Egypt Independent

PM Hazem al-Beblawy talks economics with Al-Masry Al-Youm



Prime Minister Hazem al-Beblawy said the government would extend the state of emergency for two months, stepping up military operations in Sinai, while also easing the curfew in certain parts of Egypt depending on the security situation.
 
In the first part of his interview with Al-Masry Al-Youm, Beblawy said that former President Hosni Mubarak would remain under house arrest and his successor, deposed President Mohamed Morsy, is not being imprisoned but rather detained in a secret location for his own protection.
 
Beblawy described himself as the prime minister of a pivotal government because it is laying the foundations for future Egyptian governments at a time when it is facing “irrational groups that are willing to do anything.”
 
He also said that reconciliation has become a “notorious” term in Egypt. “There is no reconciliation with anyone who is red-handed,” he said. “They must be punished.”
 
“We are expecting the worst,” Beblawy stresed. “What is happening is no political conflict but rather a destruction of the state.”
 
He said the government is in contacts with the Muslim Brotherhood's Freedom and Justice Party through intermediaries in the security apparatus. “It would be a different story if they recognized the 30 June revolution,” he claimed.
 
Referring to the attempted assassination of Interior Minister Mohamed Ibrahim, Beblawy said he was not surprised. “The method suggests the involvement of foreign elements,” he argued.
 
The prime minister also said the armed forces are systematically fighting terrorism in Sinai. “Defense Minister Abdel Fattah al-Sisi doesn’t talk much,” he said. “But when he talks, he is specific and precise.”
 
He said former Chief of Staff Sami Anan was offered Prime Minister Essam Sharaf's post after he resigned, but he declined due to the violent events on Mohamed Mahmoud.
 
Beblawy also claimed that the government projected more casualties during the forcible dispersals of pro-Morsy sit-ins than actually happened. “The death toll was close to 1,000 people,” he claimed.

Beblawy also sat down with Al-Masry Al-Youm to explain his Cabinet’s vision for resolving the economic crisis.
 
Q. What are the most important challenges facing the Egyptian economy at present?
 
A. There are two problems requiring contradictory solutions, which present a challenge for the government. There is worsening unemployment and a threatening fiscal deficit. The latter requires a policy of austerity, while the first requires more investment. Thus, both problems are affecting each other.
 
Q. What about criticisms made to the government due to delays in solving subsidization problems despite programmes laid down by previous governments to solve it?
 
A. We started a plan to ration energy consumption, but putting it into force would drive up prices, especially under the current circumstances. Subsidies are too large for the state to maintain, and a large portion of it goes to those who do not need it. So the problem lies in how to deliver it to the most needy due to insufficient databases. The former government made some attempts but stopped before implementation. I promise to lay down a programme for partial rationing of subsidies before the current Cabinet’s term comes to an end. It shall be carried out over several years after which subsidization would not disappear completely, but rather be affordable for the state.
 
Q. What about high energy consumption industries?
 
A. That programme already started when I was minister in Essam Sharaf's Cabinet. It was applied gradually. These issues are unquestionable.
 
Q. What is the total of subsidies provided by the state annually?
 
A. Those range between LE215 billion and LE230 billion annually. Some people propose a ban on luxury goods imports as a means to reduce the trade balance gap. However, these goods are only a fraction of imports. Looking at the trade balance, we find that our exports are worth US$25 billion, while imports stand at US$60 billion. Part of the imports comes from our foreign partners at home, and a large section of it is staple commodities like sugar, oil and wheat. Another portion is petroleum products worth US$9 billion. Most of the basic commodities we import are medicines.
 
Q. Will the minimum wage of LE730 be raised in light of the committee for social justice that is chaired by deputy Prime Minister Hossam Eissa?
 
A. We are not increasing the minimum wage because the budget cannot afford it. Moreover, the minimum wage is different from the average wage. Within government, I am more interested in setting a maximum wage. Yet this too faces problems because many funds have unknown sources. If we manage to set a maximum wage, we will be making a great achievement.
 
Q. Will the maximum wage apply to banking leaders and heads of major companies?
 
A. It will apply to bank presidents and government agency directors. In fact, it will apply to government representatives at private and joint-stock companies. For example, if a government official represents it in a private company and gets paid for it, he will come under the maximum wage.
 
Q. What caused the delay to the former government’s programme to reduce wheat imports? Especially since we are the world’s biggest importer of grain?
 
A. If we expand wheat cultivation, that would mean denying farmers the cultivation of other crops, such as cotton. In addition, we are experiencing a severe shortage of granaries required for storage. We will raise wheat purchasing prices to LE410.
 
Q. How will the government deal with the controversy over the high number of advisers to the state administrative apparatus?
 
A. They cost us a lot, but that cost is negligible in the state budget deficit. Some say they are paid too much for the work they do. The government should reconsider this. I personally began to reconsider it with the advisers to the Cabinet. There are 4000 to 5000 advisers, whereas we project a deficit of LE210 billion in the budget.
 
Q. What is the percentage of the deficit?
 
A. It is 27 to 28 percent of the budget and 14 percent of GDP, which the government aims to reduce through several programmes it is currently working on.
 
Q. What about government investments?
 
A. We have added LE22 billion in investments in order to implement projects that can achieve a great return and employ a large number of workers. Some of those projects are finished by 60 percent.
 
Q. There are fears of an increasing domestic debt that would prompt the government to borrow from the domestic market through bonds and treasury bills. Is that true?
 
A. We have a budget deficit because income is less than expenses. A quarter of it is wages, another is subsidies, a third is subsidy interests, and the fourth is investments. We cannot raise wages.
 
Q. Domestic debt has hit LE1.5 trillion. What does that mean for the medium and long-term?
 
A. It is a scary figure. We must rationalize subsidies, but the citizens are not prepared for that. Also, we are unable to confine subsidies to those in most need for them. Still, we will devise a gradual programme over several years.
 
Q. What good results were achieved for the economy after two months of your government taking charge?
 
A. I bring you good news. Foreign reserves will probably rise this month to US$20 billion due to deposits of some Arab countries. Kuwait deposited US$2 billion two days ago. The Egyptian pound has improved. It went down from LE7.42 on the black market to an official LE6.92 against the dollar. The Social Development Fund will inject LE140 million, of which LE90 million will go to renovation of schools, LE25 million to pavement of roads, and LE10 million to the poorest villages.
 
Q. Speaking of cash reserves, do you think the subsidization of the Egyptian pound has depleted them?
 
A. We have a severe deficit in the balance of payments. Handling it is dependent on dollar spending, while there is little elasticity in demand. For example, we will still import petroleum even if its prices go up, for we import half of our fuel needs.
 
Q. What are the details of the deal with Qatar regarding Egyptian bonds worth US$2 billion?
 
A. The Central Bank told them either they buy the bonds or we give them back their money. They agreed to buy at an interest rate of a little more than three percent, which is better than resorting to the global market.
 
Q. Are the interests Egypt acquired equal to deposits obtained from some Arab states?
 
A. We got from Gulf states US$6 billion in deposits, US$3 billion to buy petroleum products, and US$3 billion in grants. We got them all in full.
 
Q. Would the US$12 billion Arab aid,  the domestic market bonds and treasury bills solve the problems of the economy at the moment?
 
A. I am saying there is a difference between the budget deficit and the balance of payments deficit. The first affects the domestic economy and inflation. When the government borrows from the local market, it impedes the private sector, for it takes the money that the investors want. As for the money we get from abroad, it helps offset the balance of payments deficit.
 
Q. Can we take from international institutions, such as the International Monetary Fund ?
 
A. I assure you that we are open to the outside world and not isolated. Well-guided states do not cut ties with international institutions. The issue rather depends on a country's need. We, at the moment, do not need loans from international institutions, including the International Monetary Fund. But that's not to suggest it is a bad measure. It’s like you only go to the barber when you need a haircut.
 
Q. Is it true that the International Monetary Fund refuses to deal with Egypt because, like the West, it considers what happened in Egypt a military coup?
 
A. It was we who decided that we do not need loans from the International Monetary Fund, though it would be a testimony that the Egyptian economy is able to recover. I assure you that we have other more effective means.
 
Q. Can the fund refuse to deal with Egypt for political reasons?
 
A. No, but maybe for different reasons.
 
Q. But it refused a loan to the government of Hisham Qandil due to a lack of political consensus on it.
 
A. The fund requires consensus and political stability when dealing with any country. I want to say that Saudi Arabia, Kuwait and the UAE consider to finance important projects in Egypt.
 
Q. Are we getting more financial aid packages from them?
 
A. I shall not divulge any figures since the matter is still up for discussion. But besides the US12 billion we got, those states would earnestly fund specific projects, some of which are urgent undertakings which will help solve major problems, and others are meant for the most-deprived social classes. Those will be enormous projects with huge funding.

Q. Will that be implemented in the form of loans or grants?
 
A. We are still negotiating the nature of projects and the size of funding. Those countries have much interest in investing in Egypt. Citizens will feel the effect of Gulf finances.
 
Q. Where will we spend those Gulf packages? On the minimum wage for example?
 
A. Of course not, because the minimum wage is constant. We cannot spend from a temporary fund on a constant thing. This money will go to the poor villages and other various projects.
 
Q. Which Gulf officials are we negotiating with over finance packages?
 
A. We talked with the UAE foreign minister and His Highness Sheikh Mohammed bin Zayed who came with a large delegation. Ministers are maintaining weekly follow-ups to determine those prjects.They encourage their private sector to invest in Egypt. We also talked with the Libyan prime minister when he was here, but talks with the Gulf countries were clearer and more elaborate. They want to invest in Egypt’s future.
 
Q. What about the Suez Canal project that raised controversy at the time of the previous government?
 
A. It is being fully reconsidered by a ministerial committee that is working with the minister of transport. This project will be returned to former Prime Minister Essam Sharaf.
 
Q. The finance minister said there would be no new taxes. What do you think of that? And would the government reassess some current taxes?
 
A. I agree with Finance Minister Ahmed Galal that it is not the right time to impose new taxes. However, I asked him to make the income tax progressive and apply it to individuals not companies, thereby achieve social justice. For a company with 25,000 contributors may earn LE20 million, while another with 3,000 contributors may earn LE5 million.
 
Q. Will this be a different tax?
 
A. The income tax was imposed for the first time in 1939 to be added to the labor tax and the commercial revenue tax. Then the Constitutional Court said it was unconstitutional due to duplication. So I asked the finance minister to impose it on the total revenues from all sources. Under the previous government, some activities were not taxed, such as agriculture and capital gains. Also, I asked him to impose it on high-income levels only without demanding tax returns, because if people submit tax returns for each of their income sources, that would require much time to review. The bracket of income is yet to be determined.
 
Q. What will this tax bring to the treasury?
 
A. We don’t know yet. But more importantly, it would achieve social justice.
 
Q. There was a proposal made by an economist to impose a tax on wealth once in a lifetime. Is the government considering it?
 
A. Inapplicable to Egypt. Other countries applied it under special circumstances, such as in the time of war. It was no more than a half or one percent.  I rather prefer a  general tax on revenue, that would not, for example, be applied for example to an individual with a LE1000 income.
 
Q. Don’t you think we are under special circumstances?
 
A. Yes, but they could take place every couple of years. People need to feel their wealth is protected. We better impose the tax on people with high income.
 
Q. What about the sales tax? Is the government considering it again?
 
A. We are studying the possibility of turning it into a value-added tax. It is fairer this way, and it could lower taxes on goods.
 
Q. Is the government considering cash subsidies for the poor?
 
A. We will try it on a small sample and at specified regions, but it would increase the budget deficit, and it is different from the unemployment benefit.
 
Q. The government is accused of not paying attention to social justice. Is that true?
 
A. This is not true, but we will not do something that we are unable to implement. For example, the minimum wage was there at the time of Essam Sharaf. We will suggest a similar scheme to the private sector. Most companies provide social insurance, but if we impose a minimum wage on the private sector that is greater than it can afford, we would be encouraging the black market. We know that some companies force their employees to resign so as to manipulate them entirely. The average monthly per capita income in Egypt is LE1,400, which is more than the minimum wage. We will submit suggestions to the Supreme Council of Wages as for private sector's minimum wages.
 
Q. Some say that after a revolution, the state wealth should be redistributed. For example, give land to small farmers and youths. What do you think of that?
 
A. Land distribution entailed corruption which had been handled. It makes no sense to raise income without increasing production and investment. If salaries are raised by 20 percent without an increase in production, prices will rise by the same percentage or even more. When they did so in Latin America, inflation hit 200 percent in one year because laws then obliged governments to raisae wages when prices soar.
 
Q. What is your government's vision for an economic takeoff and what are the mechanisms?
 
A. For a country like Egypt we must address the issue of overpopulation. Egypt is doubling its population every 30 years. We were 20 million in 1952. After 30 years, the population doubled to 42 million, then to 84 million, both under Hosni Mubarak. We have to do something over the coming 30 years so that we do not create problems for the future generations.
 
Q. What else?
 
A. Incomes are low because productivity is low. We must improve technology and industry. And if we want to be an industrialized country, we must have a vision for education, and we must be open to the world.
 
Q. What are your mechanisms?
 
A. We will not re-invent the wheel. We must learn from other experiences in the second wave of development in the twentieth century, such as Japan, the Soviet Union, China, Southeast Asia, India and Brazil. The military made a revolution in Japan, established a strong industrialized state and opened to the world. All those countries applied the free market economy theory, except the Soviet Union, the least successful. The mechanisms we have are the same they had:  A strong state and social justice. Fair distribution guarantees social security. Egypt must grow within the Arab context. This region may change the whole future of mankind.
 
Q. How can development shift the community?
 
A. Investment increases productivity. We need to open up to the outside world to increase investment. We consume 85 percent of our income; savings are no more than 16 percent. Countries that have advanced attained an investment rate per annum of up to 30 percent or more for three decades.  We need to provide the same investment climate to reach that rate. Investment is associated with stability and security. Despite problems, there are optimistic signs, such as the improved exchange rate, the increasing foreign cash reserves, and the Arab investments.
 
Q. What is the vision for the oil sector as petroleum commodity-related crises increased over the past period?
 
A. Our local production is not enough, which obliges us to import petroleum products from abroad. We owe the foreign oil companies some US$6 billion, which made them stop new investments. We are going to reach an agreement with them to schedule payment and increase their investments to US$15 billion in the next two years. This will increase our production of gas dramatically. Also with the help of Arab aid, we will restructure that sector and develop its infrastructure.
 
Q. What about the appointment of new governors for the Red Sea and Monufiya?
 
A. I met a number of candidates but I did not yet take a decision. This would be announced either this weekend or early next week.
 
Q. What are the most important steps the government is taking in the coming weeks?
 
A. We will supply natural gas to 800,000 homes. And we will address the problem of slums and poorest villages in cooperation with the Arab countries.
 
Q. How about water security and the Ethiopian Renaissance Dam? Some believe the government is not giving sufficient attention to that issue?
 
A. We must achieve the interests of all countries; especially that Ethiopia does not have a problem of water but of electricity. Confrontation makes the parties more stringent. This matter should be treated with wisdom. The Tripartite Commission is continuing negotiations, but there is nothing new to report.
 
Q. What about new legislation?
 
A. There is a bill to regulate demonstrations being prepared by the Ministry of Justice. It will be presented to the Cabinet once it is completed.
 
Q. Do you think the current security situation allows for parliamentary elections?
 
A. We must be optimistic and get on with the roadmap. We are betting on success.
 
Q. How do you see the next president?
 
A. He must enjoy the confidence of the people; otherwise, he would not succeed no matter how skillful.
 
Edited translation from Al-Masry Al-Youm