Egypt Sees Inflation Persisting as It Boosts Aid for the Poor

  • Inflation to average 22.8 percent in fiscal year starting July
  • Budget deficit in July-March period dropped to 8% of GDP

Egypt expects inflation to remain above 20 percent next year, as authorities plan an aid package to help lower-income citizens cope with the price surge resulting from the steep weakening of the pound over the past seven months.

The planned “social package” to be announced soon, will target public servants, low-income tax payers and recipients of food subsidies, Deputy Finance Minister Ahmed Kouchouk said in an interview in the resort town of El Gouna on Tuesday. Kouchouk said inflation will average 22.8 percent in the fiscal year starting July 1, a significant revision of the 15.2 percent he estimated in March. The rate will ease to 9.7 percent in the following fiscal year, he said.

Rising consumer prices have emerged as the key challenge facing policy makers since they removed currency controls and raised prices of subsidized fuel in November, paving the way to secure a $12 billion loan from the International Monetary Fund. Officials are trying to ease the strain on Egypt’s 93 million citizens -- nearly half of whom live near or below the poverty line -- and have announced a boost in food subsidies coinciding with the upcoming holy month of Ramadan.

Inflation accelerated to 31.5 percent in April from 30.9 percent a month earlier, according to official data. The month-on-month rise, however, eased to 1.7 percent, its slowest pace since October, prompting some analysts to conclude that the initial shock from the flotation has tapered off. Authorities are planning further cuts in fuel and electricity subsidies in the coming fiscal year.

Kouchouk also said:

  • Budget deficit in July-March period dropped to 8 percent of gross domestic product versus 9.4 percent in the same period last year
  • The primary deficit, which excludes interest expenses, fell to 1.2 percent of GDP in the same period from 2.9 percent a year earlier
  • Government targets 4.8 percent GDP growth in the coming fiscal year, 5.5 percent in the one after
  • The $1.5 billion to $2 billion Egypt plans to raise in international bonds next week will be used to cover next fiscal year’s financing gap 
  • The following international bond sale could be in early 2018. The government generally targets raising about $3 billion to $4 billion annually
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