Thursday,23 May, 2019
Current issue | Issue 1372, (7 - 13 December 2017)
Thursday,23 May, 2019
Issue 1372, (7 - 13 December 2017)

Ahram Weekly

More to be done

The government’s economic reform programme has led to many macroeconomic achievements, but these may not be enough for it to reach its goals, reports Nesma Nowar

source: Pharos Holding
source: Pharos Holding

A year after the government’s floating of the Egyptian pound and cutting fuel subsidies as part of its economic reform programme, the country’s macroeconomic indicators have been seeing an improvement.  

Egypt’s economic growth reached 5.5 per cent in the first quarter of the 2017/2018 fiscal year, Minister of Planning Hala Al-Said said recently. She said that GDP was on an upward trend and that investment had increased by 2.9 per cent in the first quarter, compared to two per cent in the same quarter last year. 

The growth was driven by growth in all economic sectors, especially tourism, which increased by 50 per cent, building and construction (9.1 per cent) and manufacturing (6.9 per cent), among others, she said.

Other positive macroeconomic indicators included a drop in the unemployment rate to stand at 11.9 per cent in the third quarter of 2017, from 12.6 per cent in the same quarter of 2016, according to Al-Said.

The government has been boasting about these achievements, saying that the harsh but necessary economic reform programme has started to bear fruit. However, the programme has still been raising questions on whether it has realised its aims and whether people are feeling the improvement on the ground after paying a high price for implementing the programme.

Former finance minister Ahmed Galal said the reform programme aimed to achieve a balance in monetary and fiscal policy, which was why it was a “relatively limited” programme that only covered macroeconomic policies.

However, he said the programme was necessary and that it had helped achieve balance on the macroeconomic level, without which Egypt’s economic problems would have been much bigger. 

But despite its positive impact on the macroeconomic level, it had negatively impacted two main issues that the government needed to address, Galal said. The first was inflation and the 50 per cent drop in people’s incomes that had been caused by the flotation and the second was the impact on employment. 

“The programme is a contractionary one that does not help create jobs, so we have an unemployment problem,” Galal said during a seminar organised by the Egyptian Centre for Economic Studies (ECES), a think tank, in Cairo last week. 

Galal criticised the Central Bank of Egypt’s (CBE) policy of hiking interest rates to curb inflation, saying that the country’s inflation was not demand-driven. The problem was that too many people were jobless, leading to reductions in production, he said. 

“It would be better to eliminate obstacles and encourage people to work instead of fighting demand that does not exist,” Galal said.

He said that the government was not carrying out enough reforms to encourage production and eliminate the obstacles hindering it. He also referred to the alarming rise in Egypt’s debt, saying that debt levels at 136 per cent of GDP were “dangerous and worrying.”

Hani Geneina, assistant sub-governor for banking reform at the CBE, defended the CBE’s monetary policy. He said that hiking interest rates was “normal” to control inflation after the floatation that had caused the local currency to lose 50 per cent of its value.

The CBE has raised interest rates by a total of seven per cent since the floatation of the pound in late 2016, drawing criticisms for their negative effects on investment. Geneina said that although the CBE’s policy to hike interest rates had annoyed some parties, it showed that the bank was very serious about targeting inflation. 

Inflation peaked to a record high in July, reaching 33 per cent, but started to drop slightly afterwards, standing at 31.8 per cent in October.

Former deputy prime minister Ziad Bahaaeddin agreed with Galal that the economic reform measures were necessary, but said that people on the ground had not felt the benefits. He explained that what had been implemented thus far was the “first wave” of reforms, and these should be swiftly followed by a second wave. 

This second wave of reforms, according to Bahaaeddin, should not be related to the macro-economy but to the mechanisms of economic activity and the elimination of obstacles that prevented the economy from growing. 

“The future depends on how fast we can implement the second wave. If it is not implemented, we will not realise our aims, and the society will not benefit from the economic reforms,” Bahaaeddin said during the seminar. 

He said that this second wave of reforms did not only involve issuing laws, but that it should also deal with bureaucracy and revising the role of the state in economic activity. 

He said that the state’s role in the economy should be redefined, adding that the state should accelerate the second wave of reforms, since otherwise the gains from the first wave could be undermined. 

Galal stressed the importance of continuing the reform process, which should define the problems the government wanted to address and then act accordingly. He said that the economic reform process should be accompanied by a political reform process, because it was important to have a political system that allows the free exchange of ideas and an effective role for parliament. 

Experts at the seminar concurred that the government needed to do more in regard to social justice and protection. 

Regarding the CBE, Geneina said the bank would continue targeting inflation to bring it down to “acceptable” levels. He said that low inflation was a main factor that would push people to invest in the country in the long run. 

The CBE would also work on what Geneina called “shock-absorption capabilities” such as maintaining a solid banking sector in tandem with encouraging it to turn from lending to the government to lending to individuals and companies, he said. 

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