Finance

Home page

Finance

Egypt creates $854 mln compensation fund

05 February 2011 12:24 (UTC +04:00)

Baku â€“ APA. The size of the fund is equivalent to about 5 percent of the government’s budget deficit in the fiscal year to June 2010, which was 98 billion Egyptian pounds or 8.1 percent of gross domestic product. Revenues during that year were 269 billion pounds, down from 282.5 billion in 2008/09, Reuters Africa reported.

Officials have said they aim to keep the deficit at 7.9 percent of GDP this fiscal year, and then cut it to between 3.0 and 3.5 percent in 2014/15.

But the political unrest may block efforts to strengthen Egypt’s finances because any government, even if President Hosni Mubarak steps down soon, may now be more inclined to try to buy popular support with lavish state spending.

Moody’s Investors Service and Standard & Poor’s both cited this risk when they downgraded their ratings of Egypt’s debt this week.

"In the absence of emergency spending cuts in other areas, the budget deficit in 2011 could reach double digits, in our view, which will be difficult to finance while political uncertainty prevails," S&P said, estimating that Egypt’s gross general government debt was almost 74 percent of GDP last year.

Asked about the ability of the government to handle an expected outflow of capital from Egypt when banks reopen on Sunday, Radwan said this was the responsibility of the central bank.

"We are watching the situation closely. We are cooperating with the central bank closely," he said.

The Finance Ministry, which has 4 billion pounds in Treasury bonds maturing on Feb. 28, will be able to be able to handle its bond obligations, Radwan said.