State struggles with deficit, inflation and joblessness

Egypt is struggling with a growing deficit, high inflation and joblessness.

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CAIRO // A growing budget deficit, high inflation and unemployment are the biggest threats to Egypt's economy, a senior government official said this week.

These factors together present a significant policy challenge to the government as it seeks to push forward reforms and build a stronger, more vibrant economy based on a democratic political system, said Neveen el Shafei, the vice chairman of the general authority for investments and free zones.

"Inevitably, the near-term economic indicators remain weak," Ms el Shafei told a natural gas conference in Cairo. "Tourism has been significantly hit. It represented close to 12 per cent of GDP prior to the [protests in January and February]."

Inflation in urban areas, on an annualised basis, increased to 12.1 per cent last month, up from 11.5 per cent in March, the central statistics office reported on Tuesday. The statistics confirmed what many in Cairo and other large cities had already discovered for themselves: prices for vegetables, meat and other foodstuffs have been rocketing.

Inflation has been compounded by disruptions at factories and other parts of the supply chain, higher shipping costs and a fall in the value of the Egyptian pound, making imports more expensive, say analysts.

The government reported last week that unemployment for last year's fourth quarter was 8.92 per cent, but economists say that figure misrepresents the size of the potential labour force and fails to take account of the huge number of Egyptians who work only a few hours a week. The Egyptian Center for Economic Studies predicts Egypt's unemployment rate could be as high as 25 per cent.

And the budget deficit, which will end the fiscal year in June at 8.5 per cent of GDP, could jump to 10 per cent in the 2011-2012 fiscal year, according to the Institute of International Finance.