The Ministry of Finance signed Thursday an agreement with five banks on a new stimilus package for the economy.
"Make your dreams come true" is the name of this package, which aims to bring "flourish to the national economy, industry and domestic production through providing loans to public sector employees with a low interest rate", according to a press release.
The government estimates that the new plan will provide loans reaching a total of LE15 billion ($2.58 billion) to almost six million employees in the public sector, to be released over two years. First year credits are hoped to reach a total LE10 billion.
If employee's salary is LE358, which is the lowest band in the public sector, the employee will be able to borrow LE5000 if it matures in five years and LE6300 for seven years, explained Minister of Finance Youssef Boutros Ghali. "We are now considering new legislation to apply the project in the private sector," added Ghali.
The package is the fourth to be introduced since the 2008 financial crisis. Between October 2008 and May 2010, the Egyptian government introduced three stimulus packages worth 3.1 per cent of GDP.
The package aims at giving small loans to government and public sector employees. The Finance Ministry will be the main guarantor of the loans, eliminating the risk involved, and thus encouraging the banking sector to lend.
Five public banks are to join the initiative: Banque du Caire, Banque Misr, Nasser Social Bank, Misr Iran Development Bank and Bank of Alexandria.
The new plan is expected to boost the country's gross domestic product (GDP) by 0.5 to 0.75 per cent. 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. Banks will provide personal credit at an interest rate of 5.7 per cent including the insurance premium.
The ministry has also reached an agreement with insurance companies as the loan will be covered by a life insurance scheme. It has also established a fund to reduce the risk further through covering the non-payment loans of dismissed employees or those who resign.
The International Monetary Fund expects the Egyptian economy to have grown in 2010 by five per cent.