More deficit... less growth THE BUDGET deficit might reach 10 per cent of the Gross Domestic Product (GDP) in the fiscal year 2011/2012, according to Samir Radwan, minister of finance, citing the government's increased spending to secure demand for jobs and higher wages in the wake of the 25 January Revolution. Speaking to the Egyptian community in the Saudi capital Riyadh on Monday, Radwan said that Egypt needs $10 billion from global lenders during the fiscal year beginning in July to ease the strain. "The budget deficit will rise to 9.1 per cent, from 8.5 per cent in 2010-2011," Radwan said. "And if all demands are met, it [the deficit] might go up to over 10 per cent [of GDP]. Next year we need $10 billion [to support the balance sheet]." Earlier this month, Radwan forecast the deficit would surge somewhere between 9.1 to 9.2 per cent of GDP in the 2011/2012 fiscal year. This came a few days after Radwan revealed that the local economy contracted by around seven per cent in the first quarter of 2011 as the uprising stripped the country of needed foreign direct investments and scared away tourists. Radwan said he expected the Egyptian GDP to grow two per cent in the current fiscal year. State news agency MENA earlier this month quoted Radwan as forecasting GDP growth of 2.5 to three per cent in the current fiscal year compared to an expected six per cent before the revolution. "Borrowing is the solution for the current problem," Radwan was quoted by a local newspaper as saying. "The balance of payments loses $3 billion every month and tourism $1 billion." According to Radwan, Egypt will be receiving a $2.2 billion loan from the World Bank at an interest rate of three per cent to be repaid over 18 years. Negative outlook for Egyptian banks MOODY'S, the international rating agency, reduced its outlook on Egypt's banking system to negative from stable. The ratings agency said it expected the decline in tourism, foreign direct investment, incoming fund flows and private consumption in the wake of political unrest to reduce Egypt's economic growth to around two per cent in the next 12 to 18 months. "These adverse economic conditions are likely to challenge the banking system's asset quality and business prospects as well as its profitability and internal capital-generation capacity," Reuters quoted a Moody's statement. It added that the exposure of Egyptian banks to sovereign debt was a high 26 per cent of banking sector assets and was likely to rise further as the government turned to banks to finance its growing deficit. The move came a few hours after the Central Bank of Egypt asked banks working in Egypt to carry out stress tests on their loan portfolios . On 21 March, Moody's downgraded five Egyptian banks and assigned them a negative outlook. And earlier, on 16 March, it downgraded the country's sovereign debt rating by one notch to Ba3 with a negative outlook because of political and economic instability after the unrest that toppled Mubarak. Compensating Libyan returnees AHMED El-Borai, minister of manpower and migration announced that a comprehensive strategy is being laid out in cooperation with the International Labour Organisation to help incorporate the Egyptian workers who returned from Libya into the labour market. This week El-Borai added that a study is currently being conducted to find out the qualifications of these workers to help them find jobs in Egypt or abroad. The study will also help to provide them with social, family and health consultancy services in assistance with international organisations such as the Food and Agriculture Organisation and United Nations Children's Fund. Moreover, the International Immigration Organisation started to list the Egyptian labour coming back from Libya according to their age, career and geographic distribution in four governorates namely Cairo, Alexandria, Assiut and Fayoum. So far 140,000 returnees from Libya applied for compensation from the ministry.
