May 9, 2011 / 12:58 PM / 8 years ago

U.S. eyes ways to support battered Egypt economy

CAIRO (Reuters) - The United States is studying ways to support Egypt’s economy following Hosni Mubarak’s overthrow, the U.S. embassy said on Monday after a U.S. newspaper said Washington had decided to provide $1 billion in debt relief.

Egyptian protesters stand on an army truck that was burnt by protesters in Tahrir Square, Cairo, April 9, 2011. REUTERS/Amr Abdallah Dalsh

The Washington Post, citing unnamed U.S. officials, said on Sunday the relief would be part of an economic aid package to Egypt that would also include trade and investment incentives.

The U.S. report helped boost Egyptian share prices. The benchmark index closed on Monday 1.1 percent higher.

“We are still in the process of consultations over how the United States may assist Egypt economically as it moves forward in its transition to democracy,” the embassy said in a statement sent to Reuters.

The political turmoil that led to the resignation of President Hosni Mubarak on February 11 scared away tourism and foreign investment, major sources of foreign exchange, and caused other business activity to slow.

The International Monetary Fund said last month that Egypt had indicated it needed $10 billion to $12 billion to meet a funding gap.

Egypt has said it was seeking $10 billion in funding from international lenders and rich nations to cope with the fallout from the unrest.

The turmoil has cut tax revenues at a time when protestors’ demands for jobs and higher wages have caused the government to boost social spending.

Finance Minister Samir Radwan said last week he expected Egypt’s budget deficit to widen to 9.4 percent of gross domestic product (GDP) in the 2011/12 fiscal year from an expected 8.5 percent this year.

The country’s economy contracted an estimated 7 percent in January-March and the International Monetary Fund is projecting a plunge in growth to 1.0 percent this year, well below its long-term average, after a 5.1 percent expansion in 2010.

Writing by Patrick Werr; Editing by Ron Askew

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