Egypt creates £500m compensation fund

City A.M. Reporter
Egypt has created a 5 billion Egyptian pound (£524m) fund to compensate people for property damaged during the political protests that have rocked the country, Finance Minister Samir Radwan has announced.

Much of Egypt's economy has ground to a halt since the violent unrest broke out on January 25, and banks and the stock exchange have been closed for a week.

Tax collectors throughout the country will immediately begin accepting compensation requests from owners of cars, shops and other businesses, Egypt's official news agency quoted him as saying.

The size of the fund is equivalent to about five per cent of the government's budget deficit in the fiscal year to June 2010, which was 98 billion Egyptian pounds or 8.1 per cent of gross domestic product.

Revenues during that year were 269 billion pounds, down from 282.5 billion in 2008/09.

Officials have said they aim to keep the deficit at 7.9 per cent of GDP this fiscal year, and then cut it to 3-3.5 per cent in 2014/15.

But the political unrest may block efforts to strengthen Egypt's finances because any government, even if President Hosni Mubarak steps down soon, may now be more inclined to try to buy popular support with lavish state spending.

Moody's Investors Service and Standard & Poor's both cited this risk when they downgraded their ratings of Egypt's debt this week.

"In the absence of emergency spending cuts in other areas, the budget deficit in 2011 could reach double digits, in our view, which will be difficult to finance while political uncertainty prevails," S&P said, estimating that Egypt's gross general government debt was almost 74 per cent of GDP last year.