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Mon 27 Dec 2010 12:08 PM

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Egypt stimulus plan worth up to $3.4bn - fin min

'Plan aims to utilise the earning power of state employees and to ignite a stimulus bounce'

Egypt stimulus plan worth up to $3.4bn - fin min
GROWING ECONOMY: Egypts economy was growing by around 7 percent in the three years until the global financial crisis struck (Getty Images)

Egypt has
adopted a stimulus plan with the aim of injecting 10 billion-20 billion
pounds ($1.72bn-$3.44bn) into the economy in the 2011
calendar year, the country's finance minister said on Sunday.

The plan, based on letting 5.7
million state employees borrow against salaries to make retail and
other purchases, is expected to boost economic growth between 0.50 and
0.75 of a percentage point, Minister Youssef Boutros Ghali told Reuters.

"This
non-budget stimulus plan is based on making sure that government
employees can borrow from the banking system, with the guarantee of
their salaries," Boutros-Ghali said on the sidelines of Egypt's ruling
party's annual conference in Cairo.

Egypt's
economy was growing by around 7 percent in the three years until the
global financial crisis struck, slowing growth to 4.7 percent in the
2008-09 fiscal year before recovering a little to 5.1 percent in
2009-10.

The government believes it needs a minimum of 6 percent growth to absorb new entrants to the labour force.

Boutros Ghali
said this month he expected the economy to grow 7 percent in the
financial year beginning in July 2011 and by 8 percent to 8.5 percent
the year after.

"This plan aims to
utilise the earning power of state employees and to ignite a stimulus
bounce, a direct spending bounce," he said on Sunday.

Newspaper
Al Akhbar said on December 15 that the finance ministry had contracted with
National Bank of Egypt, Banque Du Caire and Alexbank,
which is controlled by Italy's Intesa Sanpaolo, to provide the finance using the employees' salaries as security.

Boutros-Ghali
said the government had negotiated reduced rates of interest from the
banks. He said the loans could be for any amount, but monthly
installments could not exceed 30 percent of a borrower's monthly salary.

"We
also negotiated with insurance companies because part of the loan has a
life insurance plan that would pay back the loan if something happened
to the borrower," he said.

The program is due to begin in the middle of next week.

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