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Egypt approves $83B budget, boosts social spending

By By Sarah El Deeb

Associated Press

Published: Wednesday, June 22 2011 1:20 p.m. MDT

CAIRO — Egypt's Cabinet approved a budget for fiscal 2011-2012 on Wednesday, boosting spending in social programs to meet growing demands from the people after the uprising that ousted former President Hosni Mubarak.

The budget totals 490.6 billion pound ($83 billion), reflecting a spending increase of 14.7 percent over the current fiscal year, while revenues are forecast at $59 billion, $9 billion more than the year before.

A statement released by the Cabinet said the deficit is expected to drop to 8.6 percent of gross domestic product, compared to 9.5 percent for the current fiscal year. An earlier draft was gloomier, predicting a deficit of 11 percent of GDP.

The budget reflects an attempt by the military council that replaced Mubarak to prop up the weaker sectors of society, freed from decades of constraints of the autocratic Mubarak regime and showing signs of open revolt, like widespread labor unrest.

Samir Radwan, the finance minister, said the new budget incorporates two principles adopted by the government and the military council: increasing spending on social welfare and human development, as well as minimizing external borrowing. His statement was carried by the official state news agency MENA.

Egypt has turned to international donors for help, securing over $20 billion in pledged aid from various nations, as well as the International Monetary Fund. The funds are meant to free up the government's resources to invest more extensively in social services, where dire deficiencies for years contributed to the unrest that ousted the Mubarak regime after nearly 30 years in power.

The spending plan shatters short-term hopes for downsizing the public sector and gradually easing subsidies, which account for more than 25 percent of the country's budget.

The budget comes as "the Egyptian economy is going through extraordinary circumstances," the Cabinet statement said, adding that GDP growth is not expected to exceed between 3 to 3.5 percent. That is about half the rate predicted before the popular revolution, which ravaged Egypt's economy, slashing growth projections for both the current and coming fiscal years, as key revenue sources like tourism, foreign direct investment and worker remittances took a beating.

"This is a reduced level that is not enough to generate the jobs needed by the new entrants into the job market," the Cabinet statement said.

The country had expected GDP growth to reach 6 percent in the coming fiscal year, and almost approach that in the current year. But economic growth, dragged down by a massive disruption in production and manufacturing in the weeks after the uprising, is seen as growing as slowly as 1 percent for fiscal 2010-2011, according to some analysts.

Spending on health, education and other key services accounts for about 54 percent of expenditures in the new budget, while wages for the public sector eat up another almost $20 billion — a 23 percent increase over the current year's budget.

The transitional government's main focus in the coming year is on job creation and trying to accommodate demands for a greater equality in pay after years in which workers saw their already low salaries eroded by inflation.

The new budget includes $8 billion in government investment in infrastructure and housing projects, a 16 percent increase, the statement said.

Also, officials are focusing on boosting social services such as health and education, while slightly raising subsidies on key commodities. Fuel subsidies stand at $16 billion, the statement said.

The new budget sees revenues climbing mainly from traditional sources like Suez Canal fees, as well as from the oil sector. Tax hikes, including on income and cigarettes, are also expected to generate new revenues.

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