CAIRO: A new Egyptian economic stimulus package could eventually spur 8.5 percent annual growth, but in the meantime the government will see if yet more money is needed, the finance minister said last week.
The LE 10 billion stimulus, earmarked for infrastructure projects, was unveiled last month, the third the government has adopted since the global financial crisis broke out last year.
“I’m hoping for 8-1/2 (growth). In two or three years I’ll be able to reach 8-1/2, Youssef Boutros-Ghali told Reuters in an interview.
Egypt’s gross domestic product (GDP), which grew by 4.7 percent in the fiscal year to June 30, has been relatively resilient to the global crisis. In the Jul-Oct quarter it grew by 4.9 percent.
Boutros-Ghali said he was expecting growth “a little north of 5 percent in the current fiscal year.
Still, the government will review the stimulus’s effect on the economy in a few months to see if more is needed.
“Maybe in six to eight months. Hopefully by that time everyone will be out of the mess by then and I won’t have to do an extra stimulus, he said. “But if I have to I will.
“I had this feeling the economy is softening. It needs to be confirmed. But instinct tells me there is some softening. The 10 billion was a reaction to this, Boutros-Ghali said.
The government introduced a first stimulus of LE 15 billion Egyptian pounds in October 2008 and a second within the June budget of LE 8 billion pounds. The government is financing all three through domestic borrowing.
“We are in the process of spending (stimulus packages) two and three, Boutros-Ghali said. “By the end of the year they will have been spent.
The increased economic growth spurred by the stimulus should translate into increased revenue to help pay down the government’s extra borrowing, which Boutro-Ghali said was not yet a concern.
Gross domestic debt is now at 77 percent of GDP and total debt at 87 percent, he said.
“Obviously it could use some coming down. But given the present situation, the world situation, we’re okay, he said.
A new property tax the government will introduce in January and an income tax law enacted in late 2004 mean part of the government’s revenue is linked to the growth of the economy.
“As the economy grows, your receipts grow, he said.
An additional sales tax the government plans to introduce will be delayed until after parliamentary elections in October 2010 and presidential elections in 2011, he said.
In the meantime, the government will make technical changes to the present sales tax to make it more efficient, he added.
The government says the additional sales tax increase will convert the system into a fully fledged value added tax.
