NDP magnate slams government bureaucracy

The outspoken chairman of the ruling party's economic committee says mismanagement of policies is the main problem facing the Egyptian economy. Sherine Abdel-Razek listened in

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Mahmoud Mohieddin's reservations about the performance of the cabinet in managing the economy were, to put it mildly, surprising. Talking about economic reform at the Press Syndicate, the chairman of the National Democratic Party's economic committee charged that the problem in the Egyptian economy is not structural but rather in the way it is managed.

In sharp contrast to almost all other senior government officials, who have a tendency to brag about improvements in economic indicators, Mohieddin argued that the indicators do not tell the whole story.

"It is true that the GDP growth is expected to range between 3.5 to four per cent for the next year compared to three per cent this year, but this is conditional upon an increase in the exports and a surge in the demand on local commodities to offset the decline in Egyptian pound," he said. Based on a best-case scenario, these are prerequisites which may not actually be forthcoming.

Moreover, according to Mohieddin, at least as important as the increase in growth rates is the decline in the growth rate of the private sector's share of credit.

"In 1998-1999 this figure was 25 per cent," he said. "But due to the problem of defaulters in the banking sector defaulters the rate has been declining since then to reach 7.4 per cent in 2000-2001 and 3.6 in 2003-2004. So we shifted from oversupply of credit to less than acceptable levels."

Inflation rates are another indicator that Mohieddin did not find very encouraging, despite other government announcements to the contrary.

"We succeeded in lowering inflation from around 20-25 per cent before the start of the reform programme to 2.5 per cent on average during the last three years," Mohieddin said. However, he went on to ask: "But is the indicator that we are using indicative and which inflation indicator should be used? Is it the consumer price index or the wholesale price index or the official inflation rate?" he asked.

Mohieddin explained that the official inflation rate is not necessarily helpful as it is calculated using the prices of a basket of commodities and services. The constituents of this basket vary from time to time, he argued, and sometimes do not represent all the subsidised services and commodities.

"If monetary policy were based on strategies targetting inflation, meaning lowering inflation, we would find ourselves facing a dilemma: which inflation indicator to target," he said.

Mohieddin spoke of the challenges currently facing the economic authorities. Globalisation topped the list. This comes despite the fact that the Egyptian economy's integration into the world economy as seen by the percentage of capital inflows to GDP or expatriate transfers to the GDP is very limited. "If imports to GDP comes around 25-30 per cent this means that we cannot say that the changes in world economy affects us deeply," he said.

However, Mohieddin said that the effects of international trends on local policies cannot be ignored. "For example, the whole world is now talking about what The Economist magazine called cheap money or low cost of credit as a trend worldwide to encourage investments. We cannot just ignore it and increase our [interest] rates," he said.

The second challenge highlighted by Mohieddin was the necessity of gaining public consent on economic policies.

He pointed that while the government is keen to deliver public services quickly, and is paying its arrears to various creditors, much still needs to be done.

The third and hardest challenge to deal with is the ability of the government to implement economic strategies.

He said that at the last NDP conference, there were a number of procedures that members of the NDP's economic committee agreed had to be taken on the local level to move the economy forward. "Those were not recommendations that the cabinet could take or leave, but agreed-upon procedures that must be implemented. Nevertheless, few of those have seen the light of day," he charged.

The problem, according to Mohieddin, lies with the government's bureaucratic apparatus. "Unfortunately the government sector lacks people with high qualifications. What makes a difference here compared to other countries that witnessed high rates of growth in their economies, like Singapore for example, is the capabilities of the government sector employees," Mohieddin said.

"The problem is not in the structure of the economy. It has everything to do with the management of economic policies; such as the way the foreign exchange regime was managed after the flotation shaved 25 per cent of the value of the pound. If we had a better management of the system of taxing investments we would have attracted more investments than much smaller economies like Jordan and United Arab Emirates currently do."