Cairo to increase wages and subsidies

02 April 2008
The government is set to approve an increase in food subsidies of more than 100 per cent and a 15 per cent increase in wages for the forthcoming financial year, Egypt’s deputy finance minister told MEED in an exclusive interview on 2 April.

The increases are included in the government’s draft budget for the coming financial year, from 1 July 2008 to 30 June 2009, which has been sent to parliament for debate following cabinet approval on 1 April. The final version is expected to be completed by the end of May and will come into force on 1 July.

Higher subsidies and government wages mean that the budget deficit will be static at 6.9 per cent of gross national product, despite the government's aim of cutting it by 1 percentage point a year.

“The 1 per cent a year target is an average over a number of years,” says Hani Kadry Dimian, deputy finance minister and head of the macro and fiscal unit at the ministry of finance. “The introduction of other policies will reduce the figure by more than 1 per cent in some years. For example the VAT [value added tax] reforms in 2009-10 alone should bring it down by 2 per cent of GDP.”

Overall growth in GDP is expected to continue the strong trend of recent years, increasing by 7.2 per cent from an estimated 7.1 per cent in 2007-08.

“GDP growth will be driven mainly by the manufacturing sector, followed by trade then construction, tourism and the financial sector,” says Dimian.

Budgeted expenditure will increase to £E331bn ($60.8bn) from an estimated £E265.8bn in the current year, while revenue is expected to rise to £E259bn from £E207.8bn in 2008.

The large increase in expenditure is partly due to the inclusion of some items such as spending on new settlements, for the first time.

Spending on education is expected to increase by 13 per cent to £E35bn, while health expenditure is set to rise 4 per cent to £E12.3bn.

The draft proposes an increase in budget spending on food subsidies from £E9.5bn to £E20bn and an increase in oil subsidies to £E62.7bn from £E56bn in 2007-08. The 15 per cent wage increase for public sector workers will affect 5.7 million people.

The increase in wages, along with supplementary wage increases for teachers, university lecturers and physicians, will also mean that government salaries as a proportion of GDP will increase to 7.3 per cent from 7.1 per cent.

The increase goes against the government’s aim to reduce its wage bill as a proportion of GDP, but is still well below the 8.1 per cent in 2002/03.

The proportion of taxes used to finance government wages in 2008-09 is projected to be 48 per cent, compared to 61 per cent in 2002/03, while domestic debt as a proportion of GDP will also fall.

“By the end of June we anticipate that gross domestic debt as a proportion of GDP will be down 10 per cent to 70 per cent, and by June 2009 we expect this to fall to 66 per cent,” says Dimian.

“We expect consumption to grow at 12-13 per cent over the next two-three years,” he adds. “It will fall as a proportion of GDP.”

However, he adds that investment as a proportion of GDP is expected to increase to 24 per cent in 2008-09 from 23 per cent in 2007-08 and 21.2 per cent in 2006-07.

The increases in wages and food subsidies come after several weeks of civil unrest and strikes following sharp rises in the price of bread and other basic products. Up to 15 people are reported to have died in violence or heat-related health issues while queuing to buy subsidised bread during March.

Doctors and university professors took strike action in late March in protest at their low salaries and steel workers have threatened to strike if their wage demands are not met.

Political opposition groups have organised a day of protest on 6 April. The first ever national day of protest, the event is planned to coincide with a strike by textile workers, whose demands for an increase in wages have not been met.

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