Keeping national debt at 'safe level'
Egypt, Economics, 8/6/2003

The national debt is such a complex issue that even the government prefers to leave others to come up with strategies to stop it accumulating.

According to estimates by the Central Bank of Egypt (CBE), the debt stood at nearly LE 352 billion in March 2003, compared with LE 252 billion in the same period last year.

A study prepared by Minister of Finance Medhat Hassanein said that the government's debts rose to LE 134.5 billion between 1981 and 1999, in addition to LE 58.8 billion invested in economic institutes and public enterprise firms, the weekly magazine Rose el-Youssef said.

However, the debt is no burden on the national economy, since serves to divert a portion of GDP to the state, which utilises national savings, thereby absorbing surplus liquidity and redirecting it to development projects.

In this way, the state can rely less on loans from abroad, while encouraging the use of locally produced materials and components in development schemes.

On the use of the national debts and revenues to maintain economic equilibrium, Hassanein says the biggest part of the debt is equivalent to savings borrowed from the National Investment Bank (NIB).

These savings are spent on economic and social development plans, which include projects in drinking water, sewage, education, roads and bridges and housing.

Abdel Fattah el-Gebali, who is adviser to the Finance Minister said that the national debt has increased by leaps and bounds from LE 11 billion in 1981 to its present level.

Direct and indirect taxation, customs and excise duties, and social insurance contributions are not enough to cover all government spending, el-Gebaly said, adding that the shortfall has to be made up by borrowing from banks and contracting loans both with other state departments and donor countries.

Methods of servicing the national debt must be carefully considered, since they all have their impact on the economy as a whole, el-Gebaly said.

For this reason, loans from individuals and non-banking organisations, and withdrawals from special accounts in the Treasury are less likely to have an adverse effect on the nation's economy, he said.

Loans taken out against inflation are managed by CBE and merchant banks to narrow the budget, he added.

Although the government can theoretically borrow ad infinitum, loans have to be long-term in order that the state can pay the interest without having to take out another set of loans to cover those costs, otherwise the national debt will rise continually, el-Gebaly explained.

Economist Dr Mohsen el-Khodeiri told the magazine that the national debt is still at a safe level, and that the problems arising from it in terms of government spending and greater indirect taxation can be better treated by using less traditional methods.

The aims of financial policy should develop existing sources of revenues with a view to generating constant, reliable incomes, not only to pay off the national debt, but also to attract new investment, Dr. El-Khodeiri said.

The Ministry of Finance should act as a manager of state assets and resources, he suggested.

Minister Hassanein's strategy for reducing, or at least keeping the national debt at its present level, involves courses of action that hinge on making the most of what we have.

The minister in his report proposes limiting investment credit except for schemes that are in essence self-financing projects in order to create jobs.

Financial institutions should pay the outstanding LE 17.6 billion in debts and tax bills with the state, Hassanein said in his report.

If the government issues long-term bonds for national schemes and mega-projects, the prospects for local investment will be brighter and cash will flow more freely via the Stock Exchange as opposed from the unwilling tax-payer, he suggests.

If we have to borrow, we should accept soft loans from abroad to give impetus to job creation for young people, Minister Hassanein said.

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