In October 2020, former Egyptian minister of investment Mahmoud Mohieldin was appointed executive director of the International Monetary Fund (IMF) and IMF board member representing Egypt and the Arab states.
Mohieldin, an economist with more than 30 years of experience in international finance and development, has also held the post of United Nations special envoy on financing for the 2030 Sustainable Development Agenda since February 2020.
He served as Egyptian minister of investment between 2004 and 2010 and was also World Bank Group senior vice-president for the 2030 Development Agenda and United Nations Relations and Partnerships.
In an interview with Al-Ahram Weekly, he explained how Egypt can ensure its reforms are on the right track.
In 2019, Egypt concluded an economic-reform programme backed by the IMF. The three-year programme was hailed for achieving macroeconomic stability and raising growth from around four per cent to 5.5 per cent a year, putting public debt on a declining path, and replenishing the country’s foreign reserves.
Had it not been for these reforms, experts say, Egypt would not have been able to withstand the shock caused by the Covid-19 pandemic. Going forward, they believe that Egypt should continue its reform path to cement hard-won gains.
The reforms must be a continuous process, Mohieldin said, pointing out that Egypt has seen many attempts at reform during the past 100 years. “For reforms to have results, they need to be comprehensive, holistic, and they need to be given time,” he said.
He warned against reform fatigue or the early celebration of results. “Once a country starts a reform process, it needs to be given time, regardless of the government in authority,” he said, giving the example of China, which began its reforms in 1979 and has continued since regardless of who was in office.
Moreover, he said “reforming a country like Egypt is bigger, broader, and more demanding than any international financial institution can provide alone.”
The UN Sustainable Development Goals (SDGs) should be the benchmark according to which reforms should be planned and measured. “Sometimes there is too much focus on variables, such as the budget deficit, or growth… whereas we need to keep in mind the socio-economic and environmental impact of the economy,” he said.
For example, growth may be high, but it may also not be inclusive, or it may be jobless, or cause inequality, or not give a chance to women, or cause damage to the environment. “In that case, even if you celebrate higher growth, it will not last for long,” he said.
For him, the SDGs are particularly important for countries like Egypt and the Arab or African countries, because they involve sustainability and fighting extreme poverty, higher educational quality, and better health services, among other targets.
Egypt’s Sustainable Development Strategy, the Egypt Vision 2030, should be the benchmark for Egypt’s reforms, he said, but there should also be an operationalised agenda for achieving every element. Every governorate should have its own customised SDGs plan with adequate financing and clear standards, he added.
In implementing the goals, he said, pragmatic policies were needed, not necessarily those based on a certain ideology. “Public policy is about targets and how to implement them. You need to be as pragmatic, progressive, and agile as possible,” Mohieldin said.
A second benchmark Egyptian policy-makers need to keep their eyes on is joining the Organisation for Economic Cooperation and Development (OECD).
Mohieldin said that in 2007-08 Egypt had signed an agreement with the OECD to be an observer on its investment committee, and this was accepted after two years of discussions with the organisation. But the OECD has 19 chapters for membership covering many other things, and meeting OECD standards can be like qualifying football players to play in FIFA, he said.
“The OECD is the FIFA of social and economic development,” Mohieldin said, a adding that he hopes Egypt will make it to the elite organisation, just like Colombia, which was in trouble for many years but transformed itself and is now a member of the OECD.
“Progress is a public choice,” he stressed.
In carrying out economic reforms, Mohieldin stressed the importance of promoting exports. While these were always important, in the post-coronavirus era they were even more pressing if economies were to emerge from recession and slow growth, he said.
“The capacity of the local economy cannot employ the number of people that it has, and if it can, it will not employ them at high incomes in order to sustain the high standard of living they wish for,” Mohieldin added.
He praised the fact that the Egyptian presidency had announced a target of $100 billion in exports for Egypt. “This is the first time we have had a figure attached to exports as a target,” he said, adding that when he was in government in Egypt exports were important, but that real-life targets were needed.
He stressed, however, that a different growth model would be needed if Egypt were to increase its exports from the current figure of around $30 billion. Growing exports would require a combination of public and private investments and a boost in domestic savings to between 25 and 30 per cent of GDP on an annual basis, as well as an eight to ten per cent growth of GDP in net foreign direct investment (FDI). “Anything below that will not help,” Mohieldin said.
Digitisation was another crucial element, according to Mohieldin. “If anything happened right during the Covid-19 crisis, it was the acceleration of the role of digital platforms and their impact on society, not just on the economy,” he said. “It has meant a cultural shift in terms of access to everything, including entertainment.”
Access to financing is no longer about going to a bank, he said, adding that he had spent years teaching students models based on old assumptions about the spread of banking to every village. “That assumption is still valid, but you do not need the bank to be physically there. You need the bank to be in your pocket instead.”
He warned that resistance to change was the difference between progress and backwardness. “Countries that resisted change during the first Industrial Revolution a couple of centuries ago, assuming they had what they needed, in fact failed miserably,” he said.
Covid-19 has also pushed the importance of healthcare spending to the forefront. “It alerted everybody to the importance of universal health coverage,” Mohieldin said, stressing that Egypt should strive to ensure universal health coverage within three years.
It is currently in the initial stages of rolling out a new system with plans to have it in place by 2032. “Egypt needs to have the new system in place in 1,000 days, using every possible measure to do so. It is difficult, but not impossible,” Mohieldin said, stressing that “it is doable if we build on the current system of primary healthcare which has been in existence for decades.” But, he said the current system’s need for modernisation and discipline in the supervision and monitoring process would require finance and digitisation and partnerships with the private sector.
It is imperative that all 27 governorates be introduced to the new system as soon as possible, he said “the global health crisis was a striking reminder of the urgency of implementing a system of universal health coverage.”
Acknowledging the economic difficulties created by Covid-19, Mohieldin said that if public finance focused on the areas that concern it and private finance identified the fields it should involve itself in, and both found ways of cooperating, a country like Egypt should not have finance concerns.
Public finance should focus on investing in areas such as human capital, health, education, infrastructure, roads and energy, and social protection, while also setting the standards and regulations for investment. “It is important to mobilise public finance in order to unleash the potential of the private sector and not to crowd it out,” Mohieldin stressed.
According to the Egypt Economic Monitor report issued by the World Bank, Egypt’s private sector had a share of total available credit exceeding 65 per cent between 2006 and 2010. Today, it is less than 35 per cent of a bigger pie because the financial sector is much bigger than it was then.
Increasing exports is not possible by reliance on the public enterprises alone, Mohieldin said. “The public sector worldwide does not have the networks, capacity, agility, efficiency, competitiveness, and ability for risk-taking that the private sector has.” However, he added, the state has an essential role to play through public investment in an area such as infrastructure, including the infrastructure for digital transformation. It should also boost public investment in areas where the private sector would be shy to venture or would involve more risk than they are willing to take.
A recent study by the IMF confirmed that an increase of public investment by one per cent of GDP can increase private sector investment by 10 per cent. While this study was conducted in the advanced economies and there is a need to make sure that its findings are applicable to the development context, Mohieldin said that assumption could be correct if applied to sectors such as infrastructure.
*A version of this article appears in print in the 24 December, 2020 edition of Al-Ahram Weekly