IMF Advises Egypt to Cut Budget Deficit in 2010

The International Monetary Fund called on Egypt to narrow its budget deficit in the next fiscal year to reassure investors that it was serious about cutting the shortfall by more than half within five years.

Reducing the deficit by 1.5% to 2 % of GDP in 2010 “would provide an upfront signal to investors that progress toward the medium-term objective is well under way,” the Washington-based IMF said on its Web site today.

Egypt aims to reduce the deficit from a projected 8.4% of GDP in the fiscal year through June to about 3% in 2014-15, Finance Minister Youssef Boutros-Ghali said last year. That objective is feasible, the IMF said.

The government said in a statement today that it plans to focus on reducing the shortfall as economic growth accelerates, though it still expects tax revenue to decline.

The economy of the most populous Arab country expanded 4.7% in the fiscal year through June 2010, beating IMF forecasts. The government expects growth to be above 5% this year. Growth remains below the average of 7% achieved in the three fiscal years through June 2008.

The central bank reduced its benchmark interest rate six times in 2009 as inflation and economic expansion slowed. The bank left its overnight deposit rate unchanged in its last three meetings as inflation accelerated to more than 13%. - Bloomberg