Thursday, March 12, 2009

In Egypt, Symptoms of Crisis Show

Tuesday, 17 February 2009, Les Afriques

With key indicators now reflecting the negative impact of the financial crisis on Egypt’s economy, government officials are admitting to some strain, and seeking treatment through adjusting monetary policy and investing in infrastructure.

Foreign Affairs Minister Ahmed Abul Gheit said on Sunday that the country’s rate of economic growth showed signs of receding, and that the gains posted by Egypt’s leading sources of revenue were on the decline, reported Egypt’s official press agency MENA.

Economic growth, which held at a steady clip of over-7 percent for the past three fiscal years, dropped to 4.1% in the second trimester of the 2008/2009 fiscal year. Revenue growth for Egypt’s exports, tourism, and transportation has fallen with the contraction of the global economy. Suez Canal traffic reached its lowest level in five years as trade volume declined and some ships switched routes to avoid the Somali pirates lurking between the Suez Canal and the Indian Ocean.

Egypt’s central bank reduced its benchmark interest rate as inflation slumped to 14 percent in January 2009, down from 18.7 percent in December 2008. The overnight deposit rate was lowered 100 basis points to 10.5 percent, while the lending rate was cut by the same amount to 12.5 percent. “The risks to the domestic inflation outlook are lower in light of the deteriorating prospects for global growth in 2009 and given the sharply declining international commodity prices,” Rania Al-Mishat, Division Chief of the central bank’s Monetary Policy Unit, wrote in a statement. Egyptian officials are expecting the interest rate to drop below the 10 percent mark by March, as the central bank continues to lower interest rates in order to stimulate growth.

In a move to support spending, Finance Minister Yousef Boutros-Ghali recently announced the decision to double the amount of money Egypt will invest in an economic stimulus plan that relies on investing in infrastructure, raising the plan’s price tag from $2.72bn to $5.4bn.