By Will Rasmussen
CAIRO (Reuters) - Egypt needs to convince people that economic reforms would continue in the absence of President Hosni Mubarak for its credit rating to be upgraded, Standard & Poor's director of sovereign ratings said on Tuesday.
A market-oriented government has privatised dozens of companies and reduced taxes to boost investment in the most populous Arab country, helping the economy achieve its fastest rate of growth in 20 years.
But Egypt has not made clear what would happen to the reform process if Mubarak, 79, who has ruled forH a quarter century, leaves office, Farouk Soussa said in an interview.
"The main constraint at the moment is the question of succession," Soussa said. "Trying to determine what will happen on key policy issues is like gazing into a crystal ball, and it shouldn't be that way." H
Standard & Poor's rates Egypt BB+ for foreign currency and BBB- for local currency with a stable outlook.
Rumours in recent weeks that Mubarak may be seriously ill, dismissed by the government, have raised further concerns about what will happen when Mubarak is no longer president.
The government says Mubarak's successor would be chosen in an election. Many Egyptians suspect Mubarak and his family are grooming Mubarak's 43-year old son Gamal for the role.
Despite economic recovery from declining growth rates earlier this decade, privatisation is controversial among Egyptians, some of whom allege the selling process is corrupt or fear job cuts by the new private-sector owners.
"We view the reform process as being driven by a group of a few key ministers and there is not much evidence that the lower echelons of government or the broader public buy into it," Soussa said.
A change at the top could disrupt plans to reduce the budget deficit, at 8.2 percent of GDP in the 2005/2006 fiscal year, by 1 percent a year over the next five years, he said.
Standard & Poor's said last year that Egypt's bureaucracy and its subsidy policy consumed almost 80 percent of the government's revenues in 2005/2006.
"(A potential successor) may feel the need to scale back privatisation because of its unpopularity or boost social spending to increase popularity," Soussa said.
The government said last month it would cut subsidies for gas, but some of those savings will go toward boosting the number of families receiving cash handouts to 1.2 million from 600,000 over the next few years, he said.
"You have to make sure that certain parts of the population are not neglected, which puts a natural limit on the degree of fiscal consolidation politically possible," Soussa said. "The fiscal balance would be improving much more quickly were it not for social expenditure."
