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UPDATE 2-Egypt changes key government posts for Sisi's second term

* Defence, interior ministers replaced

* Egypt to enact further austerity measures

* Recent price hikes caused rare unrest

* Fight against Islamist insurgency also priority
(Adds details, background)

By Ahmed Tolba and Eric Knecht

CAIRO, June 14 (Reuters) - Egypt appointed a new government
on Thursday, replacing several key ministers as President Abdel
Fattah al-Sisi pushes ahead with tough economic reforms and
seeks to improve security.

Cairo, Washington's key regional ally, is set to enact more
tough IMF-backed austerity measures in coming years in efforts
to bolster investment and create jobs in an economy that was
battered by unrest after the 2011 Arab uprisings.

The cabinet, headed by Prime Minister Mustafa Madbouly who
was appointed last week following Sisi's virtually unopposed
election to a second term in April, includes new ministers of
defence, interior, trade, finance and agriculture.

It is the broadest government shake-up since Sisi was first
elected in 2014, a year after he overthrew a freely elected
Islamist president as chief of the armed forces.

The IMF-driven measures are to include cutting fuel
subsidies, a move likely to upset large sections of the
population that are already struggling to make ends meet.

Egypt is also trying improve security, with its military
battling an Islamic State insurgency in the Sinai Peninsula.

Sisi supporters say the country is safer than it has been
for years and hope that economic reforms and greater stability
will lure back crucial foreign investment and tourism.

His critics say Sisi is presiding over the worst crackdown
on freedoms in Egypt's modern history. Authorities have arrested
thousands of opponents, most of them Islamists but also secular
rights activists, since Sisi led the popularly-backed ouster of
President Mohamed Mursi of the Muslim Brotherhood in 2013.

The new ministers took their oath in front of Sisi at the
presidential palace in Cairo in a televised ceremony.

Mohamed Ahmed Zaki, head of the elite Republic Guard which
guards the president, became defence minister. He replaced Sedki
Sobhi, who as commander in chief of the military had overseen
efforts to crush militants in Sinai behind attacks that have
killed hundreds of security force personnel and civilians.

The interior ministry went to Mahmoud Tawfik, who had served
as chief of the domestic National Security service under Sisi.
Magdi Abdel Ghaffar had held the interior post since 2015.

FUEL CUTS EXPECTED

Mohamed Maait, deputy finance minister in the outgoing
cabinet, was promoted to minister, replacing Amr El Garhy, who
helped to guide economic reforms tied to Egypt's three-year $12
billion International Monetary Fund (IMF) loan.

The IMF programme began in late 2016 with a flotation of
Egypt's pound currency, which halved its value, hitting many
ordinary Egyptians hard.

The IMF praises the reforms, and economists see hope for a
revival of the economy, whose GDP growth has recently improved
compared to previous years.

Egypt also hopes to attract more investment in its energy
sector and wants to become a natural gas hub for Europe after
discoveries of vast stores of offshore gas.

Further reforms expected to take place under the new
government, such as fuel subsidy cuts, are likely to anger
Egyptians, however.

A sharp increase in fares for Cairo's underground metro
system, used by millions of people, caused rare public displays
of discontent with impromptu protests outside stations last
month. Police arrested several people.

Egypt banned demonstrations in 2013, requiring those wishing
to hold protests to obtain interior ministry permission.

Other key cabinet changes include Amr Adl Bayoumi, appointed
minister of trade, and Ezz el-Din Abu-Steit as minister of
agriculture. A total of 12 ministerial positions changed hands.

Sisi won re-election in April with 97 percent of the vote
after a campaign season that saw a top challenger jailed and all
other serious contenders pull out.

He led the toppling in 2013 of Mursi, Egypt's first
freely-elected president who briefly held power after the 2011
uprisings that toppled veteran autocrat Hosni Mubarak.
(Additional reporting by Amina Ismail
Writing by Eric Knecht, John Davison; editing by Sami Aboudi and
Mark Heinrich)

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