US eyes ways to support battered Egypt economy

The United States is studying ways to support Egypt's economy following Hosni Mubarak's overthrow, the US embassy said on Monday after a US newspaper said Washington had decided to provide $1 billion in debt relief.

The Washington Post, citing unnamed US officials, said on Sunday the relief would be part of an economic aid package to Egypt that would also include trade and investment incentives. The US report helped boost Egyptian share prices. The benchmark index closed on Monday 1.1 per cent higher.

"We are still in the process of consultations over how the United States may assist Egypt economically as it moves forward in its transition to democracy," the embassy said in a statement sent to Reuters.

The political turmoil that led to the resignation of President Hosni Mubarak on February 11 scared away tourism and foreign investment, major sources of foreign exchange, and caused other business activity to slow.

The International Monetary Fund said last month that Egypt had indicated it needed $10bn to $12bn to meet a funding gap. Egypt has said it was seeking $10bn in funding from international lenders and rich nations to cope with the fallout from the unrest. The turmoil has cut tax revenues at a time when protestors' demands for jobs and higher wages have caused the government to boost social spending.

Finance Minister Samir Radwan said last week he expected Egypt's budget deficit to widen to 9.4 per cent of gross domestic product (GDP) in the 2011/12 fiscal year from an expected 8.5 per cent this year.

The country's economy contracted an estimated seven per cent in January-March and the International Monetary Fund is projecting a plunge in growth to 1.0 per cent this year, well below its long-term average, after a 5.1 per cent expansion in 2010.