The rise of economic growth under a liberalized economy that is based on market mechanisms is considered the most distinguished feature of the Egyptian economy in the framework of a developmental strategy whose core is interaction of the power of demand and supply together with paving the way for the private sector to engage strongly in the various economic activities.

Results of the economic and financial performance indicated a great improvement during FY 2006/2007 and first quarter of FY 2007/2008. Egypt's economy achieved a growth rate of 7.1% which is the highest growth rate since ten years where Gross Domestic Product (GDP) with production factors cost increased to reach LE 684.4 billion.

2007 witnessed the increase of public revenues and grants by 19.1% to reach LE 180.2 billion where incomes of tax increased by nearly 16.9 per cent to reach LE 114.3 billion. Non-tax incomes increased by 23.2% to reach LE 65.9 billion while the income tax proceeds in FY 2006/2007 reached 58.5%, i.e. an increase of 21.3% as compared to the previous year. Also, proceeds of sale tax increased by 13.7% to reach LE 39.4 billion while customs proceeds increased by 7.4% to reach LE 10.4 billion due to increase of imports. Spending on wages and salaries increased by 11.6% to reach LE 52.1 billion while the item of subsidized, grants and social advantages increased to LE 58.4 billion. Deficit dropped from 9.2% to 7.5% of GDP.

The state started in the reform of pensions system and application of partnership between the government and private sector in carrying out the development projects taking into account that many institutional and administrative reforms were implemented to guarantee the reform sustainability.

 

In this context, report of the International Monetary Fund in 2006 hailed Egypt's achievements in economic reform as regards the increase in growth rate to about 5.8 percent and inflation decrease to about 4 percent. Furthermore, contributions of the leading sectors have helped scoring rates higher than the economic growth as the energy, transportation, tourism sectors and some service activities have achieved high growth rates.

Sectors of industry, transport, communications and tourism scored higher rates of growth. Contribution of the spinning and weaving sector to the GDP hits 31 per cent, chemical industries 26 percent, processing industries 18 per cent, transport, communications, Suez Canal 14.1 per cent and tourism 6 per cent.

Economic Reform in Egypt
In early 1980s and in the framework of the world economic changes over reconsidering the role of the state in the economic activities, Egypt adopted the economic reform policy through rectifying the economic and social track by a coordinated, an integrated and a gradual package of economic, fiscal, monetary and legislative policies with the aim of liberalizing national economy, thus restoring its balance domestically and internationally. Furthermore, the change of the state's role in managing and steering the economic activity from the direct to the indirect management was one of the most distinguished trends that were entrenched during this period.

This was achieved in the context of an ambitious programme for economic reform that was characterized by being gradual and observing the social dimension in a manner that rendered it, according to many analyses from international institutions, on top of which is the IMF, one of the most successful economic programmes.

Features of Economic Reform in Egypt
In the framework of the state's interest in economic development, being the only means towards realizing prosperity and raising incomes, thus consequently raising the Egyptians' standard of living, the first phase of the Economic Reform Programme in Egypt started with the launching of the first five-year plan (1982/87) through starting a process of comprehensive reform that targeted construction of a strong infrastructure that provides a solid basis to open the development process in modern agriculture, industry and various production sectors. This is done to provide a suitable atmosphere for environment and qualify the Egyptian economy to a competitive position among the advanced world economies.

The most distinguished features of the economic reform that started in Egypt during the 1980s are represented as follows:

1- Convert from the central economic system that is based upon the domination of the state over the economic life to a system that embraces the philosophy of economic liberalization and believes in the power and mechanisms of the market.
2- Liberate bank interest rates, exchange rates, prices of products and production requirements.
3- Control cash demand and encourage saving together with increasing the state's revenues.
4- Enhance and encourage the private and investment sectors while activating the privatization policy.
5- Activate the money market as one of the vital pivots of reform and economic liberalization policy through issuing a law on capital market in 1992 and its executive regulation in 1993, together with establishing the General Authority for Capital Market as a first step for the market development programme.
a- Liberalize and upgrade the public enterprise sector.
b- Establish the Social Fund for Development in 1991 to create job opportunities and encourage the small industries that contribute to the development process.

Privatization Programme…Liberalization of the Egyptian Economy
In the framework of the second phase of the policy of reform and liberalizing the Egyptian economy, Egypt, since 1991, has applied the privatization policy, as the state is no longer the only investor and its role is based on the indicative planning and directly implementing the public investments necessary for socio-economic development that is mainly focused on infrastructure projects.

As the privatization policy is deemed an essential component of economic reform, its programme was based on special mechanisms that aim at adjusting the Egyptian economy for the privatization process through restructuring the economic institutions and regaining the balance needed in the main economic changes, together with adopting policies that contributed to opening the door wide before the private sector to enhance its participation in the economic activity.

The Egyptian Economy…a New Philosophy that Copes with the World Changes
The third phase of the Egyptian economic reform programme is based on a new philosophy of following the rules of world economy as to activate partnership and mutual confidence between the state and the citizens together with giving the private sector the chance to turn from being the small partner who needs support and advice to a full partner in mobilizing investment necessary for employment, generating incomes and drawing and implementing policies.

The most distinguished features of this phase are as follows:

1 Tax Reform
Tax Law no. 91 of 2005 reflects a new thought in the tax system's dealing with tax payers. The new Tax Law represents a qualitative leap and a new turning point in the Egyptian national policy. This law contributes to reducing the tax categories to about 50 percent or less for the benefit of the citizens and those working in economic activities. It provides many privileges, the most prominent of which are: tax exemption, tax conciliation, eradicate tax complications together with building bridges of mutual understanding between the state and tax payers in a manner that encourages local and foreign investment in Egypt.

2- Customs Duties Reform
Facilitating customs duties procedures is considered one of the most distinguished economic reforms that were entrenched during the recent stage through a number of amendments that aim at scoring the following:
1- Facilitate the customs tax structure.
2- Promote investments in the light of tax cuts on imports, tools and spare parts.
3- Move the market ahead and reduce prices together with a major increase in exports.
4- Raise the economic efficiency by offering the consumer high quality commodities.
5- Eliminate the disputes that might emerge from the various categories of customs tariffs through reducing the average of tariffs to about 9 percent, in addition to reducing the number of tariff categories from 26 categories to five only.

 

3 Banking Reform
Banking reform in Egypt started three years ago with issuing a new law for the Central Bank in 2003. Such law grants the bank full independence to practice its mission with freedom and efficiency and make the necessary amendments in the monitory policy, thus increasing the bank's resources of foreign currency. In this framework, the state pays special attention to accelerate the banking restructuring programme, expand processes of merging, and increase foreign contributions in the banking sector. This is because this sector witnessed expanded processes of merging during 2006, thus contributed to liberalizing the rate of exchange and activating the movement of market dealings in addition to motivating investments so that the value of local liquidity rose in June 2006 to reach about LE 560.4 billion at a growth rate of about 13.5 percent.

Positive Indicators for the Performance of the Egyptian Economy in 2005/06
Positive indicators of the performance of the Egyptian economy in 2005/06 reflect an improvement towards acceleration of the growth rate within the tendency towards merger with the global economy as follows:

 

1 Gross Domestic Production
Gross Domestic Production (GDP) in 2005/06 amounted to LE 915 billion (at current prices) against about LE 828.8 billion in 2004/05 to which the private sector contributes with about 67.3 percent.

 

2- Gross Domestic Product (GDP)
GDP in 2005/06 amounted to about LE 558 billion (at current prices and at production factors cost) at a growth rate of 5.8 percent against about LE 504 billion in 2004/05.

3- Volume of Investments and Capital Accumulation
Stimulating growth and raising the GDP requires an increase in investment and capital accumulation, besides giving the private and cooperative sector a bigger role in pushing the wheel of economic development forward through increasing its investment in the state socio-economic development plan as investments in 2005/06 plan reached about LE 67 billion from the total investments implemented during this year that amount to about LE 113 billion, of which LE 17.4 billion are government investments.

4- Labour Force
In 2005/06, labour force amounted to about 21,8. Female's contribution to labour force reach about 19 percent within the framework of the State's interest in women affairs and expansion in educating and employing females. Labour force during 2006/07 is expected to reach about 22.4 million, at a growth rate of about 2.8 percent. This leads to a decrease in the volume of unemployment from about 2.1 million in 2005/06 to about 2.08 million in 2006/07, thus bringing down unemployment rate from 9.6 percent to 9.3 percent.

Labour Force and Employees*

Description	2005/06	2006/07	Rate of Change %
Labour Force	21.8	22.4	2.8
Employees	19.7	20.35	3.3
Unemployed	2.1	2.80	-
Unemployment Rate	9.6	9.3	- (0.6)

5- Dealing with the Outside World
The policy of financial reform adopted by the State lead to a further merger of the Egyptian economy in the global economy during 2005/06. Thus, foreign trade imports and exports increased to about 60 percent of GDP. Export commodities realized a remarkable increase that reached about LE 16600.0 million and petroleum exports made an unprecedented leap scoring about LE 7.100.0 billion. The value of commodity imports in 2005/06 reached about LE 27.870.0 billion so that the surplus of total balance of transactions witnessed an increase at about $ 3.5 billion against a surplus of $ 2.9 billion last year and at an increase that reaches about 20 percent.

Trade Balance
Trade balance deficit in 2004/05 amounted to some $ 12 billion. The state economic policy for the next phase is heading towards decreasing the deficit to reach about $ 11.1 billion next year.

6- Consumption
Consumption expenditure is distributed on two main pivots:
Government consumption: means the government expenditure over salaries, requirements, health and population and utility services.
Household consumption: means the expenditure over the various commodities and services.

Volume of government and household expenditure in 2005/06 reached about LE 488.1 billion (at fixed prices), of which LE 74.1 billion as government consumption and about LE 414,0 billion as household one i.e., 82.3 percent of the GDP, with a real growth rate of 4.4 percent. In this context the per capita share of the GDP during the same year reached about LE 8.2 thousand annually.

End-use consumption *

(In LE billion)