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Mon 24 Nov 2008 12:07 AM

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Egypt deficit to widen, lower rates needed - Mubarak

President creates uncertainty as to whether remarks are an order to central bank.

Egyptian President Hosni Mubarak said on Sunday Egypt's already-wide budget deficit would increase as the country spends more to avert economic slowdown and called for cheaper credit to boost the economy.Egypt had previously said its budget deficit would be stable during the current fiscal year at 6.9 percent of gross domestic product (GDP).

"I have asked the government to increase investment spending and to bear a slight increase in the budget deficit which we will recover in the coming years without additional burdens on citizens," Mubarak said in a speech in parliament.

He did not give further details on the deficit, which the government had pledged to reduce to 4.5 percent of GDP by 2010.

Rating agency Moody's said this year Egypt had the widest fiscal deficit in relation to government revenues of any country with a similar rating, in part due to large subsidies for fuel and food. Reducing fuel or food subsidies in the most populous Arab country, where about one in five live on less than $1 per day, is politically sensitive.

Egypt's government has said it would spend about 15 billion pounds ($2.7 billion) on infrastructure projects including water and sewage to stimulate the economy. It has said economic growth could slow to 6 percent this fiscal year.

Mubarak also said the cost of credit in Egypt should be lowered to maintain the competitiveness of the Egyptian economy and promote investment.

"I call on the government to open new areas to private sector investment... [and] that must be accompanied by a reduction in the cost of credit, a reduction which gives the investors the finance needed to expand projects and set up new projects at a cost which encourages him and preserves his competitiveness," he said.

Egypt's central bank ended a nine-month cycle of interest rate rises earlier this month, and signalled it could ease monetary policy in the future to support growth.

It was not clear whether Mubarak was calling on the central bank to cut rates or was directing his comments at commercial banks. The central bank says it is independent of political interference.

With inflation falling from record levels as the global financial crisis brings down commodity prices, the central bank has increasingly emphasised risks to growth in the Egyptian economy. (Reuters)

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