The Egyptian government plans to extend the life of the debt by expanding the issuance of various government bonds.
Cairo The Egyptian government intends to achieve better economic indicators in the new budget draft, amid expectations of achieving better results, but it faces challenges that the World Bank, experts and economic analysts have warned of; Chief among them are the mutated strains of Corona, as well as debt and inflation.
The Egyptian Ministry of Finance revealed – in a statement a few days ago – the government’s keenness to lay the foundations for financial discipline and the sustainability of macroeconomic indicators by achieving a number of goals during the fiscal year 2023/2022, including the following:
- Achieving a growth rate of 5.7% of GDP, compared to 3.3% in the 2020-2021 budget.
- Achieving an initial surplus of 2% at the medium level compared to 1.46%.
- Reducing the total deficit to 6.1% from 7.4%.
- Reducing the debt-to-GDP ratio to less than 90%, compared to 90.6%.
- Reducing the debt service ratio to the total budget expenditures to less than 30% compared to 36%.
- Extending the life of the debt to approach 5 years in the medium term instead of 3.4 years currently.
The government plans to extend the life of the debt by expanding the issuance of various medium and long-term government bonds, and targeting new instruments such as sukuk, sustainable development bonds, and green bonds, which contributes to expanding the investor base and attracting additional liquidity to the government stock market, in a way that helps reduce The cost of the debt, according to a statement by the Ministry of Finance.
Will the Egyptian government succeed in improving macroeconomic indicators in the new budget? And what are the obstacles to achieving the objectives related to external debt and debt service in the event that the crises of inflation and supply chains continue, and the US Federal Reserve raises interest, as well as not counting the extension of the effects of the Corona pandemic on the local and global economy?
Last December, the US Monetary Policy Committee hinted at its last meeting to raise interest rates 3 times by a quarter of a percentage point each time, during the current year 2022, and members of the committee indicated that there may be a justification for increasing the interest rate at an earlier or faster date. Faster than previous predictions.
And what most threatens the growth of the economy of the world’s countries is the mutated strains of Corona; The pandemic has slowed recovery and economic growth as a result of disruptions to supply chains, affecting producers and consumers alike.
What added uncertainty to future indicators was the rise in inflation rates in the euro area and the United States to dangerous levels that had not occurred for years, as inflation recorded its highest level in 40 years in America, when it reached 6.8% last November.
Global debt has recorded a record level of $226 trillion, according to a report on the World Bank website published last December. Experts and economic analysts in the report urged policy makers to achieve the right balance in the face of high debt and rising inflation.
The report adds that high debt levels lead – in most cases – to weaken the ability of governments to support recovery and the ability of the private sector to invest in the medium term, warning that risks will be magnified if global interest rates rise more quickly than expected and the growth process falters, and pressures will increase. Most governments, families, and companies that are heavily indebted.
Challenges facing the Egyptian economy
Economic researcher Elhamy Al-Mirghani said that these goals “will put the Egyptian government; rather, the Egyptians will be under pressure represented in increasing external borrowing and imposing new taxes, especially since the interest rate amounts to more than 35% of expenses and reached 40% earlier without installments, and these percentages It is subject to the continuation of the Corona outbreak from its confinement.”
Al-Mirghani added to Al-Jazeera Net – who is also the deputy head of the Socialist People’s Alliance Party – that there are difficulties in light of global economic fluctuations facing achieving such indicators that could have been achieved under normal circumstances away from the Corona crisis.
He pointed out that extending the life of the debt will increase the interest bill for more years. He considered that what worries about the external debt is not the debt itself, but rather how these debts are directed; If it is about productive projects, then it is a good thing, and if it is about infrastructure projects and paying interest and loan installments, the borrowing will not end.
Domestic consumption data
The Chairman of the Development and Value-Added Forum, Dr. Ahmed Khuzaym, described the statements and statements of officials regarding macroeconomic indicators as “for domestic consumption, and they are completely separate from reality, and the numbers are listed arbitrarily, and the follower of economic affairs finds that there is a fountain of statements and numbers that there is nothing to support them realistically, and in The truth is structural sentences that neither sing nor make you fatten with hunger.
The economic expert indicated – in statements to Al-Jazeera Net – that the report did not take into account the effects of the extension of the Corona crisis on the economy locally and globally, in addition to the state’s reliance on its resources to impose new taxes and not increase production, and the prolongation of the life of the debt indicates the government’s desire to move forward. In borrowing and shackle future generations.
Khuzaym warned of two heights; High inflation, high debt interest rate in the event that the Corona crisis and its mutating chains continue, high inflation and the US Federal Reserve’s tendency to raise interest rates, and thus the withdrawal of some investors’ money and its direction to the West.
And a report on the World Bank website warned – last December – that the increase in energy and food prices had caused a rise in inflation rates in many countries, and this could lead to negative consequences, especially for families in low-income countries where it is dominated Food accounts for about 40% of consumer spending.
The report indicated that there is still a great deal of uncertainty about what will happen to the pandemic and its economic consequences, as the emergence of a mutated strain that reduces the effectiveness of vaccines can lead to further disruption of supply chains and a contraction in the supply of labor, which increases inflationary pressures, while it can lead to Decreased demand is counterproductive.