Hubble bubble budget trouble

International Herald Tribune Daily News

June 7 2011

Philip Whitfield

Cairo: Have you heard the one doing the rounds? Three leading economists going hunting took a small plane into the wilderness. The pilot told them they could only bring one moose back because it was such a small plane.

At the end of the trip they talked the pilot into letting them lug three dead moose onboard. Soon after, the plane stalled and crashed. In the wreckage, one of the economists looked around and asked: Where are we? Just about a hundred yards north of the place where we crashed last year, the other economists yelled back.

Statistics are great. Moldova has one of the smallest military forces in Europe, and the highest rate in the world for death by powered lawnmower. If someone you know died falling out of a tree, you’re probably Brazilian. You are more likely to be killed by lightning in Cuba than anywhere else.

In Egypt, the tectonic plates of the free economy and socialism rubbed up against each presaging a seismic event. The interim government’s draft budget reversed the last government’s march to a market economy. The fault lines of the economic and therefore the political battle ahead have been laid down.

An oxymoronic statement from the Ministry of Finance said the budget primarily aims to generate employment and bridge a fiscal deficit, which the ministry estimated might reach 11 percent of gross domestic product in 2011/ 2012.

You can have both, but not the way it’s planned. The rich are being clobbered with a 10 percent tax on capital gains and a 5 percent increase on the income tax rate for large corporations. On the other hand, the threshold for income taxpayers is going up from EGP 9,000 to EGP 12,000. The poor are promised better social programs, subsidies for food and fuel and a new minimum wage.

State investment in so-called key sectors (munitions?) is being increased from EGP 40 billion pounds to EGP 56 billion. Subsidies for essential commodities are being raised 26 percent. Increased support for low-income housing goes up by 50 percent and EGP 500 million is going to state-funded medical treatment and EGP 500 million for pharmaceuticals. EGP 2.7 billion is going to pensioners – up 71 percent.

The Supreme Council of the Armed Forces is being asked to approve a budget that spends EGP 514 billion and anticipates income of only EGP 350 billion. That’s a 47 percent overspend. Or, in my money, if you’re earning EGP 5,000 a month, you’re spending EGP 7,350.

And you’re getting a lot less for your money. The International Monetary Fund’s figures show Egypt keeping a grip on inflation at around 3 percent from 2000 – 2003. Since then it’s hit as high as 16 percent. Those are the official figures. Unofficially? Take a guess. I’m spending 350 percent more on the same stuff from the grocery store.

The cabinet should read Charles Dickens’ David Copperfield. Remember Wilkins Micawber’s assertion? Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

The government has a smoke ‘em out policy. While economists discombobulate, they’ve been sifting the dottle from the nation’s tobacco manufacturers. It’s pretty fuggy. The Health Minister says tobacco taxes are going up another 70 percent.

Even though last year taxes on cigarettes went up 40 percent and tax on shisha tobacco, or water pipes went up 100 percent, the nation’s 10 – 14 million smokers (depending on the source of information) carried on puffing.

The Central Agency for Public Mobilization and Statistics (CAPMAS) says total value of tobacco sales in the local market (including taxes) has reached almost EGP 15 billion for financial year 2011/2012 versus EGP 10 billion for the previous year – up about 50 percent.

The way to jinx this budget is to quit smoking.

Obviously the interim non-elected government and the SCAF have to put in place a financial framework until democratic elections. Worrisome is who gives them the authority to tilt towards socialism? Is it a bribe?

Commentators suggest it’s recognition of popular opinion. Who dares second-guess the public’s mood on such a vital issue? The Wall Street Journal’s Matt Bradley in Cairo reported: A draft of Egypt’s first state budget since the ouster of its former regime has worried some economists and financial analysts that policy makers are capitulating to populist concerns at the expense of economic growth.

He quotes Magda Kandil from the Egyptian Center for Economic Studies saying: The problem is whether this is good for the economy or not, or whether we can sustain this going forward or not. I would say no to both questions, she says.

Investment analysts and some economists are cautiously optimistic, calling the draft a temporary and reasonable response to Egypt’s precarious political circumstances and the public’s aversion to the former regime’s pro-market economic mindset.

EFG-Hermes’ research head Wael Ziada said the draft budget could have been worse. People looking at the Egyptian market forecast would see a lot of socialist, very popular steps taken in order to appeal to the masses after the revolution, he said. What we have seen is an indicator that we are not seeing steps taken in this direction. There are some very sensible steps toward making ends meet but not in a very opulent fashion.

Don’t you love these masters of circumlocution? Never ask investment bankers for a straight answer except: Is it the right time to buy stocks? The answer is always: Yes.

However, if we’re starving, we can always recall the story of a physicist, a chemist and an economist stranded on a desert island, with nothing to eat.

A tin of soup washes ashore. The physicist says: Lets smash the can open with a rock. The chemist says: Let’s build a fire and heat the can first. The economist says: Lets assume that we have a tin opener…

Philip Whitfield is a Cairo-based writer. He can be reached at pjwcairo@yahoo.com or twittered @mohendessin.

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