5 highlights from the new budget: More debt, low social spending, huge increase on export support

A nearly LE4.35 trillion budget which will see Egypt’s consistently high rates of borrowing continue into fiscal year 2023/24 gained approval on Monday from the House of Representatives.

A majority of members in the House voted to pass the spending plan for the coming year, in which the government lays out its strategy to confront entrenched economic issues that have seen public purchasing power plummet in recent months, as a rising supply bill paired with weak foreign currency inflows has sent the country pursuing external support and has pushed the value of the Egyptian pound down by over 50 percent against the dollar. 

While one major change in state spending is to see a nearly fourfold increase in budgetary resources to stimulate exports, other trends remain consistent, with several MPs refusing to endorse the budget on the basis that it will continue to see Egypt borrow heavily while investing little in public services and welfare. 

Drop in allocations to health, education, supply commodities to support households

Continuing a long-standing trend, Egypt’s budget for the coming fiscal year will fall below constitutional mandates for allocations for health and education spending.

Spending on subsidies on food and household goods, which are distributed via ration cards for which households are eligible on the basis of a set of income criteria, is also set to drop by 1.9 percent. The number of people eligible to benefit will also be reduced by 900,000, according to the budget financial statement.

Though the Constitution stipulates that minimum allocations to health and education expenditure should be three and four percent of GDP respectively, the draft budget allocates just 1.25 percent of GDP on health and 1.94 percent on education, or LE147 billion and LE864 million, respectively.

Successive cabinets since 2014 have failed to hit the constitutionally mandated mark for the health and education sectors. 

Following criticisms for the same feature of the FY 2016/17 budget, the Finance Ministry adopted a new approach to expand what can be categorized as spending on health, education and scientific research entails in their preparation of the budget’s framework. 

Using this expanded calculation, Finance Minister Mohamed Maiet pushed back against lawmakers’ criticism by denying that the 2023/24 budget violates the Constitution, stating that under the expanded definition, the ministry is allocating LE591.9 billion for education and LE99.9 billion for scientific research, or the equivalent of 5 percent of GDP, while health comes in at LE397 billion, or 3.35 percent of GDP.

Although the Constitution stipulates that health and education allocations should be managed to “reach global rates,” this year’s rates represent a lower percentage of GDP than last year’s budget. 

Calling the issue a “crisis” in health and education spending, Egyptian Social Democratic Party MP Freddy al-Bayadi told Mada Masr that, “there is an absence of any trend toward increasing spending on health and education as a percentage of GDP, contrary to what is stipulated in the Constitution.”

Bayadi and other members of the Egyptian Social Democratic Party voted against passing the budget, as did MPs in the Tagammu Party, the Conservative Party and the Reform and Development Party. 

Debt servicing allocations 

The meager spending on health and education stands in contrast to the vast budgetary allocations to service sovereign debt. Over half of the 2023/24 budget, or 56 percent of spending, is to go to loan repayments and to the payment of interest on state debt.

“Things will deteriorate” if this trend continues, said Planning and Budget Committee Secretary Abdel Moneim Imam during a review of the budget in the House. 

Debt servicing has undergone a gradual increase as a portion of spending, exacerbated by the economic crisis which has spiraled since Russia’s invasion of Ukraine. 

Egypt's external debt reached a record high in Q2 of the current fiscal year, with the government on the hook for tens of billions of dollars in repayments in the coming years. 

Inflation also exacerbated the issue, reaching its highest rate in five years in February 2023. As the Central Bank of Egypt tightened monetary policy over recent months by raising interest rates in a bid to control inflation, the burden of interest repayments on the state budget was aggravated, with the state the biggest borrower on the domestic market. 

Borrowing & the deficit 

While a majority of this year’s budget resources are being allocated to repay loans, debt also accounts for the majority of the resources feeding into the state budget.

Around 49 percent of the fiscal resources for the 2023/24 budget are to be raised via borrowing, or LE2.14 trillion in total.

Egypt has been struggling with heavy reliance on external debt to service the spending deficit for years.

For the current fiscal year, the Finance Ministry estimated in a biannual performance report issued in February that debt would account for 93 percent of Egypt's GDP, with 21 percent external debt and 72 percent domestic debt. 

With overall debt surpassing LE8 trillion last year, House Planning and Budget Committee member Mohamed Badrawy remarked that “whatever is happening now is irresponsible borrowing.”

Spending to stimulate exports tripled 

The government is also set to implement an unprecedented increase on spending to support exporters, raising the allocations by 368.7 percent in comparison to 2023/24. 

It’s the clearest step toward adjusting a gaping trade deficit that has placed downward pressure on the value of the Egyptian pound, with the Cabinet working on a series of supporting policies to facilitate local industry and exports in the interests of domestic growth.

Badrawy described the step as a top priority for increasing revenues from exports as a source of foreign exchange and an alternative to external borrowing.