2024/2025: A Budget for Interest on Debt... Austerity for us, profits for creditors
The Egyptian Initiative for Personal Rights (EIPR) released today an analytical paper entitled "2024/2025: A Budget for Interest on Debt... Austerity for us, profits for creditors".
The paper provides an analysis of the current fiscal year’s budget, which came into effect in early July 2024, and explains how the expansion in borrowing over years has drained the budget resources and shifted them away from serving citizens.
The discussion of the budget is related to the topics that concern Egyptians at the present time, including the high prices of goods and services, power cuts, the deterioration of education, and the shortage of many basic medicines.
The approval of the budget coincided with a series of government decisions that violate the basic rights of citizens to food, medicine, energy and access to medical services. These included decisions to raise the prices of subsidized bread and medicine, privatize health services in government hospitals, and increase the prices of train and metro tickets, in addition to the decision to increase the fuel prices, with all its inflationary effects leading to a further rise in the prices of goods and services.
These austerity measures affect the livelihoods of citizens and come a few months after the devaluation of the local currency, which is likely to be repeated based on Egypt’s deals with the International Monetary Fund (IMF).
Although the newly-appointed Minister of Finance asserted in his first press conference after taking office that the government was adopting a program to reduce the government debt service bill, the main feature of the current fiscal year’s budget is that debts and their repayment obligations swallow up a large part of the spending planned by the government. The state relies mainly on new loans to obtain new resources to bridge the gap between revenues and expenditures. This will likely lead the situation to further deteriorate, given the accumulation of debt service payments, which means that Egypt’s economic policies will remain trapped in the vicious circle of debt servicing for an unknown number of years to come.
Budget data shows that allocations to most expenditure items increased by about 20%, except for debt interest payments, which increased by 63%, and government investments, on which spending fell by about 15%.
However, the paper notes that taking the consumer price inflation index into account shows that spending on all budget items has declined in terms of real value, and that the only item that saw growth in real spending was the debt interest, which rose by 21%.
The paper further explains how the debt and its interest dominated all aspects of the budget, with domestic and foreign debt interest accounting for about 91% of the tax revenues expected in the new fiscal year. This means that taxpayers are in fact financing the profits of state lenders, including banks, individuals and institutions, at home and abroad.
The per capita interest payment on inflated government debt amounts to 17,200 pounds per year, while the per capita government spending on health, for example, is less than 1,900 pounds per year.
Regarding revenues, the paper shows that the government relies excessively on borrowing as a source of finance, amid a decrease in tax revenues relative to the size of the Egyptian economy and compared to similar countries in the world.
The limited revenue is due in part to the nature of the state's priorities, as shown in the current and previous budgets. The state does not collect adequate and appropriate taxes from profit-making companies and individuals, and imposes meager taxes on property and wealth owners, stock speculators, high-income earners, senior professionals, and financial corporations. Meanwhile, consumers and wage earners bear the brunt of tax financing. Thus, tax policies contribute to deepening inequality and social fragility, instead of reducing poverty and social inequality.
The government’s narrative always portrays the global developments and regional crises as the sole reason for the crises of the Egyptian economy, shirking any responsibility for creating these crises or for resorting to inappropriate methods to address them.
The paper explains that the state has adopted a set of policies and measures over the past ten years that put the Egyptian economy under enormous pressures that increased its fragility in the face of external crises. These measures included the significant expansion in domestic and foreign borrowing for purposes that are mostly not productive, vital or urgent, and not even directed to human development. This placed increasing pressure on the state's finances and its hard currency resources, and opened the door to successive devaluations of the local currency and further waves of inflation.
