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Business FRIDAY, MARCH 21, 2014

Debt casts deepening shadow on Egypt’s economic recovery Limited political, economic room to cut budget deficit CAIRO/DUBAI: After Egypt’s new finance minister took office last month, one of his first acts was to downgrade the government’s assessment of its finances. Hany Kadry Dimian said this year’s budget gap would be about a third bigger than his predecessor estimated. He was acknowledging what may become the biggest threat to Egypt’s economic recovery after years of political turmoil: a rising public debt burden. Since Islamist President Mohamed Morsi was ousted last July, billions of dollars in aid from allied governments in the Gulf have eased most of Egypt’s pressing economic problems. Its currency has stabilized, fuel shortages are less severe and the government has resumed spending on economic development projects. Investors are celebrating; stocks have rocketed to levels last seen before the 2011 revolution while the yield on Egypt’s $1 billion sovereign bond due in 2020 hit 5.33 percent this week, its lowest level since December 2012 and down a whopping 5.8 percentage points since mid-2013. But Egypt’s state finances are still getting worse, and a Reuters analysis suggests they will continue deteriorating into the second half of the decade, at the very least. In that time, the ratio of public debt to gross domestic product may rise above 100 percent, a level viewed as potentially dangerous by many economists. In the worst case, the debt could become so large that servicing it eats up an ever-increasing share of government spending, creating a vicious circle. At a minimum, the debt could crowd out spending by the private sector, adding to Egypt’s political tensions by slowing job creation. “Egypt is spending more than it can borrow given the low gross domestic product growth rates,” said Moustafa Bassiouny, Cairo-based economist at Signet Institute. “It’s about having faith that you can repay... Egypt would have to grow around 5 or 6 percent in the next three years and that’s highly unlikely. It hasn’t yet reached a dangerous point, but it’s on a very dangerous trajectory.” Deficit Egypt’s state finances were unhealthy even before the revolution; the government ran budget deficits of around 8 percent of GDP in the years before 2011. The political turmoil has worsened the situation by more than halving the GDP growth rate, hurting tax revenues. With private investment weak because of political and economic risks, the government is having to try to revitalize the economy with state spending packages - further adding to the debt. Although Gulf aid is keeping Egypt afloat and more is expected in coming months and years, it is adding to the debt, not reducing it. Of $10.7 billion received since last July, $6 billion was lending which will need to be repaid rather than grants of cash or petroleum products. A simple spreadsheet model of Egypt’s public debt, created by Reuters, suggests it will be several years before the ratio of debt to GDP, which was 89.2 percent in the fiscal year to last June, levels off and starts to fall. Dimian said real GDP would grow about 2.3 percent this fiscal year. If the economy keeps growing at that speed, and other factors such as the budget balance and interest rate paid on the debt stay the same, the debt-to-GDP ratio will rise above 100 percent in the fiscal year to June 2017, the model shows. Relying entirely on faster economic growth to solve the problem doesn’t look feasible. Even if GDP growth jumped next fiscal year to 4.3 percent - Egypt’s average since 2000 - and stayed there, the debt-to-GDP ratio would keep rising through the end of this decade, though at a slower rate. That means state spending growth will have to be slowed and revenue growth accelerated in coming years. But the structure of spending makes cuts very difficult. Out of 717 billion ($103 billion) Egyptian pounds of projected state spending in the current fiscal year, 25.4 percent is earmarked for interest payments on the debt. While the government has succeeded over the past nine months in bringing down the average interest rate it pays, by conducting fresh borrowing at longer maturities and borrowing Gulf money at preferential rates, there may be little room for further such savings - at least while debt remains so high. The average yield on nine-month Treasury bills tumbled from almost 15 percent to around 11 percent in the months after Morsi’s ouster, but has stabilized in recent weeks.

Wataniya Telecom Sponsored Ghadi Project

Donations for the education of 1,233 Syrian refugee children are collected in cooperation with KRCS and NEST

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ataniya Telecom, a member of Ooredoo Group, sponsored”Ghadi” Project which was an initiative taken by NEST aid group and Kuwait Red Crescent Society (KRCS) in support of young volunteers from Kuwait. The project aimed at supporting the education of Syrian refugee children in Lebanon. “Ghadi”was Nest Kuwait’s great campaign that made it possible for everyone to participate in helping the education of Syrian refugee children who are truly in need. Wataniya Telecom strongly believes that education is a right for all children in the world and it wanted to open doors for people in Kuwait to take part in providing education to Syrian children while being in a tough situation away from home and school.

Wataniya Telecom is thankful to all the great efforts done to successfully collect donations for the education of 1,233 Syrian refugee children. It highly praised the efforts of Ghadi team including the young Kuwaiti volunteers saying that the company was pleased to support NEST’s project for that it goes in line with its commitment towards the society and is considered a major part of its corporate social responsibility. It is worth mentioning that Wataniya has recently announced its donation of KD 50,000 in fulfillment of the desire of His Highness the Amir Sheikh Sabah AlAhmad Al-Jaber Al-Sabah to collect donations for the relief of the Syrian people.

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