Mubarak masterminds growth

PUBLISHED : Saturday, 23 July, 1994, 12:00am
UPDATED : Saturday, 23 July, 1994, 12:00am

EGYPTIAN President Hosni Mubarak's pro-Western stand during the Gulf War set the wheels in motion for the Arab world's most populous country to win friends in the international community and find its way out of the economic wilderness.

Western donor countries and multilateral lending agencies rallied around Egypt, which has gained a reputation as a mediator and broker in the Middle East and Africa.

The West considered Cairo an important ally in the Middle East, which was more synonymous with battle plans than blueprints for social and economic development during the Gulf War.

But creditor nations came to its aid by first writing off most of Egypt's nearly US$40 billion of foreign debt, in return for it showing a willingness to unleash market forces.

In other words, Egypt had to adopt somewhat unpleasant, yet far-reaching, economic prescriptions dictated by the International Monetary Fund and the World Bank.

Three years later, only US$4 billion of Egypt's debt remains. Donors lightened the huge burden in stages.

Egypt's position was helped by a growing amount of Arab and Western investment into its industrial sector. Together, these translated into a quiet economic revolution.

Macro-economic adjustments and structural overhauls were undertaken. The Mubarak government began loosening its hold on some sectors of the economy at its own pace.

Slowly - and successfully - tariffs were cut, investment laws made more liberal, capital market laws strengthened and price controls eliminated.

At the same time, the government gave due consideration to various political and social factors that could have scuttled the good intentions in its economic moves.

All along, Egypt appeared not in a hurry.

The government's firm refusal to devalue the Egyptian pound, despite intense pressure from multilateral agencies, seemed to illustrate Egypt's determination not to self-destruct.

Early this month, Egypt's Public Sector Minister, Atef Obeid, rejected devaluation.

He said it would undermine investor confidence and make it unattractive for expatriate Egyptians who, on average, remitted US$5 billion a year, and also held Egyptian pound bank accounts.

Mr Obeid said devaluing would destabilise the economy.

On the other hand, the domestic currency had remained relatively stable against the US dollar for the past three years.

An official report says that, in the past year, ''the Egyptian pound declined only one per cent against the dollar''.

It added that this mild depreciation ''suggests that monetary policies designed to eliminate the dollarisation of the economy were successful''.

Against sterling, the deutschemark, French franc and the ECU, Egypt's currency fluctuated between one and 1.5 per cent in the past year, the report says.

Annual inflation declined to 12.1 per cent in 1993, compared with 13.6 the previous year.

The gradual opening up of Egypt's economy continues, despite scepticism expressed by investors and economists.

Much of the criticism had been aimed at the privatisation programme, which did not proceed as rapidly as was expected.

So far, only three firms - out of several hundred - have been handed over to the private sector.

The programme's slow progress has largely been attributed to political sensitivities.

The lay-offs that privatisation could bring, when unemployment is high, is also inhibiting sales of state-run entities.

Economic growth estimates vary, and some economists even say the Gross Domestic Product (GDP) gains have been negligible.

A recent US report says it is ''possible that the economy grew only slightly - if at all - in fiscal year 1992-93'', and that ''only modest improvement'' is expected in 1993-94.

Egypt's Planning Ministry forecast 4.5 per cent GDP growth in 1994-95, assuming an increase in exports and tourism would grow.

It estimated GDP growth of 3.3 per cent for the fiscal year that ended last month.

Its report projects tourism revenues will grow to US$2.51 billion, compared with an estimated income of US$2.11 billion this year.

The tourist industry has been affected by attacks against foreign visitors by Muslim militants. But the government has moved to quell the violence, to protect this valuable sector of the economy.

Egypt's exports are expected to increase 15.6 per cent in value to US$4.8 billion from US$4.2 billion this year. The value of imports are forecast to rise slowly, to US$11.6 billion from US$11.3 billion.

The ministry said unemployment, would fall to 9.4 per cent from 9.8 per cent this year.

GDP value is forecast to increase to US$43 billion at constant 1991-92 prices, from slightly above US$41 billion.

The private sector's contribution to the GDP is also expected to grow, to more than 62 per cent next year from 61.9 per cent in the past.