Cairo has vowed to maintain an economic growth rate of at least 7 per cent a year “at any cost”, despite soaring inflation.
According to Egypt’s Finance Ministry, ensuring that gross domestic product (GDP) continues to grow at its current level will be its priority for this year. The IMF estimates GDP will grow by just under 7 per cent in the current year, and by 7.1 per cent in 2009.
“I need, at any cost, to maintain growth rates of 7 per cent plus,” Finance Minister Youssuf Boutros-Ghali told MEED at the World Economic Forum on the Middle East in Sharm el-Sheikh on 19 May.
However, the government could find it difficult to keep its plans on track because of inflation, which has been rising strongly this year. In the year to April, inflation rose to 16.4 per cent, driven largely by soaring food prices.
To combat the impact of the rising cost of staple goods, the government has raised food sub-sidies. It has also announced a 30 per cent increase in public sector salaries.
To cover the cost of introd-ucing these measures, it has raised cigarette prices and vehicle licence fees and hiked the price of natural gas for energy-intensive industries.
According to a report by local investment bank EFG Hermes, these measures will collectively lead to further upward pressure on the rate of inflation in the coming year. The bank estimates that inflation will average 11.5 per cent in the fiscal year 2007-08, rising to 18 per cent in 2008-09.
However, the government argues that the impact will be short term. “It will spike, we know,” says Boutros-Ghali. “There will be a temporary spike in the inflation rate to accommodate the increase in the price of fuel.”
Boutros-Ghali says the rise in fuel revenues for the government will help to reduce the budget deficit in the medium term.
“This spike in inflation is not a lasting effect and, more importantly, it will have a beneficial effect on the budget, which, ultimately, will help us to combat inflation much more efficiently.”
Industry Minister Rachid Rachid says the more interventionist policies the government has recently adopted do not contradict its declared reform agenda, which is based around a more market-driven approach.
“What we have to be realistic about is that in the implemen-tation we might have some acceleration or slowdown or deviations, depending on the circum-stances that we face,” says Rachid. “We cannot ignore that people are suffering. We cannot ignore that people are feeling the heat of inflation.
“More people are struggling to get food on the table and we have to take action to deal with it. That is exactly what happened, but it does not mean we are changing our ambition and it does not mean that we are changing our principles.”
In early May, six-month bans on rice and cement exports were introduced to protect the Egyptian market.
“It is a decision we are not happy about,” says Rachid. “This is not something we want to do. This is something we are forced to do because of inflation.”
“If we had not taken that decision, the price of rice in Egypt would have gone up from £E3 ($0.56) to £E11 a kilo. That would have been an impossible situation to face by our citizens.
“For at least 25-30 per cent of our population, that would have been a disastrous situation.”
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