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IMF hands Egypt a must-do list of economic reforms

Fund blames rising global demand for high oil prices
Managing director says main challenge is for Cairo to pay off foreign debt


CAIRO: The International Monetary Fund urged Egypt on Tuesday to begin implementing a series of measures it says will help economic recovery, spur growth and raise the standard of living.

IMF managing director Rodrigo Rato told Egyptian President Hosni Mubarak that the main challenge for Cairo was to pay off part of its foreign debt, which hit $28.7 billion in 2003.

He told journalists that he also urged the government to take immediate action to reduce a $8.4 billion budget deficit that has been growing faster than gross domestic product.

Finance Minister Youssef Boutros Ghali said Mubarak had assured Rato that reducing the deficit was "among the government's concerns" and that additional measures would be taken to bring it under control.

Egypt, said Rato, should promote transparency in government spending and accelerate reforms, particularly tax reforms, and continue liberalizing the economy and privatizing state-owned enterprises.

Ghali said the government was pursuing an "objective" economic program in various fields, adding that he expected this to pay off by "attracting foreign investments" and "increasing growth rate."

The reform-minded government of Prime Minister Ahmed Nazif that took office in July has pledged to turn around Egypt's ailing economy and rein in high inflation, skyrocketing unemployment and the huge debt burden.

Egypt announced in September that it was ready to allow foreign companies to manage state-owned businesses but would not give up control of those firms it sees as strategic.

Rato also said that rising demand was the most important reason behind record oil prices and more investment was needed in oil refineries by crude producers and consumers.

"We are in an environment of higher oil prices for many reasons, the most important one an increase in demand," Rato said.

"We ... see clearly a need for an increase in the investment in the oil process, especially in refinery process," he said.

"That, of course, demands that both consumers and producers ... plan clearly for an increase in the refinery capacity of oil products."

Strong oil demand from China and India, political risk in Nigeria and Iraq and disrupted supplies in the United States have driven crude prices to record highs.

Oil prices have remained comfortably above $50 for the past three weeks.

Rato said that governments should not shield consumers from rising oil prices "so that consumers should realize the new prices of energy."

Agustin Carstens, Rato's deputy, said on Monday that global economic growth for 2005 could be lower than the 4.3 percent that had been forecast by the IMF a month ago because of high oil prices.

Rato said however that other global economic factors would partly compensate for the higher oil prices.

"We have to take into consideration that in one side there is an increase in the oil prices, so the downside risk has increased; but also there are other effects of world growth that will, in part, compensate for this," Rato said.
"We will have to see in the next few months how these two forces evolve," he said.

Rato was in Egypt on the final leg of a Middle East tour that also took him to Lebanon and Saudi Arabia.

Beirut,11 02 2004
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