Egypt's "Home-Grown" Reforms Spur Growth and Investment

• Author: Howard Handy/Amer Bisat
• Position: IMF Middle Eastern Department
• Pages: 116-118

Page 116

After the formation of a new government a little more than a year ago, Egypt embarked on a new and decisive phase of adjustment and economic reform. The enthusiastic response of international investors has sharply increased capital inflows and fueled a booming stock market. For international investors, Egypt's attractiveness is linked to stronger economic growth in an environment of macroeconomic stability, a widespread perception of a strong political commitment to reform, better information about Egypt's econ omic progress and investment opportunities (notably through the Middle East-North Africa Economic Conference held in Cairo in November 1996), and the recent assignment of aninvestment - grade ra ting for Egypt's sovereign debt by Standard & Poor's. Egypt has vigoro u s ly pursu ed its econ om i c reforms and the impact, in terms of growth and foreign investment, has been impressive. Challenges remain, however, if the country is to sustain and broaden its reform process, foster a vibrant private sector, and create employment opportunities for its young and growing population.

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Background

As recently as the early 1990s, Egypt faced severe financial imbalances evidenced by high inflation, large external deficits, and an accumulation of external arrears. With the support of two successive IMFPage 117 financial arrangements (1991 and 1993), the country made important progress toward reducing these imbalances, but economic performance remained below potential.

Against this backdrop, and in the context of the new challenges and opportunities presented by the evo lving regi onal and intern a ti on a l environment, Egypt adopted an ambitious reform program in support of which the IMF approved a two-year stand-by arrangement in October 1996.

(In light of Egypt's strong reserve position, the authorities view the arrangement as precautionary and have no plans to draw under it.) This mediumterm program seeks to achieve a sustained higher rate of growth and a gradual reduction in unemployment, while further lowering inflation and maintaining a strong external reserve position. To these ends, the program focuses on:

* consolidating the gains on macroeconomic stabilization;and

* broadening and intensifying the structural reform agenda through privatization, deregulation, trade liberalization, and a revamping of the...