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June 2004
Parliament Cries Foul
A government suggestion to ease the deficit is shouted down by Parliament as stealing from the elderly

By Rania Oteify

The government suggested to Parliament this session what has become a controversial option for easing the budget deficit.

As Egypt comes to grips with a demographic shift prompted by the longer lives of retired people, the government has been forced to pay out more in pensions, according to Abdel Fatah El-Gibali, adviser to the Minister of Finance Medhat Hassanein.

The number of those who receive social insurance increased from 16 million in 1995-96 to 18.3 million in 2001-02. In the meantime, the number of paid premiums has decreased due to the corresponding decrease in the number of employees, he says.

Statistics show that net premiums in fiscal year 2001-02 were LE 14.1 billion while paid pensions and compensation stood at LE 17.2 billion. The LE 3.1 billion gap is also higher than the previous years gap of LE 2.4 billion. The public treasury has been burdened with these differences as well as other annual bonuses the government has granted, according to El-Gibali.

He says the situation now is as follows: the government contributes 70 percent of social insurance and pensions each year in addition to what it pays as an employer (LE 15 billion in the 2004-05 budget). The social insurance system lends its funds to the National Investment Bank (NIB) at an annual interest rate of 11 percent. The NIB, in turn, lends the money back to the state treasury at an annual interest of 12 percent and to governmental economic bodies at an annual interest of 13 percent.

This means that the government borrows and pays interest on money it has already paid the social insurance authority.

The controversial solution posed by the government is to allow the social insurance authority to own equity in government-owned assets. The move would have two positive effects; first, it would turn government debts to the social insurance authority into assets that can be profitable. Second, it would bolster the resources of the social insurance authority, says El-Gibali.

The suggestion was fiercely rejected in Parliament as an attempt by the government to meddle with widows and poor peoples money, said Kamal Al-Shazli, minister for parliamentary affairs.

So, the proposal will likely remain just that. bt