UPDATE 1-Egypt to launch economic stimulus plan

Wed Aug 28, 2013 6:29am EDT

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CAIRO Aug 28 (Reuters) - Egypt's interim cabinet will approve a plan on Wednesday to stimulate the economy over the next nine months, al-Ahram newspaper quoted Planning Minister Ashraf al-Arabi as saying.

The government has said it plans to avoid raising taxes or cutting spending to reduce the country's mushrooming budget deficit, and instead will use aid pledged by Gulf Arab states to spur growth.

The stimulus plan involves providing additional investments of at least 10 billion Egyptian pounds ($1.4 billion), al-Arabi said.

The cabinet expects to remain in power only until elections early next year.

It plans a series of initiatives to stimulate the economy, the minister said, including paying arrears the government owes to contractors, extending natural gas to more residences and giving support for tourism.

It will also work with the banks on the fate of 4,000 factories that have become insolvent and shut down.

Part of the new investment would be directed in particlular towards Egypt's impoverished south.

The army-backed interim government, keen to improve conditions for a deeply polarised population battered by more than two years of political and economic turmoil, is under intense pressure to avoid unpopular austerity measures.

Egypt's deficit has jumped since the beginning of 2013 to nearly half of all government spending.

After Islamist President Mohamed Mursi was deposed by the army last month, Saudi Arabia, Kuwait and the United Arab Emirates promised Egypt a total of $12 billion in loans, grants and fuel shipments. Of that, $5 billion has already arrived.

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