Free to fall
How far is Egypt economically free? Sherine Abdel-Razek
analyses the country's score on different freedom indexes
With classical liberalisation and deregulation theories under attack in recent months with accusations that the systems they are behind caused the worst economic crisis since the 1930s, calls for a wider role of government and more stringent policies are getting louder. However, in practice countries with restrained economic freedoms score worst in prosperity and development, or so say the authors of the Economic Freedom index for 2009.
The index has been prepared annually for the last 15 years by the Heritage Foundation and the Wall Street Journal, and it measures 183 countries across 10 specific factors of economic freedom. The higher the score, the lower the level of government interference. All countries were graded on a scale of zero to 100.
The 10 freedoms measured are: business freedom, trade freedom, fiscal freedom, government size, monetary freedom, investment freedom, financial freedom, property rights, freedom from corruption and labour freedom.
Of the 179 countries ranked, four of the surveyed countries could not be graded because of insufficient data, and only seven were classified as "free" with a score of 80 or higher. Another 23 were "mostly free", scoring 70 to 79.9. The bulk of countries -- 120 economies -- were deemed either "moderately free" with 60 to 60.9 points, or "mostly unfree", scoring 50 to 50.9 points. Another 29 countries had "repressed" economies, with total freedom scores below 50 points.
Economic freedom varies significantly across regions, with inhabitants of North America and Europe enjoying far greater levels of economic freedom than those who live in other regions of the world.
"The world's two freest regions have more than three times the population-weighted average per capita income found in the four other regions. The freest regions also enjoy lower rates of unemployment and lower inflation," noted a report issued alongside the index.
Egypt's economic freedom score came to 58, making its economy the 97th freest in the 2009 index. Its overall score decreased by 0.5 points over the past year, primarily due to a falling government size score that reflects increases in food and energy subsidies. Egypt is ranked 10th out of 17 countries in the Middle East/North Africa region, and its overall score is just below the world average.
Egypt's best rank was on fiscal freedoms, where it scored 89.5. The reason behind such score is the low personal income and corporate tax rate, the highest of which is 20 per cent. In the most recent years, overall tax revenue as a percentage of GDP jumped to 15.8 per cent due to a widening tax base and improvements in the collection system, including incentives for timely payments.
Another criteria where Egypt ranked relatively high was the size of government, measured by its contribution to the economy. Total government expenditures, including consumption and transfer payments, are moderate. This year government spending equalled 33.6 per cent of GDP.
The government's heavy subsidy budget affected its monetary freedom score negatively as the report issued with the index pointed out that 15 points were deducted from Egypt's monetary freedom score to adjust for measures that distort domestic prices. The government controls prices for some basic foods, energy including fuel, transport, and medicine and subsidises basic food items, sugar, pharmaceuticals and public transportation.
However, the weakest points came on another scale: unguarded property rights and freedom of corruption where it scored 29 and 40 respectively.
Further the enforcement of intellectual property rights in Egypt is seriously deficient, according to the report. It goes on stating defects on this measure as the government sometimes resorts to fast-track military courts to circumvent the judiciary. "On average, it takes six years to decide commercial cases, and appeal procedures can extend court cases beyond 15 years," the report stated.
As for the spread of corruption, a chronic illness of the Egyptian economy, the report points out that Egypt ranks 105th out of 179 countries in Transparency International's Corruption Perceptions Index for 2007. "Bribery of low-level civil servants seems to be a part of daily life, and there are allegations of significant corruption among high-level officials," it reads.
The Middle East and North Africa region in general had a freedom index measure of 60, slightly above the world average of 59.5, mainly due to a high degree of fiscal freedom that reflects low income and corporate tax rates. However, other institutional problems pose serious impediments to creating more dynamic private sectors and diverse economies.
"Investment freedom, financial freedom, property rights, and freedom from corruption all score below the world average, holding down the region's overall economic freedom and its economic potential," the report read.
The report noted that despite some progress in recent years, structural problems clearly abound in the region, such as the regional unemployment rate which averages more than 10 per cent, is among the highest in the world and is most pronounced among youth.
Meanwhile, despite the outflow of crude oil, the actual trade flows of the region's countries remain relatively low, indicating a lack of economic dynamism.
Bahrain, ranked 16th globally with its economic freedom score of 74.8, is the only Middle Eastern country among the world's 20 freest economies. "It maintains a pro-business environment with low inflation, sound banking and finance systems, and low barriers to trade," the report said.
Syria and Libya made the biggest leaps forward with gains of over four points in economic freedom. In recent years, Syria's private sector has contributed to steady economic growth, benefiting from reforms in banking, business regulation, and the investment regime.
Moving on to the international spectrum, Hong Kong maintains its status as the world's freest economy, a position it has held for 15 consecutive years. It was the only economy to score above 90 on the 100-point economic freedom scale.