In a move that signals the fragile economic situation currently facing his country, Egyptian President Hosni Mubarak has decided to abolish the Economy Ministry and grant greater powers to the Central Bank in setting economic policy. This reorganization occurs at a time in which the country’s financial prospects, hurt by declining tourism revenues, appear grim indeed.
Egypt is set to create a new ministerial economic policy group, in which most of the tasks previously carried out by the Economy Minister will be transferred to the Governor of the Central Bank. The group will comprise the ministers of international cooperation, finance and foreign trade, with the Central Bank in charge of the banking and insurance sectors, as well as companies licensed by the Investment Authority.
These changes follow last month’s appointment of Mahmoud Abul-Ayoun as Egypt’s new Central Bank Governor. Bankers have supported this step, describing Abul-Ayoun as a highly qualified candidate with a “progressive” attitude.
The cabinet shuffle also signals the marginalization of Economy and Foreign Trade Minister Youssef Boutros Ghali, who had spearheaded Egypt’s economic reform program since the mid-1980s. He is, however, expected to retain his position as Foreign Trade Minster.
The increasing responsibility of the Central Bank comes at a time when Egypt’s economy is facing severe challenges. The new currency regime, introduced in August, is being tested by the sharp drop in tourism since the events of September 11.
Officials forecast a 30 to 50 percent decline in tourism, a sector that generated roughly $4.3 billion in foreign currency revenues last year. Other areas of the economy have also been affected by global events. Transport revenues are projected to fall by $433 million in the air and maritime sectors, with the Suez Canal alone experiencing a loss of $184 million.
The government is considering swift and aggressive action to mitigate this economic fallout, which includes granting an interest-free loan of $24 million per month to tourism companies over the next five months. In addition, Egypt Air has slashed ticket prices for domestic flights by 40 percent and reduced private airlines’ debt by 50 percent to avoid layoffs. In the longer term, the government intends to inject $10 billion into the industrial sector during a 10-year infrastructure modernization program.
The international community has also recognized the plight of Egypt’s economy, and appears prepared to respond in a generous manner. The African Development Bank will offer loans worth $500 million, and the European Union will provide $237 million to promote Egypt’s industrial upgrade, trade systems, human resources, and financial sector reform. Moreover, US Ambassador to Cairo David Welch recently announced a $100-million short-term aid package to support Egypt’s 2001 budget.
Recent evidence of financial distress further underscores the delicate social balance within Egyptian society. The population’s low purchasing power—per capita income is around $1,390—sporadically causes social unrest, which the leadership seeks to avoid at any cost. Since September 11, Egypt has cracked down on opposition forces by arresting roughly 260 suspected Muslim militants. History shows an inverse relationship between Egypt’s economic well-being and respect for human rights, and recent events are no exception to this pattern. — (menareport.com)
© 2001 Mena Report (www.menareport.com)
