Egypt says stability key to fixing economy: PM

CAIRO (Reuters) - Egyptian Prime Minister Hisham Kandil said on Tuesday that political stability was crucial to luring back foreign investors and tourists to help plug a yawning budget deficit and heal the country's ailing economy.

In a statement hours before the expected announcement of the result of a divisive constitutional referendum, Kandil said President Mohamed Mursi's government was committed to taking steps to improve economic growth.

"The prime minister stressed the importance of political stability and security in the coming period, so that foreign investors could return to the Egyptian market, as well as tourism inflows that help support foreign currency reserves and plug the budget deficit," Kandil said in a statement.

"The main goals that the government is working towards now is plugging the budget deficit, and working on increasing growth to boost employment rates, curb inflation, and increase the competitiveness of Egyptian exports," the statement said.

Egypt's budget deficit surged to 11 percent of gross domestic product in the financial year that ended in June 2012 and is forecast to exceed 10 percent this year, adding to a public debt burden of 70 percent of national output that is already very high for a developing economy.

The country has been gripped by political rivalries and sometimes deadly protests over the vote on a new constitution that Mursi's Islamist backers say is crucial to democratic transition, but which opponents say has failed to guarantee personal freedoms and the rights of women and minorities.

Standard and Poor's cut the government's credit rating on Monday and officials confirmed on Tuesday that travelers had been banned from carrying more than $10,000 in foreign currency cash in or out of the country amid worries over pressure on the pound and a rush by Egyptians to withdraw savings from banks.

Kandil said that despite political tensions, the pound had not moved more than 1 percent against the dollar in the past two weeks. Figures show that the central bank has spent more than half its foreign exchange reserves since 2011 in defending the currency, which is pegged to the dollar.

"The fluctuations in the exchange rate remain at normal levels given the political conditions and turmoil the country is experiencing and its negative repercussions on the economic situation," Kandil said.

(Reporting by Shaimaa Fayed; Writing by Maria Golovnina; editing by Patrick Graham)