Flagrant rates of inflation are the only thorn in Egypt's side as the economy shows positive signs of stability, reports Sherine Nasr The financial monthly report of August, issued early this week by the Ministry of Finance, underlines overall signs of significant growth in fields of investment led by major income earners. A real growth rate of 7.5 per cent was seen in the period July-March 2007-2008. Notably, tourism led the growth as it contributed 4.4 per cent of GDP and recorded a 26.8 per cent growth, followed by the Suez Canal with 4.5 per cent of GDP and 18.7 per cent growth. Next up were the construction sector with 4.7 per cent of GDP and 15.5 per cent growth, and the telecommunications sector with 3.4 per cent of GDP and 14.6 per cent growth. "These were the prime driving engines for the robust growth realised during July-March 2007- 2008," said the report. All this is thanks to a set of reform measures that have been enacted since fiscal year 2004-2005 which helped create a business-friendly environment. Among these were reforms covering the income tax regime, custom tariff reductions, stamp duty and sales tax administration. "The re- engineering of some spending programmes, including streamlining of energy subsidies and the interrelation between the treasury and social insurance funds and other public bodies, have improved fiscal balances, enhanced efficiency of expenditure and boosted confidence in the economy," said the report. A notable improvement in budget sector outturns for fiscal year 2006-2007 was sustained during 2007-2008. According to the Ministry of Finance preliminary data for 2007-2008, the overall deficit to GDP improved by 0.7 percentage points, reaching LE59.2 billion (6.8 per cent of GDP), compared to LE54.7 billion (7.5 per cent of GDP) in 2006-2007. In addition, the primary deficit in relation to GDP stabilised at one per cent for the second year in a row during 2007-2008. Gross budget sector debt as a percentage of GDP declined to an average of 81 per cent at the end of June 2007, compared to 90 per cent at the end of June 2006. Budget sector net domestic debt increased by 7.5 per cent to some LE478 billion as of the end of 2006-2007, compared to LE445 billion at the end of 2005-2006. "All the increase in financing needs was funded from market forces," noted the report, which further indicated that the gross domestic debt of general government declined from 72.8 per cent at the end of June 2006 to 66.5 per cent at the end of June 2007, and net domestic debt of the general government to GDP declined from 53.8 per cent to 50.5 per cent. Rising inflation in food prices and non-food products was the main reason why the Central Bank of Egypt (CBE) raised overnight deposit and lending rates for the fifth time since February 2008 to 11 and 13 percent respectively on 7 August. Regrettably, inflation continues to hit unprecedented levels, as it reached 22 per cent during July 2008 compared to 20.2 per cent in June and 7.8 per cent during the same period last year. However, the significant increases in net foreign direct investments (FDIs), accompanied by non-oil exports and private transfers, each reaching $11.1, $11.9 and $6.3 billion respectively, have each helped boost the balance of payments surplus to reach almost $5.3 billion during 2006- 2007 compared to $3.3 billion in 2005-2006. Recent external-sector statistics showed that during the period July-March of fiscal year 2007-2008, the balance of payments surplus increased to $4.9 billion compared to a surplus of some $3.1 billion during the same period last year. During the same period, total commodity exports increased by 31.1 per cent to nearly $21 billion due to the increase in non-oil exports, accounting for $11 billion as well as the $10 billion increase in oil exports. On the other hand, commodity imports increased by 43.1 per cent to $37.6 billion, reflecting a growth in domestic demand. Consequently trade deficit increased by 61.6 per cent to $16.8 billion during July-March 2007-2008. A notable increase in tax revenues was recorded, as they reached LE137.4 billion with income taxes contributing LE67.1 billion. Meanwhile taxes on goods and services, and on international trade yielded LE50 billion and LE14 billion respectively. Meanwhile, total expenditure recorded at some LE277 billion during 2007-2008 compared to LE222 billion a year earlier. The cost of the subsidy bill surged by 56 per cent to LE84.2 billion compared to LE53.9 billion last year as a direct result of high international food and oil prices. As a result, total expenditure to GDP increased by 42.1 per cent to LE21.3 billion during July 2008 compared to some LE15 billion during the same month last year. Fiscal operations for July 2008 reveal an overall deficit of 1.1 per cent of GDP compared to 0.7 per cent during the same month last year. Foreign public debt as of the end of March 2008 increased to some $34.5 billion compared to $28.7 billion a year earlier, with only $2.8 billion of short-term maturity.
