Egypt’s economy to grow only 3 pct in fiscal year

An Egyptian policeman directs the traffic in front of the Egyptian Central Bank offices in Cairo, Egypt, Sunday, Jan. 6, 2013. (AP Photo/Nasser Nasser)

CAIRO: Egypt’s economy is poised to grow by only 3 percent in the fiscal year ending June 2014, well below the pace needed to generate jobs for the country’s disaffected youth, and lower than previously forecast, a Reuters poll showed.

The North African country’s growth prospects have deteriorated over the last six months as political turmoil has made it harder to push through austerity measures viewed as essential to revive a moribund economy.

Ten economists polled by Reuters expected the economy to grow by 2 percent in the fiscal year to June 30, 2013, and 3 percent in the year ending June 2014.

That is substantially lower than economists’ previous forecasts of 2.7 percent growth for this year and 4 percent in 2013-14, made in September.

Economic prospects are being dampened by Cairo’s failure to reach an agreement with the International Monetary Fund on a financial backstop and by renewed social unrest, which has made President Mohammad Mursi’s government reluctant to introduce unpopular austerity measures.

An IMF mission failed to conclude a $4.8 billion loan deal during a 12-day visit to Cairo this month but talks are set to continue in coming weeks.

The IMF has urged Egypt to reduce energy subsidies to help shore up government finances.

“Egypt’s political instability is at the heart of the country’s economic woes, and since the last forecast in September the situation has become demonstrably worse,” said Oliver Coleman, an analyst at Maplecroft.

“The Muslim Brotherhood is taking short-term power gains over longer-term solutions that would improve the economic outlook.”

Egypt’s economy was growing at about 7 percent annually for several years before the popular uprising ousted Hosni Mubarak in February 2011. But even that pace was barely enough to produce work for the large number of youths entering the job market.

Planning Minister Ashraf al-Araby, addressing parliament last week, forecast growth of 3.8 percent in 2013-14, better than the government’s official forecast of 2.5 percent.

Protests late last year sparked a run on the Egyptian pound that cost the central bank billions of dollars to bring under control. The official price of the pound has weakened by more than 10 percent since late December.

The latest poll forecasts that the pound would weaken to 7.03 to the dollar by the end of June and to 7.38 by end-June 2014.

On Monday, the pound was trading in the official market at 6.9245 to the dollar, but one black market trader said he was selling pounds at 7.50 to the dollar and buying them at 7.55.

“The authorities have managed to slow the fall in the pound, but only thanks to the imposition of foreign exchange controls which are weighing on economic activity,” said Neil Shearing, emerging markets economist at Capital Economics.

A depreciating currency and planned subsidy cuts were expected to fuel inflation over the coming year.

The poll predicted that inflation would rise from a forecast 8.3 percent this year to 10.1 percent in 2013-14.

A version of this article appeared in the print edition of The Daily Star on May 01, 2013, on page 5.




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