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Egypt Public Finance
Until 1952, budgets seemed to have been drafted as much to
obscure as to reveal the country's finances. Muhammad Ali
apparently felt no obligation to make public the condition of the
treasury, and his private expenses were not separated from those of
the government. The same arbitrariness was exercised by his
successors, a practice that contributed to ruinous fiscal policy.
A relatively sound fiscal system was first imposed on Egypt in the
1880s by Europeans whose primary motivation was to collect debts
(see Debt and Restructuring
, this ch.). Upon the termination of the
British protectorate in 1922, Egyptian governments once more began
to manipulate budgets so as to divert public funds to private
pockets. The situation lasted until the Free Officers assumed
power.
Among the charges that the new regime made against the monarchy
were corruption and the abuse of public money. Gaining the
confidence of the population entailed the sound management of
public finance. Extensive budget data have subsequently been
published, permitting public scrutiny.
Until 1980 the budgetary procedures involved a complex
accounting system with several budgets and special funds. Budget
formats took a long time to standardize, and the fiscal year was
altered several times. In July 1980, budgetary procedures were
simplified and the fiscal year was fixed between July 1 and June
30, instead of the previously used calendar year.
The new budget still contained a number of special-purpose
funds, such as subsidies and support for the armed forces, which
were outside the main budget. Public sector companies and
authorities, such as that for the Suez Canal, had their separate
budgets, although they were connected to the state budget through
transfers to and from the latter. The primary agencies handling the
budget were the Ministry of Finance and the National Investment
Bank, founded in 1980. The ministry prepared the budgets and
managed all transactions, except new investments, which were the
responsibility of the investment bank.
The state budget included those of the central and local
governments. The central government, however, exercised great
control over the budget, as was apparent from the preponderance of
its revenues and expenditures relative to those of the local
government (see
table 4, Appendix). Examination of the budget
revealed a number of characteristics and trends. State revenues as
a proportion of GDP tended to remain steady, staying around onethird . They consisted primarily of tax receipts. The largest
revenue items were business, consumption, and import taxes (the
latter two categories were also called indirect taxes). Personal
and property taxes were minuscule by comparison. An IMF
international tax comparison index ranked Egypt in 1978-80 as
eleventh among forty-four developing countries in the ability to
collect taxes.
In addition to generating revenues, taxes could be a vital
instrument in redistributing income. The impact of taxes on income
distribution was little studied in Egypt. Income taxes were
progressive, but because collection was not systematic, it was
difficult to judge their actual impact. Also, little was known
about the equity effect of indirect taxes, which made up a large
part of overall revenues. These taxes were usually regressive, but
subsidies may have compensated for some of the unfavorable impact.
Another aspect of the revenues was the instability of foreign
exchange income. For example, the contribution of petroleum--the
major source of foreign currency in the state budget apart from
foreign aid--dropped (at current prices) from nearly ŁE1.07 billion
in 1983 to ŁE781 million in 1988. Translated into real prices, the
drop would be more dramatic. Revenues from the import tax also were
tied to the volume of foreign exchange, especially to that of
remittances. Because this volume was not really known, however, the
effect of its fluctuations could not be meaningfully estimated
(see Remittances
, this ch.).
Entries for expenditures illustrated the results of the steps
taken by the Mubarak government to trim spending. Wages, the
predominant expenditure item, were nearly halved as a percentage of
GDP in the period from 1979 to 1988. While this was positive for
the state budget, it could also mean that the income of public
employees declined relative to overall per capita income. The
subsidy bill also fell from the levels of the 1970s and early
1980s. These two factors, among others, led to the decline of
expenditures and gross deficit as a proportion of GDP. Expenditures
had risen from 50 percent of GDP in 1979 to 70 percent in 1983,
then dropped to 49 percent in 1988. Trends similar to those for
expenditures also characterized the budget deficit.
Data as of December 1990
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