Egyptian Finance Ministry statements have shown a 38.5 per cent reduction in the budget revenues, in contrast to what has been stated in the budget law for the current year. This has led to a 15 per cent reduction in expenditure. Subsequently, there will be a 52 per cent rise in budget deficit in comparison to what was projected.
Egyptian Central Bank statements indicate that the government has expanded its borrowing from the Central Bank, despite having increased the amount of printed currency during the months of the current year and the increase in its foreign borrowing to $137.860 billion, up to the end of last June.
Despite those foreign loans, the net foreign currency deposits in commercial banks turned into a deficit last July, according to the latest available statements. The official Bureau of Statistics also announced an 8 per cent increase in inflation during last September. The rate of inflation in the food and drink sector reached 13.1 per cent.
The Finance Ministry's statements regarding the performance of the first two months in the current fiscal year's budget, 2021-2022, pointed to a 38.5 per cent reduction in the value of actual revenues compared to what was projected, due to a 33 per cent reduction in tax revenues in contrast to budget assessments, a 52 per cent reduction in non-tax revenues, that represent the profits of state-owned corporations, companies and banks and a 98 per cent reduction in revenues from grants.
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As a result, the Finance Ministry lowered all expenditures in the budget apart from loan interests, which have tended to rise. Government investment expenditures have decreased by 58 per cent compared to what they were supposed to be; the purchase of commodities and services related to running daily government business have decreased by 55 per cent; subsidies for commodities, food, and services have decreased by 30 per cent; and other expenditures have decreased by 10 per cent.
Debt servicing expenses during the two months were supposed to reach 96.6 billion pounds. However, they exceeded 114 billion pounds, an increase of about 18 per cent. Should this rate continue, debt servicing expenses could reach 684 billion pounds this year, compared to the 580 billion pounds stated in the budget law.
Interests could approach half the expenditure
Taking into consideration the relative distribution of the six categories of expenditure in the Egyptian budget during the first two months, loan interests topped the list at 44 per cent followed by salaries at 23 per cent, subsidies at 14 per cent, government investments at 10 per cent, the purchase of commodities and services at 3 per cent and other expenditures at less than 7 per cent.
When the share of loan interests reaches 44 per cent of expenditures, this certainly restricts the ability of fiscal policy makers to spend in the remaining categories of expenditure. It does also point to the increase in the share of debt service in the budget when loan payments are added to the interests, the value of which the Finance Ministry has not disclosed during the two months.
While it was expected that currency deficit in the budget during the two months would be less than 79 billion pounds, as a difference between expenditures and revenues, it actually exceeded 121 billion pounds, an increase of about 54 per cent. This is a dangerous rate, as a consequence of which the domestic general debt will increase. Yet, both the Central Bank and the Finance Ministry refrained from releasing any statements about that since June 2020, that is, for more than 13 months, when the domestic general debt at the time was 4.742 trillion pounds.
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The Central Bank pointed to an increase in foreign debt to $137.86 billion by the end of last June, an increase of $14.4 billion over a year at a growth rate of 11.7 per cent. However, the growth rate increased to 21 per cent in the case of foreign loans obtained by public and private Egyptian commercial banks, at a growth rate of 19 per cent for the general government, from ministries to corporations.
The relative distribution of the debt sector indicates that the general government bears 60 per cent of the total foreign debt. The share of the Central Bank is 19 per cent, while that of other banks stands at 10 per cent and that of others sectors stands at 11 per cent.
Foreign debt is still on the rise. The government sold international bonds abroad during the month of September at the value of $3 billion. Egypt Bank, the second-largest Egyptian bank, borrowed one billion dollars. Other corporations, especially state-owned ones, continued to borrow from outside during recent months. This means that foreign debt has, by now, crossed the $140 billion barrier.
Foreign currency deficit within commercial banks
Despite the increase in foreign borrowing by public and private commercial banks, until the value of its debts by the end of last June reached $14.4 billion, the net assets of those banks in terms of foreign currencies was in the negative by last July, at the value of $1.632 billion, down from $6.8 billion during last February.
This implies the existence of a problem with regard to the availability of foreign currencies to cover foreign expenditures. The weird thing is that, despite this negative balance in the possession of commercial banks of foreign currencies, there has been no tangible change in the rate of exchange. This confirms that the exchange rate is under the control of the Central Bank and that it is not subject to supply and demand as Egyptian officials have been claiming.
The Egyptian Central Bank also pointed to an increase in the amounts owed by the government to the Central Bank, a figure of around 105 billion pounds during the month of July alone. It is noteworthy that this figure increased during the first half of the current year by about 14.3 billion, a monthly average increase of about 2.4 billion pounds.
The relative distribution of domestic credit offered by Egyptian commercial, investment, and specialist banks, during the month of July, points that the share of the government was 64.8 per cent of the total, apart from the 2.7 per cent that is the share of government-owned public works companies. The share of the private sector has been 22.1 per cent while the share of the family sector has been 10.3 per cent.
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In July, the government obtained 6.6 billion pounds in terms of domestic banking credit. In the meantime, the share of the private and family sectors of domestic credit during the same month came down.
Despite these foreign and domestic debts, the government has continued to print money. The value of the currency issued in July alone increased by 23 billion pounds. The gravity of the figure becomes more apparent when we find that the value of the money issued during the twelve months from July 2020 to July 2021 has been 68.2 billion pounds, a monthly average of 5.7 billion pounds.
Inflation is higher in the countryside
In addition to that, the government continued to borrow domestically by issuing treasury promissory notes and bonds. The increase in the balance of treasury promissory notes reached 20.4 billion pounds during the period from June 2020 to June 2021. At the same time, the government tended to prolong the term of domestic loans according to the fiscal statement about the budget of the current fiscal year submitted to parliament by the Ministry of Finance. This has been achieved by expanding the issuing of longer terms bonds from three to more than thirty years, whereas the term of treasury promissory notes usually ranges from three months to one year. Yet, for several years now, the Central Bank has not been publishing figures for the sale of treasury bonds. It has been content with publishing statements about the sale of treasury promissory notes, which foreigners have been increasingly buying during recent months by virtue of the high-interest rates on them in excess of 13 per cent.
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They are also guaranteed by the government and their capital profits are exempt from capital profit taxation. Such high-interest rate compares with negative interest rates in countries such as Switzerland and Japan, zero interest rates in the Euro states, 0.001 in England, and 0.25 in the United States. For this reason, sales of treasury promissory notes reached $23.8 billion last July.
The Egyptian Bureau of Statistics, which belongs to the Ministry of Planning, announced an inflation rate of 8 per cent during last September. The figure rises to 9.5 per cent in the Egyptian countryside, where 63 per cent of the population lives. Food inflation rate reached 13.1 per cent, rising to 15.2 per cent in the countryside.
Although the Bureau announced that education sector inflation reached 29.7 per cent during the same month, many experts and most Egyptians do not trust these percentages. They believe that the real inflation rates they suffer from in the markets are much higher, despite the continued depression until September, according to the index of purchase managers in private companies.
Translated from Arabi21, 17 October 2021
The views expressed in this article belong to the author and do not necessarily reflect the editorial policy of Middle East Monitor.