In a nutshell
• Since the January 2011 popular revolution, the budget deficit in Egypt has worsened.
• A new strategy announced by the government to contain the budget deficit and control public debt includes many measures to raise revenues and cut expenditures.
• However the strategy did not include any measures to reform budget institutions, which suffer from structural weaknesses that are highly likely to contribute to further rises in the deficit.
• These weaknesses include: a lack of fiscal rules; a right for parliament to raise borrowing for current spending; and a dual system that separates the accounts of 700 economic authorities from the national budget.
• To prevent further rises in budget deficits and public debt, the government must reform the budget institutions to improve the structures, rules, and procedures that govern the formulation, approval, and execution of government budgets.
• In the immediate term the government must enforce the golden rule that it will borrow only to invest and not to fund current spending over the economic cycle, and establish a two-stage system of budget voting to limit the extent to which MPs can push for higher public spending.
• Over the medium term, the government should adopt performance-based budgeting, eliminate budget dualism, establish a medium-term budgeting framework, and improve fiscal transparency procedures that highlight the real values of the budget deficit and the annual accrued financial transfers from public economic authorities.
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