FY2022-2023 budget: The government’s estimates for sovereign debt in the upcoming fiscal year’s budget drew criticism from MPs during the first day of budget debate in a plenary session at the House of Representatives yesterday. Representatives from various parties voiced their concerns that the government should rein in its borrowing plans and impose more austerity measures to put a cap on the country’s debt levels.

Debt service was of particular concern: Debt service costs are expected to account for around a third of the total budget spend, while the government’s interest bill will rise 19% to EGP 690.1 bn next fiscal year, accounting for a third of spending and 49% of revenues. “I wonder why these frustrating figures have not compelled the government to resort to real austerity measures and fiscal discipline,” Reform and Development Party Spokesperson Ayman Aboul Ela said.

The government has already committed to cutting our debt-to-GDP ratio, which next fiscal year’s budget aims to bring down to 84%. The goal is to bring that figure down to 75% over the next four years, “even though this is not an easy goal, considering unfavorable global conditions,” Prime Minister Moustafa Madbouly said last month.

FinMin reminds everyone this is a crisis budget and that it’s subject to change: “We drafted the budget as a tentative spending plan, with the expectation that worsening global economic conditions will force us to spend more in the new fiscal year,” Finance Minister Mohamed Maait said during the session. Madbouly had also stressed the same notion to MPs last month, telling them that global conditions continue to shift the goalposts.

As if we needed reminding: The price of commodities such as oil and wheat have skyrocketed over the past few months, with Brent crude currently trading at USD 113.12 per barrel (up from USD 60 penciled into the FY 2021-2022 budget) and a ton of wheat rising to USD 500 (up from USD 250-320 before the Russia-Ukraine war), Maait reminded MPs. “We are under severe financial pressure,” the minister said.

And monetary tightening = higher interest bill: Global central banks, including the US Federal Reserve, have been raising interest rates in the past few months, which is driving up our debt service costs, Maait said. “We were borrowing money at an interest rate of 5%, but now we’re borrowing at 11% interest. We had to hedge against this pressure by increasing our allocations for debt interest to EGP 690 bn, from EGP 630 bn previously,” he said.

Ultimately, expect the budget to pass through parliament (albeit begrudgingly): A handful of MPs have flat out said they will not endorse the budget, including Maha Abdel Nasser, speaking on behalf of the Egyptian Socialist Democratic Party, and independent MP Diaa Eldin Dawoud. But the wider majority of independent MPs and parties — including Al Wafd and Protectors of the Nation (Homat El Watan) — signaled that they would vote in favor of the budget, despite their reservations on borrowing and certain areas of spending that they see as unnecessary. Both Al Wafd spokesperson Soliman Wahdan and House Economics Committee head Ahmed Samir called for gradually scaling back foreign borrowing and said the government should do more to achieve greater fiscal discipline.

In a league of his own: MP Mostafa Bakry, who decided he doesn’t want to endorse the budget because of the state privatization program and the government’s plans to liquidate what he calls “productive factories”' (aka the financially-stricken El Nasr for Coke and Chemicals). Bakry had a theatrical moment in parliament earlier this month during which he (falsely) claimed that the company has sound financials that do not warrant liquidation. Public Enterprises Minister Hisham Tawfik has since provided parliament with the company’s financials, which showed it ended last year in the red.

WHAT’S NEXT- Representatives will likely put the budget to a final vote on Tuesday, House Budget and Planning Committee Chairman Fakhri El Fiqi said last week.

Need a refresher on the full budget process? We’ve got you covered with our explainer.

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