Finance Minister: Egypt economy to grow at 2.5%

Wednesday, April 06, 2011

CAIRO, Egypt — Egypt's finance minister sharply revised down earlier estimates of the country's economic growth rate to 2.5 per cent and said the nation would seek to broaden its "fiscal landscape" by trying to secure aid and reaching out to the oil rich Gulf Arab states, a ministry statement said Tuesday.

Officials had earlier projected Egypt's economy would grow by roughly four per cent, a level many analysts viewed as overly optimistic as fallout from the protests that topple that had forecast 6 percent growth before the start of the Jan 25 popular uprising.

In a statement, Samir Radwan said GDP growth could fall between 2.5 per cent and three per cent in the current fiscal year and the budget deficit could widen to 8.5 per cent from earlier estimates of 7.9 percent. The deficit could expand further, hitting 9.5 per cent in fiscal 2011-2012, according to the statement.

Radwan said the government would seek to secure outside aid or grants in its effort to diversify the "fiscal landscape" and was intent on some immediate measures that would bring about new employment opportunities, such as developing infrastructure projects.

The effort reflects an attempt to deal with unemployment, one of the key catalysts behind the mass protests, and comes as chief revenue sources such as tourism and foreign direct investment are expected to take big hits.

Labor unrest that emerged after the popular protests that toppled Mubarak has sharply undercut productivity and manufacturing while banks are said to have curtailed lending -- all trends that bode ill for the economy.

"I think they're trying to provide a buffer in case ... something tragic happens with the growth rate," said Nada Farid, an economist with Mideast investment bank Beltone Financial, adding that the expectation is that private consumption, which accounts for the bulk of GDP, will pick up in the fourth quarter of the fiscal year as more political clarity emerges in the country.

Farid said the 2.5 per cent figure represents the "worst case scenario" and the three per cent GDP figure was more realistic as production resumes after the near-daily labor strikes that ground manufacturing to a near standstill.

"It shows that the government is well aware of the magnitude of the economic impact of Egypt's political events and provides a more realistic picture of the economy," Beltone said in a research note.

Radwan also met Tuesday with Assistant US Treasury Secretary Charles Collyns in a meeting the US Embassy said was aimed at discussing the country's political and economic transition, as well as how the US and the international community could help Egypt deal with its economic challenges.

A separate finance ministry statement said Radwan discussed the possibility of a debt swap with the United States and the possibility of US participation in environmentally friendly housing projects.

Egypt has had little in terms of good economic news since the protests began in January.

The Egyptian pound has come under pressure repeatedly, forcing the Central Bank to step in at least once to support the currency. That pressure has reflected negatively on the country, adding to the unease that also led to Egypt's sovereign rating taking a hit and the ratings of several major banks also affected.

Egypt's foreign reserves dropped to US$30.1 billion in March, down US$3.2 billion from the previous month, according to provisional figures posted on the Central Bank's Web site.

The drop appears linked in part to the Central Bank's earlier intervention to support the pound, as well as a drop in foreign capital inflows.

The stock market, shuttered for nearly two months, reopened on March 23 and has been seesawing between gains and losses, with institutional investors and foreigners seen behind much of the selling that has battered company share prices.

On Tuesday, the benchmark EGX30 index was down by about 0.7 percent, with its year-to-date drop standing at around 23 per cent.

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Finance Minister: Egypt economy to grow at 2.5%