Egypt’s budget gap to widen after Mubarak: finance minister

Egypt’s Minister of Finance Samir Radwan said the country’s budget deficit will widen as spending increases and economic growth slows after the fall of President Hosni Mubarak.

“It could be pushed up 0.4 to 0.5 per cent, from 7.9 per cent to 8.4 per cent,” he said in an interview with Bloomberg television. “I hope we can manage that.”

The protest movement that culminated in the president’s February 11 ouster has shut down businesses, scared off tourists and pushed Egypt’s borrowing costs higher. The Mubarak-appointed government, now running the country under military oversight pending elections, is forecasting slower growth and promising a stimulus plan to address the economic complaints of the demonstrators, such as high unemployment.

The government will enact a “massive and realistic” employment program that will aim to create as many as 700,000 jobs a year, Radwan said.

Before Egypt’s uprising, the Finance Ministry had targeted a budget gap of 7.9 per cent in the current fiscal year ending in June, from 8.1 per cent a year earlier. The ministry also predicts that the economy will miss its growth target of about 6 per cent this year.

Standard & Poor’s has predicted a wider budget gap, saying in a February 1 report that government spending to alleviate unrest may push the deficit into “double digits” this year.

“Even if it’s 6 per cent, 8 per cent, it’s not a healthy number,” said Sherif El-Halwagy, director of public investments at Ace & Co investment group in Cairo. “A corporation that is operating on a loss every year has a finite life.”

El-Halwagy said the deficit can be tackled if Egypt implements “long-term sound economic principles, and in the short to medium term, receives debt assistance from the West.”

Egypt has paid the highest borrowing cost for two years in debt auctions this month, with three-month bills auctioned yesterday at an average yield of 10.95 per cent. Yields on the country’s dollar bonds due in 2020 rose 13 basis points to 6.48 per cent at 10 am in Cairo.