Egypt has adopted a stimulus plan with the aim of injecting EGP10 billion-20 billion ($1.72 billion-$3.44 billion) into the economy in the 2011 calendar year, the country’s finance minister said.
The plan, based on letting 5.7 million state employees borrow against salaries to make retail and other purchases, is expected to boost economic growth between 0.50 and 0.75 of a percentage point, Minister Youssef Boutros-Ghali told Reuters.
‘This non-budget stimulus plan is based on making sure that government employees can borrow from the banking system, with the guarantee of their salaries,’ Boutros-Ghali said on the sidelines of Egypt’s ruling party’s annual conference in Cairo.
Egypt’s economy was growing by around 7 per cent in the three years until the global financial crisis struck, slowing growth to 4.7 per cent in the 2008-09 fiscal year before recovering a little to 5.1 per cent in 2009-10.
The government believes it needs a minimum of 6 per cent growth to absorb new entrants to the labour force.
Boutros-Ghali said this month he expected the economy to grow 7 per cent in the financial year beginning in July 2011 and by 8 percent to 8.5 per cent the year after. ‘This plan aims to utilise the earning power of state employees and to ignite a stimulus bounce, a direct spending bounce,’ he said on Sunday.
Newspaper al-Akhbar said on Dec 15 that the finance ministry had contracted with National Bank of Egypt, Banque du Caire and Alexbank, which is controlled by Italy’s Intesa Sanpaolo, to provide the finance using the employees’ salaries as security.
Boutros-Ghali said the government had negotiated reduced rates of interest from the banks. He said the loans could be for any amount, but monthly installments could not exceed 30 per cent of a borrower’s monthly salary.
‘We also negotiated with insurance companies because part of the loan has a life insurance plan that would pay back the loan if something happened to the borrower,’ he said.
The programme is due to begin in the middle of next week.