CAIRO: Egypt’s budget deficit could hit LE 185 billion pounds ($31 billion) in the next fiscal year, the country’s finance minister said Thursday.
His remarks came just hours before the US promised to relieve “democratic Egypt of up to $1 billion in debt” and “guaranteeing [Egypt] $1 billion in borrowing.”
The expanding deficit is the result of the government efforts to find cash to boost an economy battered by the protests and to increase spending to meet popular demands for jobs and services.
The government is eying a $38 billion development plan, according to Egyptian media, and will need to borrow heavily to cover the costs. The International Monetary Fund said earlier this month that Egypt indicated it will need between $10 billion to $12 billion through June 2012. Separately, the country is also near to securing a $2.2 billion loan from the World Bank, officials have said.
Finance Minister Samir Radwan said Thursday that health, housing, education and transportation spending would be increased by about $3.4 billion, describing the sectors as supporting human resource development in the country.
The deficit had been forecast at slightly under 8 percent of GDP for the 2011-2012 fiscal year, but now could be in a range of 9.9 percent to 11 percent of GDP.
"The deficit could end up being a bit more than 10 percent," said John Sfakianakis, chief economist with the Riyadh, Saudi Arabia-based Banque Saudi-Fransi. "I think anything above 10 percent is very plausible, and anything below 10 (percent) is probably difficult to reach now."
The government’s efforts are focused on addressing many of the economic ills that helped fuel the Jan. 25 uprising that led to Mubarak’s resignation after 30 years in power. Some of the problems — including high unemployment and rising inflation — have worsened since the uprising because continuing protests have undercut government efforts to restore normalcy.
The transitional government has had to deal with labor unrest over wages and working conditions, which has reduced manufacturing activity, while key revenue sources like tourism and foreign direct investment have taken a drubbing.
Sfakianakis said that the funds expected to be pledged by the US are a positive step, but stressed that it was only part of the solution to the country’s challenges.
The $1 billion debt forgiveness expected to be announced will lower Egypt’s debt burden, but the more pressing and enduring need is to build confidence, he said.
"That takes a little bit of time, but Egypt is on the right track now compared to a few months back" he said.
While the money to be pledged by the US will help, it is far short of what is needed to make a dent in the troubles confronting a roughly $217 billion economy.
Egypt needs "many billions of dollars of investments, both domestic and foreign sourced, to begin to address the issue of youth unemployment," said Sfakianakis.
Economists say the economy needs to grow at an annual rate of 6.5 percent to create sufficient jobs. Radwan, the finance minister, projects growth at 3.6 percent.
