On February 23, 2023, ECFA organized a meeting, in which it hosted Professor Dr. Gouda Abdel Khaleq, Professor of Economics at Cairo University, and former Minister of Social Solidarity, to give a lecture entitled “An Overview of the Economic Situation in Egypt.” The meeting was opened by Ambassador Mohamed El-Oraby, ECFA Chairman, and attended by Ambassadors Ezzat Saad, ECFA Director, Mounir Zahran, Farouk Mabrouk, Mohamed Al-Ashmawy, Mohamed Tawfiq, and Ali El-Hefny, and Dr. Hisham Zaazou, as well as a group of experts, academics and researchers concerned with Egyptian internal affairs and developments.
The guest reviewed glimpses of Egypt’s history, pointing out that the Egyptian pattern is an open format, in constant interaction with its environment, and it cannot help but be so, especially since Egypt is located at a crossroads between three continents. He added that accumulated challenges have cast a shadow on the Egyptian economy and its activity over the past decades, mainly what several studies have shown that the Egyptian industry has upheld relying on external sources to secure production elements, and even products, while neglecting its domestic sources, and that most of the agricultural output is exported abroad, which means that the Egyptian economy is hollow and weak. The Egyptian economy is still a rentier economy, in addition to the dependency of monetary policy on fiscal policy, growing population growth rates, as well as hot money, estimated at 21 billion dollars in 2022, compared to 19 billion in 2021.
The guest also referred to the Egyptian state’s experience in borrowing from the International Monetary Fund, the latest of which was announced on October 22, 2022, with Egypt obtaining a new loan worth $3 billion, and additional financing of $1 billion through the “IMF Resilience and Sustainability Trust” that was newly established. He added that the flotation of exchange rate was not a good decision, as the exchange rate dilemma in Egypt is represented in the rise in the foreign component of domestic spending and production, and the state’s commitment to liberating hot money, leading to its flight, and from floating in general in light of these structural characteristics, resulting in negative effects on production, on the state’s general budget, on inflation, and on income distribution.
In this context, Dr. Abdel Khaleq recommended declaring a “war economy” and implementing a serious austerity program to reduce overall demand, in parallel with taking measures to advance production to increase overall supply, including: reconsidering unnecessary government expenditure and postponing some mega-projects, operating idle factories, introducing a progressive tax rate on income, instead of the value-added tax, in order to achieve justice, reintroducing the tax on profits resulting from stock market transactions, setting a declared ceiling for public debt that cannot be exceeded (debt governance), and promoting mechanisms for facilitating services, combating corruption and bureaucracy at all levels and sectors, setting a maximum limit for increasing the amount of money at a rate equal to the increase in production to ensure monetary stability, and placing restrictions on the movement of hot capital, imposing restrictions on imports in implementation of Egypt’s rights as a member of the World Trade Organization as per the text of Article 12 and Article 18-B of the GATT, which may allow controlling the trade deficit to a lesser extent, issuing new legislation and amending existing laws to achieve efficiency and equity, and amending the exchange rate system by pegging it to a basket of currencies instead of pegging it to the U.S. dollar alone, which is what the Egyptian state has recently begun to do, with the aim of stabilizing the real effective exchange rate.
