Jun 6, 2012

The State of our budget: Expenditures

I have been quite frustrated by the lack of economic policy wonks in Egypt and even more by the lack of any serious discussion about the state of this country's fiscal policies and review of its financial priorities. Over the next little while I will be trying to study the 2011/2012 budget of Egypt and try to share a simplified picture of it.

You can review the entire budget on the Ministry of Finance's website. It is a 563 page pdf that can be downloaded here. I will start today with a basic high level review of the expenditures side of the budget.

So here is how your tax money is spent on a national level:

Type of Expenditure Billion EGP % of Expenditure
Wages and Compensation of employees 56.68 10.91%
Purchases of Goods and Services (operating expenditure for the government: electricity, fuel, paper, pens, cars. Etc… and services includes: subscriptions, banquets, postage,  maintenance of government assets etc…) 16.35 3.15%
 Interests on old debt (oil and gas, wheat, farmers, health care, electricity, public transit, housing, export promotion, pensions,  etc…) 105.95 20.38%
Subsidies, Grants, and Social Benefits 153.23 29.48%
Other Expenditures (taxes, customs, car licensing, damgha, etc…) 30.41 5.85%
Lump sum other expenditures (Ministry of Defence, and reserves??) 29.07 5.59%
Purchase of Non Financial Assets  Investments (land, houses, cars, equipment, etc… ) 25.30 4.87%
Acquisition of Domestic and Foreign Financial Assets 4.25 0.82%
Domestic and Foreign Loans repayment 98.52 18.96%
TOTAL Expenditure 519.76 100.00%

As you can note it was forecasted that we we will spend 520B EGP. In context, our estimated GDP for 2011 is at $211B which comes to around 1266B EGP. Which means the state budget is around 40% of the value of the entire country's production.

Currently we spend around 40% of the governments expenditures on loan interest (20%) and loan repayment (19%).

Additionally we spend almost 30% of the total expenditures on subsidies, grants, pensions and social services. Finally on top of all of that 11% is spent on wages across the government.

So here is my question is it reasonable to spend  81% of our money on subsidies, loans and pay cheque? Doesn't this country need more expenditure and sustainable investment in health, education and infrastructure.

I personally think unless we (society and political leaders) have a serious discussions on our fiscal priorities, where we need to spend our money there will be no serious and sustainable progress in this country. We can spend years talking about a presidential council or how one should f*ck SCAF but these issues are not as critical as our need to take some serious and tough decisions about our economy and our budget.

In the next post I will try to talk about the sources of revenue for the government and go over the IMF loan issue.

Update: Mohammed Samhouri from the Cairo based Center for Strategic Studies has an excellent post on the looming economic challenges facing Egypt. Highly recommended read.