14 - 20 September 2000
Issue No. 499
|Published in Cairo by AL-AHRAM established in 1875|
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On the up and upBy Ibrahim Nafie
The Egyptian economic reform programme initiated in 1991 has given a remarkable boost to the dynamism of the Egyptian economy, with significant payoffs in foreign investment, tourism and international confidence in the Egyptian economy in general. It is only natural that such a rapid spurt of growth should have some adverse side effects; some we have been able to avoid while others, economists maintain, are inevitable. As long as we continue to summon the necessary resolve and vigour to remedy them we will be able to continue to capitalise on our successes and to sustain the momentum of our economic upswing.
The government has already demonstrated such dynamism in the rapid and effective measures it adopted earlier this year to remedy the liquidity crisis. If its success still needs to be followed through with the concerted efforts of the government, private sector and society as a whole, our present economic situation appears bright indeed.
The current performance of the Egyptian economy has earned the praise of such international financial organisations as the IMF, Merrill Lynch and Morgan Stanley. According to the IMF's World Economic Outlook for May 2000, Egypt attained a GDP growth rate of six per cent for 1999 and, although the report expects this rate to dip slightly (to 5.6 per cent) this year, it is still well above its prediction of 4.2 per cent for the global economic growth rate for the same period. IMF experts are also optimistic about the prospect of sustained economic growth. For 2001 they predict that the Egyptian GDP will stand at five per cent -- even though they expect the global growth rate to drop to 3.9 per cent.
Earning further praise from international financial experts is Egypt's ability to curb inflation. The IMF lists the rate of inflation in Egypt for 1999 as 3.8 per cent, in which respect Egypt vies with some of the most stable and robust economies of the world. The figure, moreover, is considerably lower than the 5.7 per cent inflation rate listed for developing nations as a whole last year. In addition, the IMF anticipates that Egypt will sustain its low inflation rate, while the Economist, which cited rates as low as 2.9 per cent in May, offers hopes of even further reductions.
Egypt's sustained low inflation rate is indicative of the success our monetary and currency reform policies have met in bringing stability to the economy. Starting in the mid-'70s, high inflation, with its impact on the security of new investment accounts and on the lower and fixed income segments of society, was the bugbear of Egyptian economic planners. It is to the considerable credit of the government's economic reform programme that it brought this spectre under control.
Another important area in which the Egyptian government has achieved marked progress is in the reduction of the rate of unemployment, which has now dropped to below eight per cent. Thus, after years of soaring unemployment, the lowering unemployment rate has come to constitute yet another indicator of healthy economic performance.
What mars this picture, however, is our huge balance of trade deficit. In view of the risks such a deficit poses to Egyptian hard currency reserves and credit worthiness, it constitutes perhaps the gravest problem we face. Nonetheless, it must be placed in proper perspective. Certainly, at a time of economic expansion, when a large number of major enterprises have been initiated in order to stimulate the economy, it is necessary to import the machinery and materials necessary to launch production. While this constitutes a significant component of our current trade deficit, it is offset by the boost these enterprises will bring to our economy in the long run. What is not acceptable, however, is that component of the deficit that has been generated by stockpiling imports or by excessive imports of products that are not vital to economic growth. It is this component of the deficit, therefore, that should be brought under stricter control, a process that requires the coordinated input of the government, importers and business associations in light of comprehensive studies on the needs of the market and national priorities.
On the other hand, it is encouraging that the government has taken stern measures to reduce the national deficit, with cutbacks in expenditures expected to reach approximately 3.5 per cent of the GDP. While it is true that some of the state-sponsored enterprises have failed due to miscalculation of their market potential or to certain errors in judgement, it is to the credit of our economic planners that they took a courageous pause to assess past mistakes and make the necessary readjustments. It is equally heartening that the government took the initiative and began repaying its loans to private-sector companies, thereby supplying a rapid and much needed injection of cash and confidence into the market. In a similar spirit, the state has shown a considerable degree of flexibility with regard to many entrepreneurs who have sought to reschedule their debts and, although the need to do so has furnished some with a pretext to cast the Egyptian economy in a negative light, the fact is that by responding effectively to the needs of investors in difficulty the government has injected another burst of confidence in the economy.
In view of the successes of government economic policies, in conjunction with the additional investment experience and expertise we have accumulated recently, we can expect our economy to continue on its upward trajectory. In this regard, the new price level of Egyptian petroleum exports and an anticipated rise in the income from tourism, from $3.9 billion last year to $5 billion this year, augur particularly well. It is also likely that Egypt will soon sign a number of international and regional agreements that will usher a new era of greater assimilation into the international economic environment, further enhancing the economy's prospects for growth. Ultimately, however, the future of our economy depends on us -- on the concerted and persistent commitment of the government, investors and society as a whole to continue capitalising on past successes.