Egypt to cut subsidies, boost revenues under reform package

Egyptian authorities have battled high unemployment, inflation and a collapse in tourism income since 2011 (AFP Photo/Khaled Desouki)

Cairo (AFP) - Egypt will make further "significant" cuts to energy subsidies, raise taxes and seek more international financing as it pursues economic reforms this year, Finance Minister Amr El-Garhy said on Sunday.

Speaking at a Cairo press conference, Garhy said the steps are part of ongoing economic reforms the country urgently needs.

The International Monetary Fund approved last year a $12 billion loan after Egypt floated its pound and cut energy subsidies.

The finance minister also revealed that the IMF loan carries an interest rate of 1.5 to 1.75 percent.

The reforms come as Egypt faces major economic challenges after the political turmoil that followed the 2011 uprising that toppled longtime leader Hosni Mubarak.

Economic growth has slowed, investment has fallen sharply and currency reserves have plunged.

Egypt's government agreed in November to slash fuel subsidies as part of the IMF reform package but because the country floated its currency at the same time, the subsidy bill ballooned, Garhy said.

The cost of subsidies rose "as a result of the exchange rate we currently have and... that we as a state import a large part of our petroleum needs," he said, without providing figures.

"This, right now, is the biggest challenge" the government faces on the economy, Garhy said.

The Egyptian pound, which had been pegged at 8.83 to the dollar before November, was trading at more than 18 pounds to the dollar on Sunday.

Garhy said the government was also planning to raise the rate of the value added tax by one point to 14 percent as of July.

Egypt introduced VAT in September and in December also raised tariffs on hundreds of imported items by up to 60 percent as it seeks to boost government revenues.

Garhy said the IMF deal had raised investor confidence in Egypt, especially as the fund regularly reviews the implementation of the reform package.

- Roadshow to promote bonds -

IMF oversight and twice-yearly reviews "allow all investors... to be assured of the level of seriousness of this (reform) programme," Garhy said.

The full details of the IMF deal have not yet been disclosed, but as well as providing the interest rate Garhy said Sunday that each tranche would be repaid within 10 years of disbursement, with a 4.5-year grace period.

Egypt will also seek to raise more money on international markets, he said, starting with a roadshow from Monday to promote a Eurobond issue in the United Arab Emirates, United States and Britain.

"We are targeting between $2 billion and $2.5 billion," Garhy said.

The minister said he expects foreign currency investments in Egyptian treasuries to reach $10 to $11 billion, the same level as before the 2011 uprising, "possibly within a year".

Garhy said the government had also managed to reduce the budget deficit and increase revenues in the first half of Egypt's fiscal year, which runs from July to June.

The budget deficit stood at 5.1 percent of gross domestic product in the first half of the fiscal year, down from 6.2 percent in the same period last year.

The deficit is forecast to hit 10.1 percent of GDP by the end of the fiscal year, Garhy said, but to fall to around 8.5 percent in the next fiscal year and then "to gradually drop".

Government revenues were up to 220 billion Egyptian pounds ($11.7 billion) in the first half of the fiscal year, from 192 billion pounds in the same period last year.

Spending meanwhile rose 10 percent to 389 billion pounds from June, he said.

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