Youssef Boutros Ghali, the Egyptian finance minister, defended new government measures designed to pay for a rise in public sector salaries yesterday, denying that they would unleash another wave of i...

Youssef Boutros Ghali, the Egyptian finance minister, defended new government measures designed to pay for a rise in public sector salaries yesterday, denying that they would unleash another wave of inflation. The opposition had charged that the measures, which include increasing the price of fuel, would make life even more difficult for the people the government wanted to help with salary rises announced by President Hosni Mubarak last week. But Mr Ghali estimated the impact on inflation would be about half a percentage point. "I know that an increase such as the one we've implemented yesterday is not as inflationary as everybody seems to think," said Mr Ghali. "It has a very short-term effect, everybody panics, everybody gets upset, all prices go up. When they see that it is not what they feared it would be, it comes down again a month or two later." The government rushed through parliament on Monday a package of fuel price rises and other measures intended to raise E£14bn ($2.6bn, €1.7bn, £1.3bn) to pay for a 30 per cent rise in public sector wages. Year-on-year inflation in March reached 14.4 per cent and discontent has been sweeping the country as the result of food price rises. The package approved by parliament means that Egyptians will pay more for diesel, petrol and kerosene. These are still highly subsidised, but their prices will go up by about 35 per cent. "Definitely we will see a rise in inflationary pressures in the economy in the short term," said Reham El Desoki, of Beltone Financial, the regional investment bank. "Had they just increased car registration fees and removed tax exemptions, the inflationary impact would have been better targeted, [but] an increase in fuel prices in an economy like Egypt will result in cost-push inflation." Tax exemptions to industries in free zones have been abolished. New taxes have been imposed on cigarettes and vehicle-licence fees have risen. The cost of natural gas to energy intensive industries has also gone up by about 50 per cent. (Source: Financial Times)