CAIRO – Egypt’s new finance minister revised downward his predecessor’s economic growth predictions Wednesday, saying it will remain around 2 or 2.5 per cent for this year.
Hany Kadry Dimian also told reporters that the budget deficit will stay high at 12 per cent, citing strains on the budget from subsidies, a rising wage bill, and other causes despite the inflow of large aid from Gulf countries. Last year’s deficit of 13.7 per cent was a record high, while growth was an anemic 2.1 per cent.
Dimian said eventually increasing political stability would get Egypt “back on track,” but his immediate predictions are more pessimistic than those of his predecessor, Ahmed Galal, who resigned with the rest of the Cabinet last month amid a wave of labour strikes.
Egypt is banking on billions of dollars in support from oil-rich Gulf states and increased investor confidence following last year’s overthrow of Islamist President Mohammed Morsi to help the economy, damaged by more than three years of unrest, to recover. It hopes presidential and parliamentary elections scheduled for this spring and summer will bring the political stability needed to attract investment and revive the vital tourism sector.
In the meantime, Dimian said, revenues are hurting and costs have gone up.
He said the government’s wage bill increased by nearly 120 per cent over the last three years. The government has raised salaries in response to labour unrest that has swept the country since the 2011 uprising, and has also upped the minimum wage.
“The public pressure on the government and… attempts to appease the public led to that,” he said. “Now is the time to work and build… to end for some time special demands and look to the public good.”
“With the Arab aid we are determined to have our economy back on track. We are determined to have growth rate back on track and do the appropriate consolidation of our fiscal deficit and our debt ratio,” Dimian said.
So far, the United Arab Emirates, Saudi Arabia and Kuwait have poured in more than $12 billion to help the economy, as well as petroleum products to help deal with an energy crunch.
“We are expecting the support of the Arab countries until we are back on that right track…. We can’t expect that we will be managing the Egyptian economy with all its big and strong fundamentals on aid,” he said. “It is a temporary episode and we are aware of this, and we are managing our economic policy on this basis.”
Three years of unrest have battered the economy, reduced foreign reserves from $35 billion to $17 billion, and weakened the pound. Unemployment is estimated at over 13 per cent, while inflation is at 10 per cent.
Dimian, a longtime finance ministry official, was part of Egypt’s 2011-2012 negotiations with the International Monetary Fund that failed to secure a loan. He said a renewal of talks would require first a solid economic policy designed at home.
Dimian said he is focused on reforming the tax system, including imposing new value added taxes still in the works, and studying a proposal to impose 5 per cent tax on high income brackets on a temporary basis. He also said major infrastructure projects and joint private and public sector initiatives are expected to improve growth.
Dimian said tackling the issue of energy subsidies, which take up nearly $19 billion of the state budget, need time and a comprehensive program to phase out. But he gave no specific timeframe.
“We need to change the thought behind and the method of running the national economy,” he said. “This change will take time and effort and it will be difficult and will face resistance too … We are ready for this.”