Banking and financial experts meeting in Cairo this week drew a modest picture of the year ahead, Niveen Wahish reports "Egypt's growth rate might drop to 3.5 per cent by the end of the year," warned George Abed, special advisor to the Institute for International Finance managing director and director for Africa and the Middle East. Abed was in Cairo with around 100 heads of regional banks, financial services companies and senior officials to take part in the 12th annual meeting of the Middle Eastern and North African bank chief executives. This year's annual meeting, co- hosted by the Institute of International Finance (IIF) and the Arab-African International Bank, focussed its attention on finding a way of navigating through the current strains on the global economy and the financial system, as well as the impact of the global crisis on the financial sector in the MENA region and especially on the more globally integrated GCC financial institutions. Although forecasts for Egypt's growth may not be too pleasing, those experts believe Egypt is much better off than others. According to forecasts by the IIF, 2009 will see GDP decline by possibly more than 1.5 per cent, the sharpest decline since the 1930s. "Industrial economies, which grew by just 0.7 per cent in 2008, could see negative real growth this year of 2.7 per cent. Many emerging market countries will also face significant declines in output." IIF Managing Director Charles Dallara speaking at the press conference at the tail end of the event pointed out that "recession will affect everyone. Some are better positioned than others to withstand the crisis." He added that Egypt's economy is much more resilient than many. And banking reform is a key element of that resilience. "There aren't many banking systems in emerging markets, let alone industrial markets, which are better than Egypt's," he said. Abed added that funds promised by the government will help keep growth going. And the Central Bank of Egypt's recent interest rate cut will hopefully inject more funds into the economy. "Growth will be more than the rate of population growth which will help create opportunities," he said, adding that although government spending will mean a growing budget deficit "dealing with the crisis requires exceptional measures." In many ways the region as a whole appears to be better off than the rest of the world. According to Abed "this region will be less affected than other regions. Reforms carried out by governments have immunised the local economy and strengthened it." A press release issued by conference organisers showed that "given growth in the Middle East, Asia and the Pacific, the IIF sees emerging market countries as a whole attaining real growth of about 1.9 per cent, following 5.7 per cent growth in 2008." Abed stressed that the region's financial institutions need to continue with more financial and banking reforms so that the region "is ready for a comeback after the end of the crisis." Dallara said that conference participants expressed concern about the "rising tides of financial protectionism", adding that this trend is increasingly found, not in emerging markets, but in developed economies such as the US. He explained that this protectionism has manifested itself in less global credit availability. Moreover, governments in Western Europe are injecting capital into their banks and they are stipulating that this capital is intended to stay at home. "This runs contrary to what we have been propagating and needs to stop," Dallara said. The meeting also discussed the importance of robust risk management systems, the progress and challenges of Basel II implementation and the critical role of governance and transparency in financial institutions. According to Dallara, mistakes have been made within Basel I. "There is a need to move ahead with Basel II and to make changes in areas related to capital requirements, but we must choose a good timing. It would be a mistake to do that today at a time we need to insure the flow of credit," he said. The 13th annual meeting will take around the same time next year in Amman, Jordan.
