What Direction for the Egyptian Economy?

Ziad Bahaa-Eldin
Wednesday 26 Nov 2014

This week concludes the visit by an IMF delegation, the first in Egypt since March 2013, though this visit is dedicated solely to assessing current economic conditions and offering counsel, with no specific program commitments to follow. Preparations are also well underway for the economic conference for donors and investors, scheduled for March 13–14, and for the projects and legislation to be announced at the conference. In substantive terms, over the last six months the government has implemented several major policy decisions. It has reduced energy subsidies, increased fertilizer prices, developed a new distribution system for bread and other subsidized items, raised corporate and personal income taxes, launched the Suez Canal project, and expanded infrastructure projects.

But despite the necessity and worthiness of these policy moves individually, when viewed collectively and from a distance they reflect no well-defined, overall vision or direction. Hence what the Egyptian public needs, even more than the foreign community, is to know where we the economy is headed, particularly in relation to four issues:

The first is the degree of state intervention in the economy. The role of the state is vastly expanding in all economic areas, despite increasing talk of encouraging the private sector as the engine of growth and employment. And though the state has a role in fostering economic activity, regulating markets, and supporting some strategic industries, it does not need to intervene in tourism and service enterprises that compete with the private sector in areas that by their very nature do not require the full weight of the state.

Secondly, the state’s stance on social justice is fuzzy. Despite major social challenges, growing poverty and unemployment, and declining human development standards, once again social justice has been reduced to just two issues: developing the distribution system for subsidized food items—an area where the government has scored a great success—and expanding the beneficiaries of various pensions through new schemes for cash subsidies and pensions announced recently by the Ministry of Social Solidarity, and set to be implemented next year. But reducing social justice to simply bread and pensions, thereby putting it in the sole purview of the ministers of supply and social solidarity, means that we are again focusing on palliative measures and providing just the bare minimum necessary to avoid a new revolution. But what about policy changes in education, health, school nutrition, youth employment, the development of Upper Egypt, or the improvement of women’s status—shifts that could spur a genuine social leap?

Thirdly, at the beginning of the fiscal year this summer, the government announced the annual budget, targeting a reduction of the deficit to 10 percent, increased growth, and lower unemployment. Six months into the fiscal year, it is time to review these figures and release revised projections, like any government keen to preserve the credibility of its programs. Recently, the minister of planning announced that growth had exceeded projections, which is positive. But with continued public spending and megaprojects underway that were not included in the budget, new deficit and inflation projections should be announced; and the public should also be informed whether increases in energy prices and taxes are expected to offset expanded public expenditures.

Finally, there is a pressing need for greater transparency in lawmaking. Incredibly, new economic legislation is currently being drafted to present to foreign investors in March while the Egyptian public is kept out of the loop. It is trues that under the current constitution, the power to issue laws, pending the election of a parliament, rests with the president, based on government proposals. But this does not mean an embargo of information about legislation currently under consideration. Some officials have even referred to the “surprises” awaiting foreign investors, as if the Egyptian people are mere spectators to the process. The absence of a parliament does not preclude dialogue and engagement with political parties, trade unions, and civic associations concerned with the protection of citizens, consumers, and producers. There is an entire society with the right to know and participate, even in the absence of an elected parliament.

The question weighing on everyone is where exactly the Egyptian economy is going and how it will differ from the past. Allow me to repeat: what the world anticipates in the forthcoming economic conference is not additional megaprojects and new legislation, but more importantly, a clearly marked economic course. It wants to know how the government intends to address major social challenges and ensure more social participation in setting the economic and legislative course.


*Ziad Bahaa ElDin holds a PhD in financial law from the London School of Economics. He is a former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investments.

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