Egypt’s deficit back on track, while IMF visit is postponed

Reuters and Ahram Online, Wednesday 4 Jan 2012

The finance minister puts Egypt's expected deficit on the target for 8.6 per cent of GDP, as meeting with the IMF is postponed

Prime Minsiter Ganzoury (left), Finance Minister Momtaz El-Said (right)

Egypt will maintain its budget deficit at a lower percentage than previously estimated, the Egyptian finance minister said on Tuesday, following a statement from another minister that a visit from the International Monetary Fund (IMF), planned for January, would be delayed for a few weeks.

Finance Minister Momtaz El-Said said Egypt would maintain its budget deficit at 8.6 per cent of gross domestic product (GDP), in the financial year ending in June.

"We are committed to maintaining the budget deficit so that it does not exceed LE134 billion,” El-Said said in a statement after a cabinet meeting, which is an improvement on the initial forecast last week, that put Egypt's deficit for 2011/2  at 11.7 per cent of GDP.

A state newspaper reported on Sunday that the government plans to raise natural gas and electricity prices paid by heavy industries by 33 per cent this month to help cap the deficit.

El-Said also said they will review custom duties to help narrow the deficit without "contravening Egypt's signed agreement with the World Trade Organization (WTO).” The WTO exists to support freer world trade.

An expected visit by the IMF this month to discuss Egypt’s economic problems has been delayed for "a few weeks" wrote independent newspaper Al-Shorouk on Tuesday, citing a government minister.

Egypt, whose economy was battered by the revolution that unseated Hosni Mubarak in February, turned down a $3 billion IMF facility in June last year, saying it did not need the funds. The ruling military generals have also been reluctant to take on debt without a popular mandate.

Last week, however, a committee formed of the central bank's governor, as well as ministers of finance, planning, industry and supply, indicated that foreign borrowing has become a necessity for the Egyptian economy to cover the deficits in budget and the balance of payment, along with the drop in international reserves. The borrowed amount will range from $10 billion to $12 billion, the committee indicated. 

Yields on Egyptian treasury bills have soared to new highs as the government leans more heavily on local banks for liquidity in the absence of foreign debt investors.

The fund will be informed of a new date for their visit, Al-Shorouk newspaper reported, quoting Planning and International Cooperation Minister Fayza Abul-Naga. The IMF's visit was postponed at the request of the Egyptian government because of its busy agenda.

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