Scores on a scale of 15
Defense Finances & Economics

Under the constitution, the draft defense budget is not subject to review by any civilian authority other than the National Defense Council, which is headed by the president. The Ministry of Defense and other military agencies additionally control substantial discretionary funds that are also not subject to civilian oversight, and military businesses are for the most part similarly exempt. Public access to the financial accounts of any of these bodies is prohibited, and circulation or discussion of related information is limited to data released in official statements.

Available financial resources are sufficient to meet the needs of the armed forces largely thanks to Foreign Military Financing from the United States, which covers a substantial part of hardware needs. Independent military income-generating activities cover at least some maintenance and capital costs, and are possibly used to help finance major new arms imports from other suppliers. The military is empowered to make economic decisions and commercial investments without prior consultation with relevant civilian authorities, let alone require their approval.

The economic feasibility of military involvement in government funded public works and procurement and of military business activities is dubious, with the public purse almost certainly incurring a heavy hidden burden. With the exception of basic bookkeeping by the Ministry of Finance, military accounts and assets are not subject to external audit by any civilian agency. Financial rules and regulations governing procurement and management of assets are in place, but blanket opacity and extensive discretionary powers place the defense sector at high risk of corruption. Public access to and discussion of the defense sector’s financial information is strictly prevented.

Low Efficiency
Q1. Who determines the defense budget and its distribution?

Budget development for civilian government agencies takes place through routinized processes involving a significant degree of transparency and consultation, with annual budget discussions and final approved budgets being published by the Ministry of Finance. In contrast, preparation and implementation of the defense budget is conducted entirely within the Ministry of Defense, with no participation by other government agencies. Civilian oversight is almost completely lacking: the National Defense Council, most of whose members are active duty military officers, reviews the draft defense budget in the presence of relevant cabinet ministers and the heads of the parliamentary budget and national defense and security committees, and parliament then ratifies the defense budget as a single line item within the general state budget. Other sources of defense funding, such as foreign military assistance and income from military businesses, are not included in the defense budget and their financial terms are not reported to civilian authorities. Instead, they are managed and monitored exclusively by the Ministry of Defense, with the president’s knowledge.

The armed forces are allowed by law to retain surpluses and interest earned on them in “special funds” that may be deposited in public or private sector banks or invested in commercial enterprises of the military’s choosing. All accounts, assets, and operations of military agencies are exempt from audit by state agencies (with the partial exception of civilian production lines of the Ministry of Military Production). Both active duty and retired military officers head and staff the most powerful audit agency, the Administrative Monitoring Authority, further shielding the military from review.

Given exemption from audit and a legal framework allowing secrecy of contracts and noncompetitive bidding, existing procedural tools are inadequate to prevent a critical level of corruption risk. Parliament has not discussed the military budget since 1990, despite being asked to approve items such as increases to pay and pensions without knowing what their baselines are. The formal prohibition in place since 1967 on media dissemination of unauthorized information relating to defense is still used to block public discussion, and civil society or research organizations requesting information suffer repercussions.

Read more in Egypt Country Profile
Very Low Efficiency
Q2. Is the military involved in business and economic activity?

The military owns a large number of formally registered companies operating in a diverse range of commercial activities, and undertakes a significant volume of government funded public works and procurement contracts. Companies and agencies belonging to the Ministry of Defense and armed forces departments engaged in such activities are not subject to the same legal obligations and financial requirements as civilian counterparts in either the public or private business sectors.

Companies belonging to the Ministry of Military Production are registered as part of the public business sector and claim to comply with social security, health and safety, and audit legislation in the production of nondefense goods and services, while citing national security considerations to apply certain restrictions to their civilian employees and to avoid financial disclosure. Military-owned shares in civilian companies and in joint ventures with domestic and foreign companies are not subject to reporting or audit requirements, and the military does not come under civilian court jurisdiction in relation to these assets.

The same is true of the legally mandated management and commercial exploitation of natural resources by Ministry of Defense agencies. All extra-budgetary incomes and profits, including from services or support contracts such as demining, transport and port clearance, and United Nations peacekeeping, are retained by the military. Losses and even investment costs may be passed on to the state treasury. The military disposes of its funds entirely at its own discretion or at the request of the president, providing fringe benefits and extra pay to active duty personnel, donating to select public bodies, and declaring “gifts” of food or home appliances to low income groups. Considerable anecdotal evidence indicates that officers and civilian contractors engage extensively in unauthorized business activities, rigged contracts, and commission-taking, and that commanding officers tacitly condone these practices or participate in them.

Read more in Egypt Country Profile
Very Low Efficiency
Q3. Does the state budget allocate sufficient funding for defense sector needs?

Civilian authorities play no part in determining defense policy or needs and are not empowered or equipped to integrate these with available national resources. Defense policy and needs are determined by the military itself in consultation with the president, who has always been a former military officer since the creation of the republic in 1953 (except for a civilian interlude in 2012–2013). Institutionally, the National Defense Council signs off on the draft defense budget, but does not have a formal mandate to monitor extra-budgetary resources or incomes.

Relevant government ministries, especially the Ministry of Finance and Parliament, routinely rubber-stamp the defense budget and one-off increases sought by the military or the president. Allocations for defense are sufficient to cover pay and recurrent costs, but significant costs are covered through other means. Military pensions come under the state budget, foreign military assistance pays for the bulk of defense imports, and the military’s income generating activities finance improvements to officer benefits, training, and capital investments.

Civilian authorities again play no part in planning, allocating, or monitoring any of these resources. Basic salaries and pensions for military personnel generally track those for civilian counterparts in the state apparatus, albeit from a somewhat higher starting point. However, overall remuneration packages for military personnel, especially officers, are considerably greater thanks to additional allowances and benefits paid during servicesome of which contribute to pensionsand to access to subsidized consumer goods, housing, and non-financial rewards such as healthcare. Rules governing pay and the means of calculating pensions are published, but actual pay scales are an official secret and may not be discussed by Parliament or the cabinet. Major procurement contracts for arms and other forms of foreign military assistance are determined by a mix of actual defense needs and geopolitical considerations, although military procurement officers are known to routinely demand under-the-table commissions for smaller contracts.

Read more in Egypt Country Profile
Low Efficiency
Defense Finances & Economics
Efficiency Levels
Q1 - Budget Process
Q2 - Extra-Budgetary Income
Q3 - Resource Sufficiency