In the last of a three-part series examining fiscal reforms since the 1970s, Doha Abdelhamid* discusses the steps necessary for continued success The second part of this series closed with the government achieving positive results despite massive challenges at the end of the 1990s and the termination of the economic reform and structural adjustment programmes (ERSAP) that were a collaboration with the World Bank and the International Monetary Fund. At start of the new millennium the government realised that the challenges facing the local economy were the direct result of its integration into the global economy and the repercussions of various international crises. The government bore the burden of pulling the national economy out of the fallout from the Asian stock market crash and completing the task of structural adjustment and fiscal stabilisation. As global economic performance dipped towards the end of the 1990s, the local economy began to exhibit signs of recession. This was manifested in the increased budget deficit, large domestic debt and unmatched growth in public revenues to compensate for increased public expenditures. Therefore, the fiscal policy of the new millennium necessitated the design and immediate implementation of a series of second-generation fiscal reform programmes. These included public revenues programmes, public expenditure programmes, the corporatisation of public economic authorities, domestic and foreign public debt management and modernisation of the National Investment Bank. Foremost on the list of priorities for a public revenues reform programme is the drafting of a new income tax law aimed at moving towards a full value added tax (VAT), reducing tax burdens on individual incomes by reducing tax rates and increasing exemptions, simplifying taxation procedures, adopting risk management, rationalising tax exemption practices, collecting tax debts and prosecuting tax evasion. The Ministry of Finance has finalised this tax bill and it will be submitted during the next session of the People's Assembly. A reform of public revenues also entails revising the customs law and simplifying existing customs excising procedures, such as those for temporary releases, drawbacks and tax rebates. The sales tax law is also in need of an overhaul in order to reduce taxation brackets, simplify collection procedures and move towards a full VAT. The real-estate tax law is slated for amendment and the implementation of Geographic Information Systems (GIS) will significantly increase the efficiency of collections. The GIS for Cairo is complete and other governorates will soon be ready. The second point of necessary fiscal reforms targets public expenditure programmes. These reforms have already been initiated and a comprehensive survey of all state assets, including capital, machinery, equipment, furniture, and real-estate, is currently under way. The first phase of this study has already been completed. It included a comprehensive survey of goods with quantitative and qualitative descriptions that allow for the most efficient distribution of public warehouses and the coding and automating of assets to rationalise purchases and reconcile needs between different government agencies. The study has already catalogued fifteen thousand warehouses. It is hoped that the reforms will spread to the public procurement law in order to build an integrated system for government purchases, unify purchase procedures and operate an e-procurement information system that would facilitate purchases and reduce costs. The reforms also include establishing cash-flow management departments in the Ministry of Finance to ensure fiscal sustainability in all budget sectors. The Ministry of Finance is also addressing the expanding informal economy and has recently completed the first comprehensive study on this sector. The study highlighted some 40 problems covering the entry, operation, expansion and exit phases and an equivalent number of policy reforms. The ministry is currently drafting a plan to mobilise efforts to reform this sector and bring some of its more viable enterprises into the formal economy. A programme to corporatise public economic authorities is third on the list of fiscal reforms. It was recognised early in the reform programme that some 62 institutions were suffering a severe cash flow problem. The cost of running these entities and managing their debts is growing and the fact that they have been shackled by price fixation since the socialist years only compounds the problem. Numerous studies are now being concluded to rationalise their expenditures without jeopardising operational requirements. These studies seek to enhance performance and accountability, rationalise free services and rehabilitate and utilise idle resources. Fourth on the list of fiscal reforms is public debt management. In light of the need to reduce public debt and to improve the management of treasury cash flows, this reform seeks to repay high cost debt and restructure the treasury's debt portfolio by increasing treasury programmes, such as the primary dealers system implemented last week. The fifth set of reforms involves the restructuring of the National Investment Bank (NIB). This is an ambitious goal which remains in its initial stages. The new NIB chairman is seeking to transform the NIB into a development bank. In this respect, practical steps are being considered to restrict the NIB's portfolio in order to fortify its assets, increase profits, tie the funding of investment projects to sound economic and technical studies, restructure the bank's balance sheet and develop human resources and equity participation in viable projects. The previous articles have shown that the government has a set agenda of fiscal reforms that have been in tune with the changing economic climate. However, the Egyptian economy has been cursed by a series of internal and external shocks that have lead to the deterioration of economic performance and have forced the government to undertake bolder fiscal steps, all while increasing integration into the global economy. Perhaps, the most difficult challenge in the implementation of the new set of fiscal reforms is to convince people that these reforms need to come into being immediately. In addition, fiscal reforms cannot take place in a vacuum, therefore efforts should be focussed on coordinating fiscal and monetary policies. * The writer is senior policy adviser to the minister of finance, executive director of the fiscal policy analysis consultative group, Ministry of Finance and associate professor of finance at the Arab Academy for Sciences and Technology.
