The 23rd Euromoney Egypt conference returned to the country for two days on September 4 and 5, 2018 under the theme of “Resilience and Agility”.
During the conference, Egypt’s Minister of Finance Mohamed Maait offered an overall outlook on Egypt’s economic performance, its plans to grow strong with what he described as a comprehensive economic reform program and the challenges the country has to address for high-yielding and fruitful results.
The main topics that recurred during the minister’s participation in the event were how to overcome Egypt’s debt, the new tax system, the so-called emerging markets (EM) crisis and macroeconomic indicators.
In compliance with the International Monetary Fund’s (IMF) terms, the Egyptian government has been implementing its economic reform program since 2016, with the aim of creating an active and competitive private sector. So far, Egypt has successfully implemented the first phase of the reform by addressing fundamental macroeconomic challenges and restoring stability, Maait said.
How to overcome debt
Maait explained that the growth rate of Egypt’s economy was faster than [the government] expected and that nevertheless the debt is high; however, all parties are working together on bringing it down.
“[The government] has already started working on a new debt strategy and I believe that in the next few weeks, it will be approved by the president and the cabinet,” he revealed.
“This will require several steps, procedures and policies as it is one of [our] biggest challenges. […] This year, the expected revenue is LE989 billion and [Egypt] has to pay a total of LE817 billion to service its debt. There is a lot of work to do in this direction,” the minister emphasized.
What the government can do is make sure the revenues are growing at a faster rate than the expenditures, he added, and ensure that every year it has about 2 percent of primary surplus. The government needs to take measures to make certain that inflation starts declining which can affect the level of the interest rate. All of this can directly contribute to reducing the debt, according to the minister.
The government needs to take measures to make certain that inflation starts declining which can affect the level of the interest rate
Attracting investment through tax policies
Another challenge that has been highlighted by credit rating agency Moody’s is public-private partnerships (PPP). Maait reckoned that Egypt still has a lot to do in order to attract more foreign investments because the ability of the government to spend more on public investment is limited and if the level of growth is to be sustained, more private sector participation is needed.
“I believe Egypt has a challenge in attracting foreign and private investors,” Maait explained. “We now have a better electricity supply, gas supply, investment law and bankruptcy law. [The government] is going to stabilize the custom tax system.
There will be an effective implementation of the recently approved tax law that allows the settlement of tax disputes with taxpayers. Full automation of tax payments and collection of taxes as well as issuing a new law to modernize the tax payment procedures are expected to be concluded this year, the minister added.
“We have to further improve the environment for businesses and this is why I said that our custom tax policies will be stable over the coming years. The infrastructure has to be ready, land allocation has to be better, and the security of the country is improving; all of that can attract foreign investors and also the private sector.”
Although Egypt was late in reforming its financial and monetary situation, Egypt is still able to show resilience
Can Egypt be on the verge of an emerging market (EM) crisis?
Maait excludes this possibility, referring to the global financial crisis of 2008.
“Many banks at the time in the United States and Europe were heavily affected. However, the banking sector in Egypt did not because [the country] was ahead in reforming the banking sector prior to the crisis. So, when the mortgage crisis came, the [local] banking sector showed resilience and was able to overcome and continue,” Maait said.
Although Egypt was late in reforming its financial and monetary situation, Egypt is still able to show resilience, he believes, and credit rating agencies (CRAs) have been either upgrading the country’s rating to positive or stable economic outlook.
Incentives and future initiatives
So far, the government has succeeded in securing energy supplies over the medium-term, implemented multiple steps to improve the business environment such as adopting a new investment law, a new bankruptcy law and a new licensing regime for the manufacturing sector, the minister pointed out.
On top of that, several initiatives are in the pipeline and the government will be working on them during the coming months. This includes an efficient implementation of the new modern recruitment law to enhance competition and increase the private sector’s access to government recruitment and services. Also, a unified customs law will be issued to reduce time and cost of external trade in Egypt and ensure that the ports act as an efficient and competitive trade gateway, Maait said. He added that in the next few months, the government will start to modernize the Egyptian Customs Authority, as the new customs law is being finalized and custom authority procedures are being automated.
A new law was approved to establish a sovereign wealth fund (SWF). Maait highlighted that the aim is to make use of wrongly utilized assets. If used properly, these assets will create a fortune and this money will be reinvested, he explained. The government is hopeful that this fund will encourage more investment activities.