Triple play

Parliament passed three laws this week to stimulate the economy and mitigate the effects of the global financial crisis on Egypt, Gamal Essam El-Din reports

---

Mohiedldin; Ghali

The government of Prime Minister Ahmed Nazif was in a hurry this week to obtain the approval of parliament on three laws aimed at softening the blow of the global economic crisis on Egypt. On Monday, the People's Assembly gave the thumbs-up to a new law designed to increase budgetary spending by LE13.3 billion in the on- going fiscal year of 2008/2009.

Addressing parliament on Sunday, Minister of Finance Youssef Boutros Ghali said the new budgetary allocation is primarily aimed to stimulate the economy and help it recover quickly from the global financial meltdown. Ghali said the allocation is divided into two parts: LE2.8 billion for subsidising exports and LE10.5 for helping infrastructure projects compensate expected falls in foreign investment and weather the storms of global crisis. According to Ghali, "as much as LE2.8 billion will be directed to give a boost to Egyptian exports and make sure that the export-led private sector keeps its competitive edge on world markets."

Ghali added that the new allocation is also a necessary step to shore up businesses against a looming recession and prepare them for an even worse year ahead. "The additional money will help businesses not to close or announce big lay- offs in the face of an expected sharp fall in demand," he said.

For his part, Minister of State for Economic Development Othman Mohamed Othman indicated that the new allocation's respectable amount of LE10.5 billion will be earmarked to increase spending on vital infrastructure projects in the areas of drinking water, sanitary drainage, education, health and seaport development. "A key message of the new LE13.3 billion is that spending on vital infrastructural projects and facilities should go unscathed from the global economic storms," said Othman.

Further, Ghali emphasised that the new LE13.3 billion should be spent over the next six months. "At the end of this period, the government might ask the parliament to approve a new budgetary allocation, but this depends on the severity of the crisis," said Ghali. In addition, Ghali admitted that the new allocation might cause the budget deficit to increase from 6.8 per cent of GDP at present to more than nine per cent. "We can deal with the budget deficit but our top priority now is to increase spending so as not to let the global slowdown hamper Egypt's growth prospects in the short-term and make the economy pick itself up fairly fast once the world crisis begins to pass," said Ghali.

Going hand in hand with the above, the People's Assembly -- Egypt's lower house of parliament -- approved on Monday a presidential decree aimed at lowering custom duties imposed on a list of production inputs and raw materials. Ghali said the decree is another necessary step to help an array of Egyptian industries better face the global crisis. "This measure goes in harmony with the new budgetary allocation as two good tools aimed at raising the competitive edge of local industries on world markets," said Ghali.

In addition Ghali said, "not only does the decree seek to lower duties on certain vital lists of imported raw materials, but it also gives a complete exemption of duties on another list of imported raw materials." Ghali said imported tools and equipment necessary for highly vital industries in the sectors of engineering, textiles, chemicals, cinema and printing will be completely exempted from custom duties. Besides, Ghali added custom duties on other imported raw materials and tools necessary for the same industries will be lowered by an average of two to five per cent.

The Assembly's Budget Committee, however, said it is deplorable that the decree did not lower custom duties or offer a total exemption from them on tools and machinery necessary for the agriculture sector. "The custom duties on agricultural machinery and farm pesticides are still as high as five per cent, thus exerting a costly pressure on farmers and the farming sector as a whole," said Chairman of the Budget Committee Ahmed Ezz. He added that there is a pressing need to help the agricultural sector face world economic challenges, especially at a time when the prices of food products on world markets are suffering from constant big falls.

Moving to another economic area, the People's Assembly finally approved on Monday a new law aimed at "regulating supervision on stock markets and non-banking financial tools". In the words of Minister of Investment Mahmoud Mohieldin, "The 18-article law aims at reinforcing the role of stock markets in an age of globalisation." This, added Mohieldin, will be achieved in the form of unifying into one authority the bodies that exercise activities of financial supervision. "In this respect," argued Mohieldin. "The General Stock Market Authority, the Financial Mortgage Authority and the General Egyptian Authority for Supervision on Insurance Activities will be merged into one authority under the title The General Authority for Supervision on Stock Markets and Non-banking Financial Entities." Mohieldin said the merger process will be completed in a transitional period of two years. "During this period, as many as 910 employees working with the above authorities will be trained and grouped to perform under the purview of the new authority," the minister explained.

Mohieldin argued that many countries such as England and Australia took the necessary step of establishing a unified authority for financial supervision. "This step makes the stock markets more immune to financial shocks and gives employees greater expertise on a wide array of modern financial activities," said Ghali.

Mohieldin also explained that the establishment of a unified financial supervision authority forms an integrated part of the government's long-term strategy on fiscal reforms. "This strategy," said Mohieldin, "at first included consolidating the banking sector, a basic step which has successfully helped us so far weather the current global downturns." In this second stage of fiscal reform, added Mohieldin, the government focuses on reinforcing the role of such vital sectors as insurance, stock markets and mortgage to raise their contribution to economic growth and equip them to face world economic shocks. Mohieldin said fiscal reform made the value of stocks and bonds traded on the capital market rise from LE83.7 billion in 2004/05 to a perky LE553.2 billion. As for the insurance sector, said Mohieldin, its contribution to GDP rose from 0.08 per cent in 2004/ 05 to 1.1 per cent in 2007/08, while investments of insurance companies shot up from LE16.3 billion to LE29 billion during the same period.

Mohieldin boasted that loans provided to financial mortgage activities grew from LE16 million in June 2005 to more than LE2.6 billion in June 2008. "Fiscal year 2007/08 also saw the number of financial mortgage companies increasing to eight and banks giving loans to this activity to 16," Mohieldin said.