CAIRO: The IMF welcomed on Thursday the Egyptian government’s draft 2011/12 budget, which will increase spending to create jobs and help the poor, and said talks on possible IMF financing support for Egypt were continuing.
Egypt’s cabinet approved on Wednesday a budget for the 2011/12 financial year that increases spending by a quarter as the government strives to help the poor after a popular uprising unseated the country’s president.
To help finance the increased spending, Egypt will introduce a 10 percent capital gains tax and increase the income tax rate levied on corporations and individually owned companies by 5 percentage points, the government said.
Ratna Sahay, the International Monetary Fund’s regional deputy director, said the IMF welcomed the budget’s goal of promoting social justice.
"The measures go in the right direction of supporting economic recovery, generating jobs and assisting low income households, while maintaining macroeconomic stability," Sahay said in an emailed statement.
"Meanwhile, discussions between the IMF mission currently in Cairo and the Egyptian authorities on the government’s home-grown economic plan that can be supported by IMF financing are progressing well."
Financial markets, however, were unnerved by the planned introduction of a capital gains tax and Egypt’s benchmark index fell 2.7 percent on Thursday, its biggest one-day decline since April 18.
Anger at a growing divide between rich and poor in the country of 80 million people helped spark mass demonstrations that toppled president Hosni Mubarak in February.
Finance Minister Samir Radwan said on Monday that Egypt had agreed in principle on a $3 billion, 12-month stand-by agreement with the International Monetary Fund (IMF), which he hoped would be signed by Sunday.
Radwan said the funds would help Egypt fill a budget deficit for the financial year ending in June 2012.
The budget forecasts expenditure increasing by a quarter to LE 514.5 billion ($86.6 billion), leaving a deficit equivalent to 10.95 percent of gross domestic product, up from an estimated 8.64 percent in the current financial year that ends on June 30.
The government plans to increase subsidies on consumer goods by 26 percent to LE 22.4 billion to make them more affordable for the population, Radwan said on Wednesday.
Separate fuel subsidies for consumers will rise to LE 99 billion, an increase of LE 31.3 billion.
At the same time, the government will exempt incomes of up to LE 12,000 a year from income tax, up from LE 9,000 previously.