Egyptian unemployed men in coffee shop. The economy is not improving in the North African state., a photo by Pan-African News Wire File Photos on Flickr.
Egypt's external debt on the rise, but still under control: Central Bank governor
Ahram Online, Tuesday 17 Dec 2013
Head of Egypt's central bank expects further aid from Arab states in the coming months
The position of Egypt's external debt and foreign currency reserves are "not alarming" said the governor of Egypt's central bank on Sunday, but need to grow by an unlikely 6 to 7 percent for unemployment to be remedied.
Governor Hisham Ramez, who has been in post for a year, told Egyptian daily Al-Youm Al-Sabea that Egypt will repay $3.9 billion of its foreign debt in 2014, with $2.5 billion going to Qatar and $1.4 to the Paris Club, as scheduled.
By early December, Egypt returned a $3 billion deposit to Qatar, which it had received in May.
The move was a response to deteriorating relations between the two nations since the ouster of Egyptian president Mohamed Morsi in July. Morsi's government had been strongly backed by Doha.
Since Morsi's exit, Egypt has since been showered with over $12 billion in aid pledges by the United Arab Emirates, Saudi Arabia, and Kuwait.
Ramez said that negotiations were ongoing with Gulf nations for additional aid and investments, marking a personal preference for investments in government bonds over deposits, but giving no further specifications.
The country’s external debt climbed to $46.6 billion as of the end of October 2013, which represents 15 percent of Gross Domestic Product, one of the lowest such ratios in the world, said the governor.
Egypt's gross domestic debts rose by almost 24 percent in the fiscal year (FY) 2012/13, reaching $217.8 billion, and gross domestic debts amounted to 87.5 percent of the GDP for the same fiscal year.
This has put further pressure on the budget deficit, which reached LE240 billion ($34.8 billion), or 14 percent of GDP, in FY 2012/13.
Reigning in the budget deficit is the most important task at hand, Ramez argued. Egypt's interim government is targeting a deficit of 10 percent of GDP at the most for the current fiscal year, an aim that analysts have greeted with scepticism given the government's projected increases in spending.
The governor endorsed the expansionary economic policy adopted by Egypt’s interim cabinet, although it contradicts the target of controlling the deficit,highlighting the need to get to grips with unemployment and to attract foreign investments that would create jobs.
Ramez estimated that Egypt’s GDP growth rate needed to return to 6 or 7 percent in the coming years in order for the labour market to absorb new university graduates.
Egypt’s economy grew by just 2.2 percent in the last quarter of fiscal year 2012/2013, a figure that Ramez expects to fall to 1.5 percent in the first quarter of the current fiscal year (July to September), due to the political tumult surrounding Morsi’s ouster.
Ramez said he was not concerned about the decline of Egypt’s Net International Reserves, which dropped to $17.7 billion in November.
"Egypt’s growth potential is very great, and therefore the growth of foreign reserves from foreign direct investment and tourism sector revenues will be a most important support for the reserves in the coming period," he said.
The ceiling for transfers abroad for individuals, set at $100,000 since the 2011 revolution to prevent a foreign currency haemorrhage, will be raised to $200,000 starting in January 2014, said Ramez.
Ramez also talked about the upcoming introduction of a minimum wage for public sector workers, which will come into force in January 2014. Some analysts are worried that the measure could increase the deficit, although Finance Minister Ahmed Galal has pledged that the new expense will not do so.
“Salaries, which accounted for LE80 billion in the 2009-2010 state budget, have now reached LE170 billion, a tremendous leap,” said Ramez, adding that this rise has yet to be accompanied by an increase in productivity.
The move also exacerbated fears of inflation. Egypt’s annual urban inflation rose to 10.4 percent in October, up from 10.1 percent in the year to September, according to state statistics body CAPMAS, and the overall annual Consumer Price Index (CPI) rate registered 11.5 percent, reaching 143.3 points, the highest annual inflation to date.
The spike was attributed to higher vegetable prices, as well as to a shortage in butane cooking gas cylinders due to delays in shipments as a result of poor weather.
“A large part of inflation in Egypt is due to problems in supply and not in demand, particularly the delivery of goods to the consumer,” explained Ramez, who stressed the government’s role in monitoring prices of goods and ensuring they reach consumers.
Asked about the central bank's decision to lower interest rates earlier this month for the third consecutive time this year, the governor affirmed his belief that the current rise in inflation is temporary.
On 5 December, the bank's Monetary Policy Committee cut the deposit and lending rates by 50 basis points to reach 8.25 percent and 9.25 percent respectively, and lowered its discount rate and the rate it uses to price one-week repurchase and deposit operations to 8.75 percent.
The decision took analysts by surprise, prompting fears of inflation.
“The decision was made to encourage investment in the current period, and will not harm depositors,” said Ramez.
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