EGYPT: Foreign debt constrains economic choices - latimes.com

The first six months of this year have not been easy for the Egyptian economy. The political unrest that ousted the president and uncertainty over the country’s direction triggered a drop in tourism revenues, low levels of domestic and foreign investments and scarce employment opportunities in the formal private sector. Economic growth is expected to drop from an early forecast of 5.5% to a maximum of 2% for the 2010-11 fiscal year, the country’s lowest growth rate during the past decade.

Meanwhile, government expenditures are steadily rising, following a 15% hike in civil servants’ wages and a budget increase in food subsidies to soften the burden of high prices in global markets. The government’s budget deficit for the 2010-11 fiscal year could exceed 10% of GDP, up from 7.6% projected before the unrest began.

As a result, the Egyptian government is struggling to fund a gap of around $20 billion and to budget confidently for the coming fiscal year, which begins next month. There are ongoing negotiations with international institutions — primarily the International Monetary Fund (IMF) and the World Bank — as well as talks with Egypt’s traditional partners: the United States, the European Union and the Persian Gulf states.