Interview with Egypt’s PM: emergency state prolonged, policies underway to boost economy despite obstacles

Prime Minister Hazem al-Beblawy said the government would extend the state of emergency for two months, stepping up military operations in Sinai, but ease the curfew in certain governorates depending on the security situation.
 
In the first part of his interview, Beblawy said that former President Hosni Mubarak would remain under house arrest and that deposed President Mohamed Morsy is not imprisoned but 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 of future 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. “There is no reconciliation with anyone who is red handed,” he said. “They must be punished.”
 
“We assume the worst scenarios,” he said. “What is happening is no political conflict but rather a destruction of the state.”
 
He said there is contacts with the Freedom and Justice Party through intermediary security devices. “It would be a different story if they recognized the 30 June revolution,” he added.
 
On the attempted assassination of the interior minister, Beblawy said he was not surprised. “The method indicates the involvement of foreign elements,” he said.
 
He said the armed forces are systematically fighting terrorism in Sinai. “Defense Minister Abdel Fattah al-Sisi doesn’t talk much,” he said. “And 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 at Mohamed Mahmoud Street.
 
On the topic of the Brotherhood’s sit-ins' dispersal in Rabaa al-Adaweya iand al-Nahda squares, Beblawy said the government was projecting more casualties than what happened on the ground. “The death toll was close to 1000 people,” he said.
 
Beblawy also sat down with Al-Masry Al-Youm to explain his cabinet’s vision for resolving the economic crisis. He proposes curtailing state subsidies, canceling plans to raise the minimum wage, and applying a fair progressive income tax, among other plans. Below is a transcript from the interview:
 
Q. What are the most important challenges facing the Egyptian economy at present?
 
A. There are two problems requiring clashing solutions, which represents a burden for the government. There is exacerbating 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 programs 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 program 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 program already started since I was minister in Essam Sharaf's cabinet. It was applied gradually. Such issues are unquestionable.
 
Q. How much is the total of subsidies provided by the state annually?
 
A. That ranges 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 minimum wages because the budget cannot afford it. Moreover, the minimum wage is different from the average wage. At the government, I am more interested in setting a maximum wage. Yet this too faces difficulty since many funds have unknown sources. If we manage to set a maximum wage, we would be making a great accomplishment.
 
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 be under the maximum wage.
 
Q. What caused the halt to the former government’s program to reduce wheat imports, especially that we are the world’s biggest importer of the 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 many 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 programs it is 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. We carried out over 60 percent of them.
 
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. The domestic debt hit LE1.5 trillion. What does that entail in the medium and long terms?
 
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 program 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 the cash reserve, do you think the subsidization of the Egyptian pound has depleted it ?
 
A. We have a deficit in the balance of payments. Treating it is linked to dollar spendings, while the elasticity of demand is little. For example, we will still import petrol even if its prices go up, for we import half of our fuel needs.
 
Q. What is 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 3 percent, which is better than resorting to the global market.
 
Q. Is that the same interest rate for other Arab deposits?
 
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 and 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. And 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. No country in its right mind cuts ties with international institutions. It depends on need. We at the moment do not need loans from international institutions, including the International Monetary Fund. 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.
 
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 figure, but they will surely help us with large-scale projects.
 
Q. In the form of loans or grants?
 
A. We are still negotiating.
 
Q. Where will we spend those 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.
 
Q. Which Gulf officials are we talking to?
 
A. We talked with the UAE foreign minister and His Highness Sheikh Mohammed bin Zayed who came with a large delegation. 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 in 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 given back to former Prime Minister Essam Sharaf.
 
Q. The finance minister said there would be no new taxes. What do you think of that?
 
A. I agree with Finance Minister Ahmed Galal that it is not the right time. However, I asked him to make the income tax progressive and apply it to individuals not companies, thereby achieve social justice. For a company employing 25,000 workers may earn LE20 million, while another employing 3000 workers 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. 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, a bracket of income that we are going to determine.
 
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. 
 
Q. Don’t you think we are under special circumstances?
 
A. Yes, but people need to feel their wealth is protected.
 
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 more fair 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, but it would increase the budget deficit.
 
Q. The government is accused of not heeding ​​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 avoid compensation. The average monthly per capita income in Egypt is LE1400, which is by LE200 more than the  minimum wage.
 
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. This opens the door for corruption. 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.
 
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 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. And 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. And 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?
 
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 Menoufiya?
 
A. I met a number of candidates but Idid 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?
 
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 legislations?
 
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.
 
 
Edited translation from Al-Masry Al-Youm