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Al-Ahram Weekly 11 - 17 May 2000 Issue No. 481 
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Published in Cairo by AL-AHRAM established in 1875 |
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Al-Ahram Weekly 11 - 17 May 2000 Issue No. 481
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| Published in Cairo by AL-AHRAM established in 1875 |
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Egypt Region International Economy Opinion Culture Books Features Interview Travel Living Sports Profile People Time Out Chronicles Cartoons Letters Bucking the trend
By Gamal Essam El-Din
Two weeks ago the eight month-old government of Prime Minister Atef Ebeid surprised the business and economic community with the candour of its admission that the economy was in danger of moving into severe recession. The measures the government proposed to combat the situation triggered an as yet on-going debate.
Samir Tobar
Observers were not only divided over the reasons which led to the crisis, but differed over the measures necessary to tackle it. Samir Tobar, chairman of the ruling National Democratic Party's Economic Committee and a member of the Shura Council, has figured prominently in the debate. He supports the recent decision of Ebeid's government to release LE2.5 billion a month into the economy via its creditors in an attempt to kick-start the economy. However, he believes that the current slump "should not be taken as evidence of any underlying fragility in the national economy" which "has been steadily improving for the past 18 years."
"Other economies," he argues "were hit by similar crises when they tried to accelerate growth rates."
Government delays in settling accounts with contracting companies involved in mega-projects has, he believes, served simply to exacerbate the crisis, rather than being a direct cause. The contracting companies, as a consequence, found themselves unable to pay their own sub-contractors, thus creating a series of liquidity bottlenecks.
The deficit in the balance of payments has also increased from LE2.1 billion in 98/1999 to LE2.4 billion in the first half of 99/2000 with foreign exchange reserves declining from $22 billion five years ago to $15 at the present, a fall partly accounted for by the government's decision to meet its foreign commitments by settling the payment of external debts at higher rates.
But does the government possess the financial resources to meet its burgeoning commitments. Tobar is clear on the point: "The government cannot enter such commitments unless it is sure they can be met. Failure to meet its obligations could, after all, result in dismissal."
"The government will focus on doubling its revenues from oil sales and the privatisation programme. What is important is that the payment schedule must be gradual, so as to avoid inflationary pressure while at the same time not weighing too heavily on public spending allocations," Tobar insists.
But there are also structural problems to be dealt with. Topping the list is the pressing need for tax reform. "I suggest that the highest tax band should not exceed 25 per cent of income, while the threshold beneath which tax is not paid should be raised to LE5,000 per year. Tax evasion, too, must be combated. Last year the government lost an estimated LE10 billion in revenue from evasion, and greater efforts must be asserted to collect the LE17 billion that exist in tax arrears".
While conceding that internal debts are high, Tobar believes that as long as they do not exceed the current level of 57 per cent of GDP they do not pose much danger. "The government's keenness to meet its financial commitments and repay debts should," he thinks, "guarantee that these debts do not reach crisis point."
Is the government, then, going to look again to foreign loans to fill the budget deficit after almost a decade of refusing to do so. "Some members of the NDP's Economic Committee have argued that there is a possibility for Egypt to borrow at interest rates as low as one per cent, and over a time frame extending to up to 23 years," said Tobar. "This, for example, applies to the World Bank loans. Resorting to such loans would not constitute a risk and will contribute to implementing development plans." But, Tobar stresses, borrowing from abroad again "should be dictated by pressing and real needs and conditioned by the stipulation that the resources be directed to fast-return investment projects able to service such loans without placing additional burdens on the state budget or the balance of payments."
