Egypt's may see second stimulus package worth LE 10 bln

Annelle Sheline
5 Min Read

CAIRO: Egypt’s Cabinet will propose to the ruling National Democratic Party (NDP) an additional economic stimulus package worth LE 10 billion, Minister of Economic Development Osman Mohamed Osman told the local media.

The proposed package will be put forward at the party’s annual conference scheduled for Oct. 30.

Of the sum, LE 9 billion will finance infrastructure development, waste water treatment projects and road work, while the remaining LE 1 billion will fund “other activities, still unidentified.

Already running at a deficit, the LE 10 billion will not be included in the state budget, the minister said.

The government implemented a stimulus package worth LE 15 billion ($2.7 billion) in fiscal year 2008/9 to deal with the effects of declining tourism earnings, Suez Canal revenues and foreign investment amid the global financial downturn.

Osman said the government will not resort to borrowing from abroad to finance the stimulus plan, reported Arab Finance.

Member of Parliament Mohamed Halil, representative of Damietta, said the funding will come from the National Investment Bank.

“After the funding measure is presented to the Shoura Council in December, he said, apparently confident of the proposal’s approval, “the money will come from the National Investment Bank.

The National Investment Bank is under the control of the Central Bank of Egypt (CBE), all of whose funds are considered private. However, drawing funding from the bank would deepen government debt, leaving it “unclear as to how the government will finance additional spending without increasing the deficit or coming out with a package of new measures to increase revenue, said Reham ElDesoki, senior economist at investment bank Beltone Financial.

Much of last year’s LE 15 billion stimulus package focused on infrastructure projects that had “been in the pipeline, according to ElDesoki, and are now receiving priority.

Funding for projects is often funneled through the various responsible government organizations; for example, the budget of the Industrial Development Authority was doubled to LE 400 million.

Some analysts, such as ElDesoki, express trepidation that the funds reach their intended recipients, “as long as the money is really spent on labor-intensive projects, the government stimulus should be effective, she said.

The government’s Keynesian approach to boosting the Egyptian economy is made possible by the banking system’s relative security in the wake of the financial crisis, particularly its high liquidity.

“The government didn’t wait to see the results of the first stimulus, ElDesoki explains, “They decided to inject additional funds in order to try and insure the success of the stimulus.

Much needed water-related infrastructure receives particular attention after earlier stimulus-driven projects focused more on roads, bridges and schools, according to ElDesoki.

In a statement to Business Monthly regarding last year’s cash injection, Minister of Investment Rachid Mohamed Rachid pointed out that the first stimulus also tried to bolster internally-driven growth in reaction to decreased international trade.

Earlier this month, the European Investment Bank granted Egypt a loan of ?120 million (LE 983 million) for renewable energy projects and water sanitation, with ?70 million specifically earmarked to provide safe drinking water and waste water treatment for four million people in the Nile Delta.

Signed by Hisham Ramez Abd El Hafez, deputy governor of the Central Bank of Egypt, and Philippe de Fontaine Vive of the European Investment Bank (EIB), the projects represent EIB’s FEMIP initiative (the Facility for Euro-Mediterranean Investment and Partnership). The initiative promotes development in nine countries in the Mediterranean, private sector support and investment opportunities in particular. (The project will also fund the Gabal El Zeit offshore wind farm.)

On Oct. 7, Reuters reported that the African Development Bank (AfDB) will loan Egypt $53 million (LE 289 million) to finance waste-water treatment for Cairo.

ElDesoki emphasized that infrastructural development is the government’s best bet for trying to reach its targeted 5.5 percent growth rate for next year. “With the amount that has been spent, the government might now feel fairly confident about reaching their goal of 5.5 percent.

The country’s economy grew by 4.7 percent in fiscal year 2008/09, down from 7.2 percent the previous year.

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