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Gulf states ready to assist Egypt if needed

File - An Egyptian bread vendor rides his bicycle under a giant banner supporting presidential hopeful Abdel-Fattah el-Sissi, the country's former military chief, in Cairo, Egypt, Friday, April 18, 2014. (AP Photo/Amr Nabil)

LONDON: Egypt is receiving aid only in the form of oil products from Saudi Arabia at present, but wealthy Arab neighbors would not stand by if further assistance was needed, Finance Minister Hany Kadry Dimian said Friday.

Egypt has been making ends meet largely with the help of billions of dollars from Gulf states, but the United Arab Emirates said this week it was unlikely to disburse more aid.

“We have not received cash aid from the Gulf this month, but we are receiving in-kind assistance in the form of petroleum products from Saudi Arabia. This will continue until August,” Dimian said at an investment conference in London. “I do not expect the Arab countries will stand still if Egypt is in need of assistance.”

However, Egypt does not rule out the possibility of tapping global bond markets to raise cash but is unlikely to do so before its election cycle is over, he said.

“We don’t exclude it but don’t expect to make a decision before the political transition is complete,” Dimian said.

“We don’t exclude any tool that will help us finance ourselves. Our [credit default swaps] have come down quite significantly,” he added, referring to the cost of insuring the country’s debt against default.

The finance minister said the political transition would be complete after parliamentary elections later this year. The country will hold a presidential vote on May 26-27.

Political turmoil following the uprising that toppled autocrat Hosni Mubarak in 2011 has hammered the economy of 85 million people and hit government finances as foreign investors and tourists have fled.

The country could introduce an additional 5 percent tax rate on high-income earners and also hopes that a value-added tax will be fully in place by next March to help improve budget finances, Dimian said.

He said the budget deficit was likely to rise in fiscal year 2014-15 as the budget does not assume any of the financial aid from overseas that has helped cushion the economy during the fiscal year that ends on June 30.

“Under the 2014-15 fiscal year budget, our deficit will be around 14 percent. If we don’t do anything [on subsidies], this is our budget deficit,” Dimian said.

“This 14 percent number does not include any grants. This year’s deficit we expect at 11.5 percent of GDP as we benefited from the big cash grants coming from Arab countries.”

Dimian said the government was under pressure to cut energy and food subsidies, which eat up a quarter of the state’s budget, and expected its subsidy bill to be reduced by 20 percent in 2014-15.

Cairo has launched two stimulus packages that amounted to around 30 billion Egyptian pounds ($4.3 billion) apiece.

Dimian warned that companies’ profits could fall as the government phases out energy subsidies as part of structural reforms.

 
A version of this article appeared in the print edition of The Daily Star on May 17, 2014, on page 4.

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