Finance minister, Mr. Amr Al-Garhy, has lately held an interview with Public Opinion TV programme. Main points highlighted by the minister are:
· Directives to abide by budget allocations for social security programs are reiterated by President Al-Sisi.
· Pivotal issues as subsidy, energy and overpopulation are reconsidered to confront development challenges.
· 83 billion EGP worth of budget allocations for subsidy and social security.
· FY 2017 budget deficit reached 4.4% down from 5%, while initial budget deficit recorded 0.3% against 1.1% y-o-y.
· Plans to vary financing sources and to boost direct and indirect investment opportunities are being investigated.
· Ministry of Finance proceeds in automating the State General Budget, along with establishing the Treasury Single Account to cut down physical cash transactions and to tighten control and boost transparency.
· Future plans of the Ministry of Finance will address vital issues such as the new insurance system, tax proceeds and overpopulation.
Finance Minister, Mr. Al-Garhy, underlined in his interview the persistence of President Al-Sisi to address anew all the neglected and cumulative problems; most important of which was the failure to correctly assess rendered-services against their true value and up-to-date market prices.
Consequently, public utilities were negatively affected and the State budget registered deficit. Solutions should mainly focus on increasing resources and diversifying revenues to meet such considerable debt, noted Mr. Al-Garhy.
Allocations of the State general budget were designated for large sectors and other relative ones; all specified within a set plan to reduce initial and total budget deficit and to redirect savings to priorities. Budget preparation was carried out through definite steps: officials at the Ministry of Finance held meetings with their counterparts in the Ministry of Planning and relevant authorities, discussions are held to investigate requests submitted by these authorities, and then priorities were set in light of the available funds and resources, added Mr. Al-Garhy.
He also noted that his recent meeting with the State President aimed to demonstrate results and achieved targets accomplished in the 1st half of FY 2017/2018 of the general budget.
In the aftermath of 2011 happenings, Egypt encountered a number of predicaments that redirected expenditure in unproductive fields such as salary increases and subsidies. Such decisions were made despite the unavailability of adequate resources, the plummet witnessed in then growth rates by 1.5% to 2%, and an annual increasing population rates of 2% to 2.5%. As a result, budget deficit hiked to 10.5% - 13% over 2011 up to 2016. However, thanks to grants received from neighboring Arab countries, Egypt had not fully borne the brunt of such pressures, the minister said.
With respect to electricity and petroleum issues, Mr. Al-Garhy pointed out that they were wrongly addressed. He illustrated that oil prices reached US 20 per barrel during 2002-2003 and witnessed more increases till 2014. However, in light of the continuous population rates against non-matching production rates, losses were registered and hence, restructuring energy sector deemed a necessity. Indeed, the government managed to improve production capacity, explore new natural gas fields and reconsider absolute subsidy to rather limit it only to 83 billion EGP, applicable through ration cards, Takaful and Karama programs.
Commenting on the insurance system, finance minister mentioned that outdated laws should be amended to meet the new circumstances. He quoted an example of physician fees charged for indoor visits that hardly reached 50 piasters, highlighting the President's endeavors to alter these concepts and interpret them in a simplified way understandable to laymen.
Moreover, Mr. Al-Garhy pinpointed that President Al-Sisi regularly directed that budget allocations for social security programs must be adhered with, and this was indeed accomplished and manifested in the decrease of budget deficit to 0.3% down from 1.1% y-o-y. He further emphasized that they aimed to minimize FY2017 deficit of 12.5% to reach 9.3% - 9.5% in the FY2018, and down to 4% by 2022. This should trigger a positive effect on expenditure orientation, investment opportunities and employment rates.
Economic plans began to witness good tidings, unfolded Mr. Al-Garhy. Namely, a gradual decrease was registered in inflation rates over last December by a 0.2% decrease after the 30% hike recorded as a result of the Egyptian pound floatation, while annual inflation rate dropped from 26% to 22%.
This was reflected in better prices, more economic stability and high growth rates. By the end of the current FY, inflation rates are forecast to hover around 10% to 13%. Attempting to mitigate such inflationary effects, the government introduced many social security package to strike a balance between price hikes and the State's economic resources.
Commenting on the liberalization of the pound exchange rate, Mr. Al-Garhy noted that the decision was a must to address the aftermath repercussions of 2011 events. These were manifested in an increase of expenses and debt figures, a halt of economic activities, an unbalanced ratio of imports to exports, a recession to the tourism sector, and a decrease in trade balance and payment balance as well. Thanks to the liberalization decision, current FY growth rates reached 5.2% and foreign currencies were available anew in all banks.
Addressing Egypt’s loans and debt management methods, Mr. Al-Garhy noted that the size of loans was measured relative to GDP and to loan payment capacity in light of the international standards, whether relevant to its interests or the loan principal over a given year. Loans acted as diversified funding resources internally or externally, and eventually helped in decreasing interest rates, he added.
Egypt was working hard to increase both direct and indirect investment opportunities through boosting entrepreneurship and factory construction projects, on one hand, and through investing in bonds and treasury bills and accessing foreign capital markets, on the other hand. Both venues, indeed, represented two diversified sources for revenues and financing tools for the State, underlined the minister.
With respect to concerns raised over the VAT system, the minister confirmed that VAT was an obligatory and a progressive tax applied by all countries and levied on all services and goods except on tax-exempted products pursuant to law provisions. He noted that the Sales Tax levied in the nineties valued 10% and was replaced with the VAT in September 2016 by a value of 13% and then up to 14% in 2017. Value of the newly adopted tax was set in light of the domestic economic state, and a list of 52 tax-exempted products and services was set according to the nation's priorities.
As for income tax, the minister illustrated that the Ministry applied it according to a progressive taxation system and there was a plan to decrease its value for low-income employees, adding that major national projects were funded though many authorities such as the New Housing Communities Organization. This in turn helped in providing new employment opportunities and in market growth.
On the level of budget allocations for salaries and wages, Mr. Al-Garhy commented that relevant allocations mounted to 240 billion EGP in the current FY, up from 80 billion EGP in FY 2008/2009, by a 300% jump that led to a direct increase in budget deficit.
He highlighted that the Ministry of Finance was proceeding in setting a well controlled electronic payment system to lessen cash transactions and to expand tax base monitoring, pointing out that their objectives for the current FY included pushing growth rates to 5% through carrying out more investments in small, medium and micro small projects, as well as boosting employment rates.
The minister also commented on the IMF's review of the Egyptian economy. Based on the IMF's last review on the State's economic outlook, IMF approved the disbursement of the second tranche of the Loan and that the next review was scheduled on April 2018, which proved that Egypt was moving ahead in economic development.
In addition, the minister announced that the government prepared a comprehensive support system for citizens. Over last July, ration cards' allocations upped from 21 EGP to 50 EGP, Takaful and Karama pensioners received also increases and more tax exemption decisions were applied on low-income nationals. Progressive taxation was levied by 80% down to 50% according to income levels.
Relevant to the decision of levying a 40- piaster tax per cigarette pack, the minister confirmed that the part of this levy should be directed to improving the insurance system in light of the new insurance law passed by the Parliament subject to international standards. He also added that restaurants not working in the tourism sector were VAT- exempted under the law.
Mr. Al-Garhy also underlined that improving tax management can be achieved through increasing proceeds to GDP and spotting non-compliant taxpayers in an attempt to expand the taxation base and boost tax revenues. He unfolded that each 1% increase in tax proceeds triggered a corresponding 1% decrease in budget deficit, adding that the Ministry established the Treasury Single Account (TSA) and an electronic payment system for all transactions among the different public authorities as well as for collecting taxes, customs and other related charges.
In integration with these procedures, funds available at the Special Funds were listed and enumerated in coordination with the Parliament. This step aimed to tighten control over the existent funds and monitor them before their disbursement by the Ministry of Finance and after their spending through the Accountability State Authority (ASA), added the minister.
In conclusion of his interview, Mr. Al-Garhy projected the future plans and objectives set by the government and the Ministry. Major steps included putting in effect the new insurance system to boost the health sector, proceeding in tax management and electronic payment measures to expand tax base, boosting GDP and growth rates, narrowing budget deficit, addressing overpopulation and creating new jobs.