CAIRO: The Egyptian government could cut its budget deficit faster without compromising economic growth, the International Monetary Fund said on Monday. In a statement issued in Cairo after an IMF visit, the fund also said recent Central Bank of Egypt decisions to raise interest rates were timely and appropriate. Some of the factors behind the increase in inflation in Egypt are not transitory and require a policy response, it added. It did not recommend any particular course of action. The government had planned for a budget deficit equivalent to more than 8 percent of gross domestic product (GDP) in the year starting July 1. It undertook to cut it by at least 1 percent of GDP a year for the next five years, the IMF said. In practice, the government has had windfall income from sales of assets and has received more tax revenue than it expected, Egyptian officials say. The IMF said: Given the current favorable economic environment, the [IMF] mission is of the view that a more ambitious fiscal consolidation path is feasible without compromising economic growth. The statement, issued after an IMF staff mission visited Egypt between Dec. 4 and 14, said the main macroeconomic challenge for Egypt was the recent increase in inflation. Consumer prices rose 12.2 percent in the year to the end of November, the highest rate for almost two years. Inflation had fallen to a low of 3 percent in the year to October 2005. The Egyptian government has attributed the spike in inflation to short-term factors including an outbreak of bird flu, a government decision to raise fuel prices in July and the pressure on prices from high demand abroad for Egyptian exports. The IMF said: Some of the factors driving inflation are transitory and will dissipate over time; others are more durable and require a policy response. It did not recommend any specific response but it said the fund supported central bank vigilance.
