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Egypt Targets Higher Growth, Deficit Reduction

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An Egyptian coin featuring the three pyramids of Giza.Photograph by De Agostini/Getty Images

Egypt promised tough action to restore growth on Sunday with a government program that aimed to reduce the budget deficit while protecting the poor as public anger mounts over a deteriorating economy.

Prime Minister Sherif Ismail, reading out a 79-page policy agenda to parliament, said his government would target five to six percent economic growth and push the budget deficit to below 10% by the end of fiscal year 2017-18.

Egypt’s economy is currently growing at around 4.2% with a budget deficit of about 11.5%, Ismail said.

“It is up to us to take several hard decisions that have long been delayed, (but) any economic steps will be accompanied by the requisite social protections,” Ismail said.

He said that the growing population, with the country now 90-million-strong, had strained public services while political instability since the 2011 uprising had hit growth and foreign investment.

The program promises to introduce a long-delayed Value Added Tax (VAT) and push ahead with reforms to the country’s costly subsidies program. It did not give specifics on how those changes would work.

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Dozens of unemployed graduate students gathered outside the parliament to protest the government program, flouting a strict protest law that has landed high-profile activists behind bars and which carries a penalty of up to seven years in jail.

President Abdel Fattah al-Sisi has pledged to reduce the jobless rate to 10% over the next five years. Unemployment stood at 12.8% in December, according to the government. Analysts believe it may be much higher.

“Sisi, the youth are eating dirt … Sherif, what has your government done?” the students shouted while spreading loaves of subsidized bread on the ground atop their masters and doctoral certificates.

A number of difficult reforms have been delayed, from a VAT that would increase government revenues and a civil service law that would trim the country’s public workforce, to an ambitious plan to wean the country off costly energy subsidies that have been scaled back.

Egypt devalued the pound to 8.78 per dollar from 7.73 earlier this month, a move economists said would encourage foreign investment but which risks hitting the country’s poorest through higher inflation, which ran at just over 9.1% in February.

Egypt’s parliament will vote on whether to approve the government’s policy agenda. If the parliament rejects the program, it will count as a vote of no confidence against the government. No date has been set for the vote.

Egypt elected its first parliament in more than three years in November. It is dominated by Sisi loyalists.