Youssef Boutros-Ghali, Egypt’s finance minister, has said the country can stay on target for 5% growth, and so stabilise unemployment – as long as global growth remains at 3% and the industrialised countries grow at between 0.1 and 0.3%.
Boutros-Ghali also told Emerging Markets he considered it likely that the Central Bank would cut interest rates.
“We need 700,000 new jobs every year to keep the level of employment constant [with new entrants to the labour market],” he said. “Over the past three years we have created 1.1m jobs every year, which means we have been successful.”
Boutros-Ghali conceded that “as everywhere else” Egypt was going through some profound policy changes.
Until very recently, inflation was identified as public enemy number one. The central bank has already increased interest rates six times this year in order to contain inflation.
And on a visit to Egypt last month, Dominique Strauss-Kahn, the IMF managing director, pinpointed inflation as “the biggest threat to near-term economic stability”.
But even before the international turmoil of the past week, commodity prices had eased, and this would reduce inflationary pressures, said Boutros-Ghali.
According to government statistics, consumer prices in the urban areas rose 21.5% in the first nine months of 2008 – still high, but a fall from the 23.6% in the year to August.
The finance minister said that the rising cost of living constituted a major challenge for poorer Egyptians: 20% of the population are in poverty, living at or lower than “roughly $2 a day.”
The Egyptian government in May raised the wages of government employees by 30%, and increased both the level of subsidies and the number of people eligible.
The move attracted IMF criticism. Strauss-Khan last month urged Egypt to curb the rise in subsidies “particularly through better targeting”, to “create room to boost spending on investment and education, and help to further reduce public debt, which are essential for sustaining broad-based growth”.
Boutros-Ghali said Egypt’s vulnerability to the international financial crisis was mitigated by the relative underexposure of its banks.
“Our banking system is not as dependent on international capital flows or money markets [as many others],” he said. “Investments are relatively straightforward, not complicated by derivatives connected with [the US] sub-prime [market]. We also have reserves of $35-36 billion.”
World Bank figures from the end of 2006 put Egypt’s external debt at $29 billion, relatively high in regional terms, but just 27% of gross national income.
Boutros-Ghali said Egypt was concerned that it would suffer from any downturn in world trade, especially if exports to Europe and US fell.
But he said there was less worry over Egyptian workers’ remittance of around $8.5 billion a year from the Gulf Cooperation Council (GCC) countries. “Construction could slow down there, but the fundamentals in the GCC remain strong,” he said.