A revival agenda

Following last week's minor cabinet reshuffle, the government is walking a tightrope to fight recession and spur market spending. Gamal Essam El-Din reports
As part of the economic reform programme launched in 1991, the Ministerial Economic Group was formed to handle the country's economic issues more effectively. The group, the brainchild of Egypt's then great reformist prime minister, Atef Sedqi, comprised six ministers for economy and foreign trade, finance, planning, international cooperation, supply and internal trade and the public business sector. The group was highly successful in opening up Egypt's economy and registered remarkable achievements in reforming monetary and fiscal policies.
In 1996, when Prime Minister Kamal El-Ganzouri took over, the Group of Six, as they became known, went into disarray. Even when the liberal-minded Economy Minister Youssef Boutros Ghali was appointed as its head in October 1999, the group remained in shambles. Disagreements among the group's members over monetary policies, especially whether to devalue the Egyptian pound, and the failure to boost exports pushed the country into recession, which took the form of a banking liquidity crunch and a foreign exchange squeeze.
Last week's cabinet reshuffle, however, revived hopes that the group, now headed by Prime Minister Atef Ebeid, will finally manage to bring Egypt out of its three-year recession and bring the reform programme back on track.
"Prime Minister Atef Ebeid should realise that this minor cabinet reshuffle is his last chance to fend off recession and, thus, remain in office," an economic expert, who asked not to be named, told Al-Ahram Weekly. Ebeid himself made it clear last week that the group's major task in the coming period is to offset the negative effects of global slowdown on Egypt and fighting recession. "To attain this objective, each of the group's six members will be given specific responsibilities to take charge of," Ebeid said.
The People's Assembly Economic Affairs Committee, joining forces with the government in its battle against the economic slump, has prepared a draft report that includes what it calls "an urgent agenda of action for the coming period." The agenda, the committee's chairman Abdallah Tayel told the Weekly, envisions a package of measures, all of them aimed at spurring demand and boosting market spending. "This will be achieved through a series of initiatives in both the domestic and foreign markets," Tayel said.
In domestic terms, the parliamentary agenda calls for boosting three kinds of spending: government, consumer (or family) and investment.
The committee foresees government spending will be boosted primarily through the National Investment Bank (NIB). This bank, which was until last week's reshuffle subject to the supervision of the Ministry of Planning, has become affiliated to the Finance Ministry. "In less than one year, the NIB injected LE20.2 billion worth of government payment arrears to local contractors and suppliers. The bank still has at its disposal an additional LE6 billion to inject. This, coupled with furnishing LE4 billion for funding small-scale village projects, will help recycle a tremendous amount of money into the market and save the contracting sector from its current liquidity crisis," the report said.
The report praised the government's recent decision to save $1.5 billion worth of annual government overseas purchases. "This amount, which is equal to around LE5.4 billion, could be a big catalyst for domestic spending by earmarking it to meeting the government's needs of goods from the local market," the report said. Within the same context, the parliamentary committee advises that the government should do its best to sell LE11 billion worth of unsold inventories held by a number of its own authorities.
Moving to the area of consumer spending, the parliamentary report emphasises that this sector can only be boosted by passing the new Unified Tax Law. "The draft law, which provides for tax cuts on personal incomes, is anticipated to channel LE3.3 billion into the pockets of limited and average- income classes," the report said.
The report also suggested that the government should speed up implementation of the mortgage law. According to the report, this law will be of great help in bringing the housing market out of stagnation and boosting spending in 92 related construction industries, primarily ceramics and bricks.
The government was also urged to intervene to address the problem of private tuition fees. "This burden costs Egyptian families an annual amount ranging from LE8.5 to LE10 billion. This amount, which represents a drain on national incomes, should find its way into the market rather than being amassed by private tutors into private saving accounts," the parliamentary committee's report said.
Going hand in hand with the above, the committee said the government should devise new measures to reduce spending on the Hajj (pilgrimage) and Omra (out-of-season pilgrimage) visits. "During their visits to the holy places in Saudi Arabia, citizens spend hefty sums ranging from LE4 billion to LE8 billion per year. This amount should be cut down by at least half," stressed the report.
As for investment spending, the committee urged the government to live up to its promise of reducing banks' reserve requirement from 14 per cent of their total deposits to 12 per cent and reduce the discount rate from a current 11 per cent to 9 per cent. "This will free up banking money estimated at LE8 billion, which could be pumped into an array of investment fields," the report said. The committee also was of the opinion that greater efforts should concentrate on trying to divert a portion of a total of around $120 billion worth of Arab investments in America and Europe into the local market.
According to the report, this was the best time to boost exports and curb imports. "Now is also when we can turn the effects of global downturn to our favour," the report said, praising the government's success last year in reducing the balance of trade deficit by $2.1 billion (72 per cent), which was largely due to curbing imports rather than boosting exports. The government should reinforce this trend by reducing imports by a further $3 billion, the report advised.
The parliamentary committee, however, is expected to debate this agenda extensively in the next few days. Tayel said Ebeid will be invited to the committee meetings to explain his government's anti-recessionary measures for the coming period.
Some MPs and government officials agree that the government will be walking a tightrope to carry out this agenda. "Some of the measures are beyond the government's capacity, such as obliging citizens to stop going on Hajj and Omra visits and cutting down private tuition fees," said the committee's deputy, Talaat El-Qawwas.
Finance Minister Medhat Hassanein, a key member of the economic group, warned this week against irrational calls for increasing government spending. "The 11 September attacks have begun to severely affect state revenues and the balance of payments. To call for higher spending now will be highly risky for the state budget [whose deficit now runs at 4.4 per cent of GDP]," Hassanein said.
Recommend this page
Related stories:
Economy focus for cabinet change
Tightening the belt
The search for added value
Woman at the top
The tip of the iceberg? 22 - 28 November 2001
Independence for Central Bank 15 - 21 November 2001
Bat bat, ping-pong 14 - 20 September 2000
Change is not a quantity 21 - 27 October 1999
Coming up with the right formula 14 - 20 October 1999
Cabinet fever 7 - 13 October 1999
© Copyright Al-Ahram Weekly. All rights reserved
Send a letter to the Editor