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Tuesday, 10 January 2023

Cabinet ratifies budget cutbacks for FY 2022-2023 amid rising inflation and an ongoing FX crunch

Cabinet announces budget cutbacks amid rising inflation, FX crunch: Prime Minister Moustafa Madbouly has told all but “essential” ministries to make budget cutbacks until the end of the current fiscal year. The order comes as the government works to address a shortage of hard currency and tamp down inflation. Under a directive published in the Official Gazette yesterday, ministries and related authorities will have to reduce operational costs and limit spending on some national projects that require FX for the rest of FY 2022-2023, which finishes at the end of June.

SMART POLICY- Limits on FX spending: Any new national projects that require significant FX expenditure, and where construction has yet to begin, will be delayed, according to the decision. Any FX spending at all by the ministries in question and their authorities will also require the Finance Ministry’s approval.

A number of areas of government have been ring-fenced: The health, interior, defense and foreign ministries have been exempted from belt-tightening, as have agencies responsible for securing food and energy supplies. All other ministries have 21 days to submit reports detailing the exact portion of the budget they intend to freeze until the end of the fiscal year.

Also getting the axe: “Non-urgent spending” will also be delayed. The directive mentions activities including “non-urgent” business travel, recreational activities, attending conferences, and throwing work events. Authorities will also be required to curb spending on grants, awards, and training for staff.

More cutbacks on the operational side: Operating expenditures including office supplies and services will be reduced by 10%, with a portion of that budget frozen for the remainder of the year. Other expenses related to worker compensation — though it’s not clear what expenditures the decision is referring to — will also need to be cut back by at least 2.5%.

CAVEAT- There’s a lot we don’t know: The government hasn’t been clear on the total value of savings it expects to realize as a result of the cuts or which projects will be impacted. The government has earmarked EGP 2.07 tn in spending in its FY 2022-2023 budget.

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