CAIRO: Egypt s economic growth rate could fall by 50 percent in the current fiscal year, a leading international bank said Thursday, as the global financial meltdown pummels Suez Canal and tourism revenues - two financial mainstays for the Arab world s most populous nation. Egyptian officials had projected that economic growth would slow moderately to between 5 and 6 percent in fiscal 2008-2009 from the previous year s 7 percent. They argued late last year that the country was well positioned - at least in the short-term - to withstand fallout from the economic crisis that has battered global equity markets. But officials have since then adopted more cautious tones, warning of the risk of further contraction because of the current crisis. Sustaining high growth rates is key in Egypt where inflation, while dropping by 10 percentage points since August, remains at about 14 percent. Many of the country s 78 million people complain that prices for key foodstuff remain high, even as global commodity prices are falling. In a research note released by Standard Chartered Bank, analysts projected Egypt s gross domestic product could average 3.5 percent in the current fiscal year as the country registers declines from key foreign revenue sources. Two of the country s largest money generating sectors, tourism and Suez Canal revenues, are directly correlated to the global environment, Standard Chartered analysts said. They added that the manufacturing sector - the country s largest sector - will likely slow as global demand dwindles. Egyptian Cabinet spokesman Magdy Rady was quoted by local media as saying Wednesday that GDP growth in the second quarter of fiscal 2008-2009 was 4.1 percent, compared to 7.7 percent in the same quarter a year earlier. Suez Canal revenues grew only by 1.4 percent in the quarter, versus a 22 percent growth over the same period the year before. Other analysts are also expecting lower growth. Reham ElDesoki, the senior economist with Mideast investment bank Beltone Financial, said they were awaiting further data from the government to see if they would lower their GDP projections from the current level of 4.8 percent in the current fiscal year, and 4.2 percent for fiscal 2009-2010. Breaking the 4 percent barrier really depends on how widespread the impact of the downturn is on key sectors, said ElDesoki. We feel that 3.5 percent is definitely the rock bottom for 08/09. ElDesoki said Suez Canal revenues last year were at about $5.2 billion, while expectations for this year were in the range of $4.6 billion. Tourism was expected, at least at present, to hold steady at about $10.8 billion. In a bid to ameliorate the impact of the financial crisis on the country, the government has extended its economic stimulus package into the next fiscal year, which begins on July 1. Standard Chartered noted that Egypt plans to spend $2.7 billion on infrastructure from July to December, and has sought parliamentary approval to double that amount for the next six months. While increased public expenditure is necessary at this time, our concern is the likely impact on the fiscal deficit, which ballooned to 7.5 percent last year, analysts at the bank noted, adding that the government s plan to reduce the deficit to 3 percent of GDP in three years now looks unlikely given the emphasis on stimulating growth.
