Experts called upon the government to resume reform efforts interrupted by the global financial crisis, reports Niveen Wahish "The crisis was an opportunity for the government to make difficult decisions and to face up to the economy's structural problems, but it chose to take the crisis as a pretext to avoid action," lamented Hanaa Kheireldin, executive director of the Egyptian Centre for Economic Studies (ECES). She added that Egypt's economy was having problems even before the crisis broke out. Kheireldin was addressing a conference organised by ECES evaluating the effects of the crisis on the Egyptian economy. She was not alone in her opinion. Mounir Fakhri Abdel-Nour, secretary-general of the Wafd Party and a former businessman, said the government focussed on the crisis overlooking deficiencies in the investment climate and other structural weaknesses. He referred particularly to the bureaucracy faced by producers and the need to prioritise government spending on services badly needed by society, such as education and infrastructure. Taher Helmy of Helmy, Hamza and Partners and chairman of ECES agrees . "The crisis is not the real reason for the low growth rate." He too referred to bureaucracy as a major impediment in the investment environment. Helmy said that what is dubbed as the "one stop shop" no longer serves its purpose and investors have to run after extensive approvals from multiple authorities for periods extending up to two years. "This results in delays, as well as in difficulties in procuring bank financing," he said. Ahmed Galal, managing director of the Economic Research Forum (ERF), was another tough critic. He said the reforms carried out so far are half of those needed, recommending that the government get down to business rather than celebrating. To him and other conference speakers, not enough social reform has been carried out. "The fruits of reform should not take time to distribute." Evaluating the reform process, Mohamed Taymour, chairman of Pharos Holding for Financial Investment, said that things are not all bleak. "There is an improvement in the indexes," he said. Nonetheless, he acknowledged that there is a mismatch in the distribution of income: "The rich are getting richer and the situation of the poor is only improving slightly." However, he said that this is the case with all countries in growth stages. Taymour too called for prioritising, saying that despite continuous complaints about the quality of education, investment in education increased as a figure but not as a percentage of the budget. Othman Mohamed Othman, minister of economic development, reassured participants that reform is on the government's agenda. "As soon as things are back to normal, the government will resume its reforms." He said the government aims now at "social development through economic development". He cited ambitious growth rates of 8-10 per cent in the medium and long term depending on an end to the crisis and a resumption of global growth. In the meantime, he said that an additional crisis support package of around LE10 billion would be presented to the National Democratic Party Conference for approval. LE9 billion of the package will go towards badly needed water and sanitation projects while the remaining LE1 billion will be directed to miscellaneous infrastructure projects. But at a time the government is about to pump in an additional stimulus package into the economy, experts have reservations on how the first stimulus package was spent. Naglaa El-Ehwany, professor of economics at Cairo University, is critical that a large portion of the first package was directed towards sanitation projects. While these projects are badly needed, she said, they are not labour intensive and do not help in creating jobs. And it is not only a matter of the quality of spending, but also the size of the stimulus, which was seen as unsuitable. Sherine El-Shawarby, also professor of economics at Cairo University, pointed out that the LE15 billion allotted is a mere 1.5 per cent of GDP. To make up for a one per cent drop in the growth rate, she said, a stimulus package of 2-3 per cent of GDP is needed. The LE15 billion provided was more effective in boosting confidence than making a difference in terms of growth. "Maybe its effect will be felt in 2010?" she questioned. She urged the government to continue making the stimulus injection for a number of years. Galal also recommended that governments, not only Egypt, should stay the course in terms of support to the economy, otherwise they risk a setback alike to the 1930s. On the other hand, downsides to increased public expenditure exist. El-Shawarby worries about what the extra spending could do to Egypt's budget deficit. The budget deficit was 6.8 per cent in fiscal year (FY) 2008/09, the same as the year before. While it remains lower than a high of 9.6 per cent in FY 2004/05, it is a source of concern for Abdel-Nour also, who wandered how it will be affected as the prices of basic commodities are on an upward trend that will lead the government to spend more on subsidies. In FY 2008/09 the fall in commodity prices meant the government needed to spend less on subsidised items, which freed up funds for other purposes. With commodity prices on the rise, the budget could seriously be stretched.
