Dec. 12 (Bloomberg) -- Egypt’s Prime Minister Kamal el-Ganzouri said the country may resort to borrowing abroad while austerity measures may be needed to counter the deterioration of the economy since former President Hosni Mubarak was ousted.
“The economy is far worse than anyone can imagine,” el-Ganzouri said at a news conference yesterday. “To save 20 billion pounds ($3.33 billion) there has to be austerity in a way that doesn’t affect the Egyptian citizen.”
El-Ganzouri said he wants to narrow the budget deficit so inflation doesn’t hurt poor people.
“We want to change the budget to reduce the deficit, step by step” el-Ganzouri said. If the country is obliged to seek a loan from the International Monetary Fund or other foreign lenders, it will do so, he said. “The matter is open to discussion, but after we reach a general form of the budget.”
El-Ganzouri’s government is confronting an economy that grew at the slowest pace in at least a decade as the turmoil that accompanied Mubarak’s ouster in February stifled tourism and deterred investment. Gross domestic product expanded 1.8 percent in the fiscal year through June and the country’s international reserves plunged 44 percent in the first 11 months of the year to $20.2 billion in November.
Central Bank Governor Farouk Al-Okdah said on Dec. 10 that reserves are still in a “safe range.”
Mumtaz El-Saeed, sworn in as finance minister last week, said on Dec. 3 that it’s too soon to know whether Egypt will reapply for the $3.2 billion IMF loan it rejected in June.
The oil-rich Persian Gulf is another potential source of funds. Former Finance Minister Hazem El Beblawi said in September that the government was in talks with Saudi Arabia and the United Arab Emirates about financial help.
“In light of the widening fiscal deficit and the country’s reserve situation, the country needs injection of liquidity from an external source,” said Mohamed Abu Basha, a Cairo-based economist at EFG-Hermes Holding SAE, Egypt’s biggest publicly traded investment bank.
There’s a need for Egypt to request the IMF loan, “but at the end of the day it’s a political decision,” he said in a telephone interview.
Egypt’s ruling military council swore in a new cabinet last week and gave el-Ganzouri presidential powers, excluding oversight of the military and judiciary. The army has said it will remain the ultimate authority in Egypt until a president is elected next year.
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