News Analysis: Budget deficit mainly behind Egypt's growing debts

Economic experts said the budget deficit, among other factors, is the most significant reason for both the domestic and external growing debts of Egypt.

Egypt's domestic debt reached 2.016 trillion pounds (261 billion U.S. dollars) in the third quarter, according to the Central Bank of Egypt with an increase estimated by 242.1 billion pounds (30.9 billion dollars), the highest rise rate in the country's history.

While the external debts reached 39.9 billion dollars during the same period, the central bank added.

"The government's tendency of borrowing from banks to finance the public budget's deficit led to the domestic growing debt," said Rashad Bayoumy, economic professor at Arab Academy for Administrative Sciences.

"The government fails to pay what it borrows and eventually the domestic debt is in increase from year to year until it reached unprecedented level up to two trillion pounds," Bayoumy told Xinhua.

The country's approved budget -- which starts on July 1, 2015 and ends up on June 30, 2016 -- puts the expenditures of the debts' interests around 244 billion pounds (31.1 billion dollars) with 25 percent increase compared to the previous fiscal year. The interests constitute 28 percent of the general public spending.

According to the international economic measures, the total debt for any country is within security limits if it doesn't surpass 60 percent of the Gross Domestic Product (GDP), but the status in Egypt has significantly exceeded that percentage.

Bayoumy said last year's public budget has suffered deficit valued 260 billion pounds (33.2 billion dollars), which the government borrowed and failed to pay, while the new 2015-2016 budget is being ill with 251 billion pounds (32 billion dollars) deficit, the later will be added to the last year's value and nearly doubling the deficit.

"The government is highly dependent on local sources, mostly banks, in forms of treasury bills and bonds, to finance its deficit," the economic professor explained.

Data showed that total domestic borrowing was up to 18 percent year-on-year.

"The deficit has been consolidating slower than planned by the government," he added.

The government mainly borrows from banks, particularly public sector banks. But the government just borrows to seal the budget deficit and not to increase the production and employment opportunities, Bayoumy said.

He added that it is better for the government to borrow from internal source and work on providing resources to pay it.

Political turmoil since 2011 has hurt Egypt's economy, but investors have welcomed painful reforms aimed at fixing the state's finances such as slashing energy subsidies and introducing some taxes.

The approved budget puts the deficit at 8.9 percent of GDP, around 251 billion pounds (32 billion dollars), while the interests on the public debts reached 244 billion pounds (31 billion dollars), or 28 percent of the total public expenditures.

According to Ihab al-Desouky, head of economic department at Sadat Academy, "without debts interests, the country's general budget wouldn't suffer deficit."

He added that "weak production and exportation are also main reasons for increasing the general debts, domestic and external."

On means of reducing the total debts, Desouky said the solution starts by getting rid of the budget deficit.

He said the long term means for overcoming the continuous rise of general debt volume are increasing the local production and improving investment opportunities.

While adding private funds for the public budget and rationalizing general expenditure are short term answers for the problem, he added. Endit