To address Egypt's economic woes, the government should reward saving or make taking out loans more viable, writes Ibrahim Nafie In his recent meeting with economic ministers, President Mubarak called for the introduction of monetary and fiscal measures to curb inflation, which climbed to 12.4 per cent in December 2006. A recent presidential decree reflected this new policy. The decree reduced average tariffs to a rate of 6.5 per cent and simplified the structure of custom duties in a manner that is expected to accelerate growth. The new tariffs would reduce the cost of meat, fish, cheese, lentils, oil and other consumer goods. Fertilisers were exempted from tariffs, to reduce the cost of agricultural products. Customs were also reduced on consumer and intermediate goods as well as raw materials, which is good for both consumers and producers. The lower tariffs are expected to stimulate competition, productivity and growth. The president told the cabinet to put together a package of investment incentives by the end of this month. But more efforts need to be undertaken. For one thing, monetary policy needs to become more proactive. At a recent meeting, the Central Bank decided to keep interest rates unchanged, although it admitted inflation might remain high for some time. I agree that monetary policy mustn't be decided in the light of inflation alone. The Central Bank should keep in mind the needs of economic growth and the need to stabilise the exchange rate. And yet a negative interest rate is the last thing we need. When inflation is running at 12.4 per cent, an interest rate of 7.5 per cent makes no sense. We have to compare our real interest rate with that on foreign currencies before depositors do the math and switch away from the Egyptian pound. There is another problem with our monetary policy. The margin between lending and borrowing rates is too large to justify, which means that banks are charging borrowers a lot more than they're willing to pay depositors. This is not good for investment or the economy. We need higher interest rates on savings, lower on loans, or both.
