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IMF: Egypt economy to grow just 1.5 per cent in 2011

IMF has painted a worrying picture for Egypt's economy, warning of unsustainable public finances and the inability of foreign investment.
22.09.11 | Source: Ahram Online

Global body's latest report on the world economy paints a depressing picture for Egypt, predicting growing account deficits, stalled investment and a further drop in foreign reserves.

The International Monetary Fund has painted a worrying picture for Egypt's economy, warning of negligible growth, unsustainable public finances and the inability of foreign investment to fill the gap.
Egypt is likely to see economic growth of just 1.5 per cent in 2011, the global body said in its World Economic Outlook released earlier this week.

It went on to project growth of around 2.5 per cent in 2012, underpinned by a slow recovery in investment.

The IMF's report divides the Middle East and North Africa region into oil exporters and oil importers, pegging the latter -- which include Egypt, Tunisia and Syria -- as likely to see the worst economic turmoil.

"For the oil exporters ... we expect them to have strong fiscal and current account balances, but the opposite holds true for countries that are importing commodities, and those undergoing very protracted political transition to stability," said Rupa Duttagupta, Deputy Division Chief of the IMF's World Economic Studies Division, during a press briefing on Tuesday.

Egypt, the world's largest importer of wheat, which relies on heavily subsidised energy to support a large proportion of its 84 million population, seems to match the description all too well.

The IMF report went on to call for a medium-term reorientation of fiscal policies to "attain poverty reduction and productive investment goals".

But it noted that pressure on governments like Egypt's to increase social spending and subsidies would place a strain on public finances wich would not be sustainable over the medium-term.

It also warned such actions "could further crowd out needed private investment, perpetuating the problems with job creation in the private sector."

In June, the Egyptian government rejected the offer of a $3 billion loan from the IMF after popular disapproval of the rumoured terms and conditions. Without such funding, Egypt will struggle to fill the gap, the report claimed.

"In terms of external financing in 2011, private capital inflows (chiefly foreign direct investment) will likely be insufficient to offset oil importers’ growing current account deficits, resulting in a drawdown of international reserve cushions," it said.

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