By Patrick Werr
CAIRO (Reuters) - Egypt's cabinet on Wednesday approved an additional 22.3 billion Egyptian pounds ($3.2 billion) in spending on investment projects to boost the economy over the coming 10 months, Deputy Prime Minister Ziad Bahaa el-Din said.
He said the government would present its economic program to Gulf Arab countries, in particular the United Arab Emirates, which has already agreed to finance medical projects and 10 wheat silos.
The army-backed interim government is keen to improve conditions for a deeply polarized population battered by more than two years of political and economic turmoil. Despite a mushrooming budget deficit, it is under intense pressure to avoid unpopular austerity measures.
Saudi Arabia, Kuwait and the United Arab Emirates have promised Egypt a total of $12 billion in loans, grants and fuel shipments after Islamist President Mohamed Mursi was deposed by the army last month. Of that, $5 billion has already arrived.
The new investments would be aimed towards labor-intensive projects and services that helped the poor, Bahaa el-Din said.
Even with the new spending, the government aims to reduce the budget deficit to 9 percent of gross domestic product in the fiscal year to end-June 2014 from 14 percent last year, Finance Minister Ahmed Galal said.
This it would do by streamlining spending, especially on energy subsidies, and through Gulf aid, Galal said.
LABOUR INTENSIVE PROJECTS
Egypt's deficit has jumped since the beginning of 2013 to nearly half of all government spending.
The government has also been helped by a decrease in interest rates since the Arab aid arrived, reducing the cost of servicing its debt by 2 or 2.5 percent, Galal said.
The ministers were speaking at a news conference after a cabinet meeting.
"There will be a gradual change in the price of energy for large investors in all energy products," Galal said, adding that the government was preparing a phased plan for the increases.
"Its implementation might be over two years and will begin before the end of the current year." He said the government planned no new taxes.
The government projects that the increased spending will boost growth to 3.5 percent in the 2013/14 fiscal year from 2 percent last year, Planning Minister Ashraf al-Arabi said.
The additional 22.3 billion pounds would bring total government investment in this year's budget to 120 billion pounds.
Some 2.2 billion pounds of new funds would be used to pay arrears the government owes to contractors, with most of this to be paid by the end of December.
The new cash will also be directed to building railways, roads, bridges and 131 potable water and sewage treatment plants as well as to an extension of the Cairo metro and other improvements to the city's transport network, al-Arabi said.
The government plans to increase the amount of new low-income government homes slated for completion this year to 100,000 from the previously planned 50,000, he said.
Utilities will be extended to 36 industrial zones, many in southern Egypt, with the aim of attracting 4,000 projects that will provide 450,000 jobs.
The government will also extend natural gas to an additional 800,000 homes by end-June, al-Arabi said.
(Editing by Toby Chopra and David Evans)