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Egypt govt says to keep subsidies, hike wages

Poor Egyptians rely on subsidies, complain of price rises.

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February 8, 2011 12:13 by



Egypt’s new cabinet promised to keep subsidies in full and draw in foreign investment at its first meeting since an uprising driven in part by poverty and economic hardship broke out two weeks ago.

The government also said, in separate statements on Monday, that it would raise some state wages and pensions by 15 percent and was exempting some late loan and tax payments from fines.

Faced with the unprecedented protests, Mubarak sacked his cabinet last month and appointed a new one which he ordered to preserve subsidies, a sensitive issue at any time in Egypt where many rely on subsidised food to survive.

The economic liberalisation policies of the former cabinet, praised by foreign investors, had been criticised by poor Egyptians for aiding the rich and hurting them.

Foreign investors had said before the crisis that the government needed to reduce its subsidy bill to help shrink the budget deficit and cut debt to prevent the state from crowding out the private sector.

“The current government is resolved on promoting and implementing a total open door policy and speeding up to the extent we can attract more foreign investment,” the new prime minister, Ahmed Shafiq, said after the first cabinet meeting.

“We have complete confidence in the success of our policy,” Shafik said, adding that the government would preserve its subsidies “in full and without limit.”

The former finance minister forecast last year that Egypt would spend 101 billion Egyptian pounds ($162.7 billion) on subsidies in 2010/11. Another former minister said last month Egypt might spend an extra 4.5-7 billion pounds on subsidies.

Shafiq said the cabinet had formed a committee to closely monitor developments in the economy.

Several major sources of revenue have been hit. Tourists have fled Egypt and Egyptians working abroad have been reluctant to send money home. The Egyptian pound  hit a new six-year low after markets reopened after a week on Sunday.

The central bank governor, Farouk el-Okdah, said in an interview on Saturday that growth, previously running at about 6 percent, would slide. He did not give a new estimate.

WAGES, PENSIONS HIKED

A ministerial committee approved raising wages of civil servants, as well as military and civilian pensions, by 15 percent from April 1, the state news agency MENA reported.

It said wages would rise for workers in state administrative jobs, but did not give details.

Finance Minister Samir Radwan said raising pensions alone would cost the government about 6.5 billion Egyptian pounds ($1.09 billion), MENA reported.

Egypt ran a budget deficit in the year to June 2010 of 8.1 percent of gross domestic product. Its revenues in 2009/2010 were 269 billion pounds. It had expected to reduce the deficit to 7.9 percent in 2010/11 before protests erupted on Jan. 25.

The Finance Ministry also said in a statement it was letting taxi owners participating in a state-sponsored programme to revamp the capital’s taxi fleet delay January payments until the end of their loan period without fines or interest.

It said it would exempt taxpayers from fines and interest on late payments of sales taxes for January and February, which would require legislative changes.

The ministry added it was also exempting late payments into social security funds from interest.

(Writing by Edmund Blair and Shaimaa Fayed)



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