Saudi Arabia studies report on Egypt’s financial needs

CAIRO: Saudi Arabia is studying a report submitted by Egypt detailing its financial needs to support its ailing economy over the coming year, the Kingdom’s ambassador to Cairo said.
Saudi Arabia pledged $5 billion in aid soon after the army, prompted by mass protests, ousted Muhammad Mursi on July 3.
The government has run a budget deficit of $3.2 billion a month since January.
Interim Prime Minister Hazem Beblawi has presented a “Marshall Plan” to Gulf states, seeking support that he hopes will relieve some of the pressure on the economy.
“What has happened so far is that he (Beblawi) informed the three sides involved in this,” Saudi Ambassador Ahmed Qattan said, referring to Saudi Arabia, Kuwait, and the UAE.
“All these issues are being looked at by the specialized divisions in Saudi Arabia... (Beblawi) has made a comprehensive report on Egypt’s needs,” he said.
The Gulf trio have offered Egypt a total of $12 billion since mid-July, of which at least $5 billion has been delivered.
The interim government has said it will avoid austerity measures and instead stimulate the economy by pumping in funds.
It wants to avoid unpopular moves to plug the budget deficit such as increasing taxes or cutting food or energy subsidies that eat up around a fifth of the state budget.
In a recent interview, Egypt’s chief economic strategist said the cabinet planned to cut red tape and restart stalled investments to encourage a revival in business activity.
The central bank says Egypt’s M2 money supply growth accelerated to 19.4 percent in the year to the end of July, its fastest pace in over five years and a possible portent of continued high inflation over the coming year.
Economists said the monetary growth might be explained by an increase in direct government borrowing from the central bank as it works to plug a widening budget deficit after two and a half months of renewed political and economic turmoil.
The government borrowed 82.2 billion Egyptian pounds ($11.8 billion) directly from the central bank in the first seven months of 2013 and 145.2 billion pounds in the 12 months since July of last year, according to central bank figures.
The high money supply growth could also be caused by restrictions the central bank has placed on transferring funds out of the country.
“If you can’t get your money out of the country, you have no choice but to deposit it with the banks,” said an economist based outside of Egypt.
Economists said the higher money supply could lead to inflation as more pounds chase the same amount of goods and services.
“It’s an indicator of inflationary pressure,” said Mona Mansour of CI Capital.
“We’re expecting inflation to be higher.”
Egypt’s urban consumer inflation surged to an annual 10.3 percent in July, its highest in two years.
Money supply rose to 1.316 trillion Egyptian pounds ($188 billion) from 1.296 trillion at the end of June and 1.102 trillion at the end of July 2012. It is the fastest year-on-year monetary growth since April 2008.