Egypt Relies On C.Bank To Finance Growing Deficit

Egypt’s cash-strapped government has been borrowing from the central bank on a large scale over the last 12 months, an unusual measure that indicates it may be running out of options to finance its persistently high budget deficit.

The borrowing has helped the army-backed interim cabinet to keep the economy running during the delicate transition to democracy, but shows the sheer scale of the task the new government will face as it tries to resolve Egypt’s daunting financial problems.

“Central banks don’t lend to the government on that kind of a scale, except when there’s no choice,” said an economist based outside of Egypt, who did not want to named because of the sensitivity of the issue.

A popular uprising last year hammered the economy by chasing away tourists and foreign investors and sparking a series of worker strikes for higher wages. Gross domestic product (GDP)growth slowed to around 2 percent in the 2011/12 financial year from 5 percent or more in previous years.

Reuters