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April 18, 2013 5:54 pm
Egypt’s public sector salary bill has risen by 80 per cent since the 2011 revolution, according to an international aid official and a copy of notes taken at a private briefing by the International Monetary Fund.
The spike in salary outlays, which will worsen fiscal woes, surprised IMF officials analysing the economy during two weeks of talks over a possible $4.8bn loan deal, according to a source close to the talks.
“This remains a large part of the budget, and [is] seemingly out of control,” said a set of notes of a meeting between the IMF and counterparts in Cairo obtained by the newspaper al-Masry al-Youm and shared with the Financial Times.
Egypt’s proposed budget for the year ending June 30, 2014 has yet to be publicly disclosed but Mohamed Abou Basha, an economist at EFG-Hermes, Egypt’s largest investment bank, and others have seen a draft. It shows the bill for salaries rising to E£172bn or around $25bn, up approximately 80 per cent from the E£96bn (or about $16bn at 2011 rates) in the budget before the January 2011 uprising against former President Hosni Mubarak.
The push to add to employment rosters and increase salaries comes as the Islamist government of President Mohamed Morsi and his allies in the Muslim Brotherhood prepare for parliamentary elections later this year that will hinge on popular perceptions about the state of the economy.
Egypt’s foreign currency reserves have fallen from nearly $36bn before the revolution to $13.4bn by the end of March – below the level needed for critical three months’ import cover. Qatar and Libya have agreed to contribute $5bn in loans and deposits to bolster the economy, and Turkey said this week it would soon hand over $1bn of the $2bn that it pledged last year.
But there are fears that injecting funds could hinder economic reforms and delay a deal with the IMF that would unlock aid from other donors.
The IMF has urged Egypt to trim spending by reducing subsidies for fuel and food and to raise revenues by imposing taxes. The increase in public sector salaries adds a new dimension, though it may also maintain political stability and stimulate the moribund consumer sector.
“It will help the economy to some extent because around a quarter of the labour force is in the government,” said Mr Abou Basha. “You have more money flowing into the economy. But it’s coming at the expense of fiscal sustainability.”
The jump in the wage bill has worried international aid officials trying to strengthen the economy. According to a report on Thursday in the state-owned Al-Ahram newspaper, Egypt’s post-revolutionary governments have already made 400,000 permanent additions to the public sector payroll and there are plans to make another make another 400,000 positions permanent by end of June.
Officials from the ministry of finance could not be reached for comment.
Despite publicly saying they were optimistic about two weeks of talks with government and opposition officials that ended on Monday, IMF officials found themselves frustrated over the direction of the talks, said the official close to the negotiations.
Though talks may continue during the IMF’s spring meeting in Washington, the Qatari and Libyan cash contributions emboldened Egyptian officials to ignore IMF counsel for fiscal discipline.
“Now the ball is in the court of the Egyptian authorities,” said the official close to the talks. “The IMF wants to be helpful, but there must be a programme that addresses real issues. The Egyptians want money without conditions.”
The IMF delegation noted a “shared concern for protecting the poor” among all the opposition political parties and the government, but were dismayed by officials’ unwillingness to raise taxes on capital gains and mergers and acquisitions that would only affect big companies and the rich.
Egyptian officials were keen to reduce subsidies, but IMF counterparts worried about the government’s ability to implement a new smart-card rationing system and noted that basic questions about how the cards would be distributed had not been resolved.
Egyptian officials hinted before the talks that they might request an increase in the loan size, but the IMF said there was no real talk of changing the loan amount during the negotiations. “The amount is the last thing to be decided,” after a credible programme has been presented, the source close to the talks said.
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