Desperate bribes deepen Egypt’s financial mess
By Una Galani
The author is a Reuters Breakingviews columnist. The opinions expressed are her own.
LONDON — Government bribes to keep the people on side will only deepen Egypt’s financial mess. The fragile administration of President Hosni Mubarak is desperately seeking to shore up support in the face of ongoing protests. The latest tactic is a 15 percent hike in public sector pay and pensions. While that could potentially buy the support of about 13 percent of the population, it is a strain the public purse can do without.
The government is allocating 6.5 billion Egyptian pounds ($1.09 billion) for the move that will come into effect in April. Assuming all other things remained static, the pay rise would move the forecast fiscal deficit from around 8.5 percent in the year to July 2011, as estimated pre-crisis by Barclays Capital, to nearer 9 percent.
That may not sound much of a jump in itself. But it is yet another force driving the deficit the wrong way. Ministers last month pledged to increase wholesale food subsidies by whatever global prices dictate as the country fights 17 percent year-on-year food price inflation. Efforts to restructure fuel subsidies and introduce new taxes are also expected to be shelved as whoever ends up leading the current government for the foreseeable future seeks to retain popular support.
The exodus of foreign investors has meanwhile driven up Egypt’s financing costs. The average yield on its debt has risen by around 1 percent since the unrest began. Also factor in that needed economic reform is on hold, and the total impact is to push Egypt’s fiscal deficit this fiscal year to 12.3 percent of GDP, says Credit Agricole. That’s higher than Lebanon and Iraq. Debt could reach 97 percent of GDP by 2014.
Additional spending might be welcome if it was properly targeted — say, towards much needed infrastructure that would help create new jobs. But attempts to keep sweet a constituency that has traditionally supported the current regime will only deepen Egypt’s financial mess.