New stimulus package to boost the economy by 0.5 to 0.75 per cent

Amr El Feki, Monday 27 Dec 2010

The latest stimulus plan will encourage banks to lend to the 6 million public sector workers

Banks 1
The new stimulus package will be financed by the banking sector. (Photo: Reuters)

Egyptian banks are mulling over the new stimulus package proposed by the government, which will allow government employees to take out loans against their salaries.

The government estimates that the plan will involve loans reaching a total of LE15 billion ($2.58 billion) and increase the country's Gross Domestic Product (GDP) by 0.5 to 0.75 per cent, the minister of finance, Youssef Boutros Ghali, was reported by Reuters as saying yesterday at the National Democratic Party's conference.

This package is the fourth to be introduced since the financial crisis. Ghali announced that it will be launched next week but some banks remain in the dark over its details.

The package consists of giving small loans to government and public sector employees. The ministry will be the main guarantor of the loans, eliminating the risk involved and thus encouraging the banking sector to lend.

So far, the National Bank of Egypt, Banque du Caire, Nasser bank and Bank of Alexandria have shown an interest to provide credit against the employees' salaries, though nothing is as yet confirmed.

"All that has so far been put on the table is a general framework. Banks have not received any specific plan," an informed source in the banking sector told Al Shorouk newspaper.

The banking sector has a very low ratio of deposits/lending, of around 50 per cent. Retail counts for 19.7 per cent of total lending.

Ghali said the monthly loan installments should not exceed 30 per cent of the borrower’s monthly salary. According to the minister, the banks will provide personal credit at a fixed interest rate of 6 per cent or a variable rate of up to 10 per cent. 

These rates have been deemed as too low by some. "These rates are inadequate for they need to cover expenses," expressed an executive in the National Bank.

The ministry has also reached an agreement with insurance companies as the loan will be covered by a life insurance scheme.  

In 2008/2009, the public sector employed 6 million people and their wages amounted to almost LE100 billion.

Between October 2008 and May 2010, the Egyptian government has introduced three stimulus packages worth 3.1 per cent of GDP, aimed at weathering the economic crisis. The majority of this amount has been invested in infrastructure projects, most notably in water, bridges, roads, schools and basic health care facilities.

While growth rates have benefited, the rate of employment remains more stagnant.

The expansionary fiscal policy created 162,000 jobs in the third quarter of 2009 and added another 900,000 jobs in the first quarter of 2010.

The International Monetary Fund expects the Egyptian economy to have grown in 2010 by 5 per cent.

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