The shared vision of transforming Egypt into a modern,
fast-growing and prosperous economy is within reach. Reforms that create shared
opportunity for Egypt’s greatest asset – its young and growing population – can
help translate this vision into reality and ensure that the aspirations of all
Egyptians are fulfilled. With the economy stabilising successfully, now is the
time to unleash Egypt’s true economic potential.
What led Egypt’s growth performance over several decades to
be lower than that of many of its peers? Output was constrained by a growth
model characterised by economic self-reliance and an expansive welfare system
based on blanket subsidies. This resulted in a preference for directed
industrial policy and an unusually significant role for the state in employment
and in investment that was excessively focused on inward-oriented and
energy-intensive industries. As a result, Egypt was unable to take full
advantage of the opportunities from globalisation and private sector-led growth
that have lifted living standards rapidly and broadly in many peer economies.
This long-standing overall policy framework, accompanied by
rigid exchange rates and fuel prices, led to a loss of external competitiveness
and gave rise to large budget and trade deficits in recent years. The resulting
increases in public debt and declining international reserves were
unsustainable and needed to be reversed. In response, the Egyptian authorities
initiated an economic reform programme that is now gathering momentum. This programme
is being supported by an IMF arrangement that provides policy advise and
financing to ease the required adjustment.
The key elements of the programme have included the floating
of the exchange rate in 2016, necessary to reverse the loss of competitiveness
of Egypt’s exports and to address acute foreign-exchange shortages. The float
eliminated the parallel market and created incentives for domestic production
and exports and away from imports. There has also been a reduction in fuel
subsidies and the introduction of a Value Added Tax (VAT) to reduce pressures
on the budget. This has freed up resources the better to provide social
assistance to those who need it the most, while fuel subsidies benefit the rich
more than the poor.
The programme has also included decisive monetary policy
actions by the Central Bank of Egypt (CBE), including higher interest rates, to
limit the unavoidable rise in inflation from these adjustments. There have been
reforms to improve the business climate and provide critical support to
encourage private-sector investment, including the introduction of new
investment and industrial licencing laws.
These bold measures are translating into a recovery in
economic growth, lower budget and current account deficits, and gradually easing
inflation. GDP growth rose to 5.2 per cent for the most recent quarter for
which data is available, and inflation has dropped from its peak of 33 per cent
in July to 22 per cent in December 2017. GDP growth is projected at nearly five
per cent for 2017/18 as a whole and to rise further to 5.5 per cent in 2018/19;
public debt is expected to decline from more than 100 per cent of GDP in
2016/17 to 87 per cent in 2018/19; and inflation is expected to decline further
to around 13 per cent by the end of 2018.
Now is the time to build on this solid foundation with
reforms that will support the creation of more and better-paying jobs for all,
and particularly for young people and women. These jobs can only be created by
the private sector with a modernised role for the state in the economy. The
state should not compete with the private sector in the production of goods and
services, but instead should drive and facilitate reforms. It should provide a
stable, transparent and non-intrusive regulatory environment and deliver social
protection to those who need it the most.
How can Egypt transform itself into a regional investment
and growth leader? The key reforms needed for such a transformation include:
- A modernised regulatory framework that creates a level playing
field in all sectors, encourages fair competition, and does not favour one set
of market participants over others;
- Greater integration with global trade, including by
removing trade barriers, to allow Egypt to take advantage of global demand and
incentivise its private sector to innovate and compete;
- Improved access to finance and land on transparent and
market-determined terms that will facilitate investment by the most productive
entrepreneurs and firms;
- Greater transparency and accountability of state-owned
enterprises that will ensure that public resources are used efficiently and do
not crowd out the private sector;
- Strengthened governance and reduction in the perceptions
of corruption that will encourage private investment and job creation;
- Labour market reforms that will help prepare Egypt’s young
population, and more of its women, for well-paying jobs and with the requisite
skills and training;
- And fiscal reforms that generate resources to protect the
most vulnerable, so that no one is left behind as growth takes off.
With economic stabilisation taking hold, this is the moment
to act to unlock the potential of the Egyptian economy and its people to create
a prosperous and dynamic economy that benefits all for generations to come.
تابعوا آخر أخبار العقارية على Google News
