CAIRO: Prime Minister Ahmed Nazif announced this week a third stimulus package to the People’s Assembly, amounting to LE 11.2 billion (over $2 billion).
In October, the government said that a third wave of stimulus would follow the LE 15 billion issued in October 2008, and the LE 8 billion included in the June 2009 state budget.
Initial projections of LE 10 billion rose after discussion in the People’s Assembly, said cabinet spokesman Magdy Rady in a statement to Reuters, “We increased some expenses so it became a little over 11 [billion pounds].
Similar to its predecessors, the stimulus package will fund infrastructural development projects. Investment bank Beltone Financial reported that water and water treatment projects will receive LE 9 billion, and the additional LE 1 billion will go to “miscellaneous social projects and programs.
Discussion in the People’s Assembly led to additional funds being allocated for developing land near suburban areas (LE 500 million), as well as Cairo’s ring road (LE 200 million), in addition to housing and poverty projects (LE 300 million).
Unlike Egypt’s previous stimulus packages, which were drawn from the state budget and heightened concerns around deficit spending, the latest stimulus will be financed by so-called “economic authorities, primarily the New Urban Communities Authority. The money, therefore, depends on the sale of land plots.
Beltone Financial expressed pessimism at the capacity of land sales to finance the entire package, especially with the additional LE 1.2 billion. Although the government has published its expected deficit for fiscal year 2009/10 at 8.4 percent, Beltone projects 9.1 percent, anticipating that the government will make up the difference from the state budget.
Youmna El-Hamaky, a member of the Shoura Council’s economics committee, told Daily News Egypt that questions about stimulus financing were addressed in a Shoura Council meeting last week, with officials saying that the sale of land will be sufficient to cover the cost of the package.
El-Hamaky said she questioned Osman Mohamed Osman, minister of economic development, as to the possibility that the third stimulus would not suffice to push economic growth to the government’s desired 5 percent for fiscal year 2009/10.
“He replied that the policymakers responsible will monitor the situation and performance. Should they find the amount of money not sufficient, another decision to inject money will be reached, she related.
Magdy Sobhy, economic expert at Al-Ahram Center for Strategic and Political Studies, commented that the lack of private investment has “forced the government to do this [third stimulus].
Sobhy explained, “Last year private investment was maybe 54 percent of total investment, so the government is just filling the gap.
“This is to keep the growth rate in good shape, he continued, “at 4 or 5 percent.
“Because this is an election year, and representatives are facing complaints from their constituencies, it affects their decision about where to get this funding.
Some experts have questioned the wisdom of directing all stimulus efforts to infrastructure.
Adham Nadim, head of the Industrial Modernization Committee, a governmental organization spearheading industrial development, has criticized stimulus measures as short-lived.
“Build a road and you employ people for a year. build a factory and you employ people for life, he had told Daily News Egypt regarding the previous two packages.
Yet Sobhy points out that Keynes himself – the economic theorist who’s advocacy of deficit spending has informed government’s recession policies since the global depression in the 1930s – intended stimulus packages to act as economic jumper cables, not long-term solutions.
“The package needs to provide immediate benefit. it’s intended for temporary relief, just one or two years.
The government seems to have pinned its hopes on international trade regaining pre-crisis levels by the time the effects of the stimulus injection wear off.
