Loan in waiting
The World Bank is preparing for the long-anticipated one billion dollar loan to Egypt but still waiting for the government to be ready to receive it. Sherine Abdel-Razek reports
Six month ago, talk of a one billion dollar loan for Egypt extended jointly by the World Bank and the African Development Bank stirred a wave of enthusiasm in the country. At the time, the pound was quickly devaluing after its January floatation, and the economy had already started its wrenching adjustment.
The World Bank's Country Director Mahmoud Ayoub had praised the government for the liberalisation of the foreign exchange system, and said the bank would still like to see improvements in order to be sure that the economic situation is suitable to make good use of the loan.
Half a year later, World Bank officials are still patiently reiterating Ayoub's words. Christian Poortman, the World Bank's new vice president for the Middle East and North Africa said last week during his first visit to Egypt, "We came to discuss broad issues of macroeconomics policy and policy-based loans. There are a fair number of events that indicate that the government is on the right track but further movements are needed towards addressing the challenges facing the economy."
Poortman's words are all too familiar, but do they mean that the government actually has so far failed to meet the policy criteria to obtain the loan?
Stopping by Egypt for one day on his way to the IMF and World Bank ministerial meetings in Dubai, Poortman met with Prime Minister Atef Ebeid, several members of the cabinet and a number of private sector representatives. Later on in the day, he and other World Bank officials held a press conference to shed light on the results of the visit.
"We are preparing to disburse the loan and we will make the loan when it is ready and when the government is ready to say (they) are prepared to go with it," said World Bank Vice President for Human Development Jean-Louis Sarbib, who joined Poortman in his visit.
According to Sarbib, the bank does advise the government on certain policies, "but it is always up to the government to take the decisions of changing these policies. We are the technical people. We look to the others' experience and put it in the hands of the government which studies the consequences of these policies," he said. Nevertheless, Sarbib stressed that there is no disagreement between the bank and the Egyptian government as to the need for reforms, saying "we have an excellent policy dialogue with the government of Egypt, but it usually takes 16 months between planning a loan and disbursing it."
Ayoub put trade reform at the top of the prerequisite steps the government has yet to take. "Our studies as well as the government's indicate that there is room for further liberalisation of trade -- lowering tariffs and simplifying the custom procedures are two examples of this change," he said.
Ayoub also highlighted the pressing need for financial sector reform, saying "the banking sector is still dominated by public sector entities; Egypt has to initiate a process to enable public sector banks to be privatised in the future."
Moreover, Ayoub called for better targeting of the social safety net to make sure that the poor are protected against negative impact of reform, without wasting scarce government funds by subsidising the urban middle and upper-classes.
Addressing a conference on the World Bank's World Development Report 2004, Ayoub said that poverty in Egypt could be on the rise again because of the continuing economic slowdown. He explained that poverty rates had decreased from 23 per cent in 1995 to 17 per cent in 2000, because of strong growth rates during the period, especially in the unskilled labour-intensive construction sector.
"But because of the economic slowdown, it may well be that poverty has increased since 2000," he observed.
The World Bank also is asking for more involvement of the private sector to reduce the burden on the government budget. "Each year 600,000 new people enter the Egyptian job market," Ayoub said. "As the government deficit increases, it becomes hard for it to create new jobs, so they should to be redirected to the private sector."
The WB has shown active interest in giving the private sector a boost. Poortman and Sarbib's visit witnessed the signing of an agreement wherein the WB will extend a $5.5 million loan to fund a project for technical training for Egyptian labour in the private sector. This project aims at supporting vocational education and technical training through offering training activities for workers in the private sector, especially in the professions of industry, construction, and tourism.
The WB has 16 ongoing projects with Egypt with a total value of around $730 million. These cover different fields like water resources, agriculture, irrigation, education and the social safety net.
Representatives of the bank praised the improvement on the performance of these projects during the fiscal year ending on 30 June 2003. The number of projects labelled by the bank as non-satisfying decreased from five in the previous year to only two, with total investments of $120 million.