Economic Policy of Egypt - Essay Example

Hence, in this case the economic policy of Egypt is taken up for study. Egypt is one of the most populous countries in the Arab world and the country has been undergoing many significant economic and political changes. The government of Egypt has begun the reform movement in the year 1991. The most important reform that the government has done is reducing the taxes and tariffs. The other reforms include making the national budgeting information more transparent and privatization of public enterprises.

The government plans to make the private sector more empowered and hopes that these measures will increase their competitiveness. The essay attempts to highlight the challenges and the opportunities that are created through the new economic policy of the Egypt. Economic indicators show that after Egypt became more vigorously engaged in a process of structural reform to increase the role of private sector, the free market and the international trade in the economy, the country's growth performance has varied from a declining phase in the latter half of the 1980s, to acceleration through much of the 1990s, followed by another declining phase during 1999-2003.

The GDP growth rate of Egypt between the period of 1960 to 2000 is as follows: During the period of 1960 till 1970 the country has low growth and the share of private sector was very low. Though the government had adopted import substitution and had introduced social services, the economic growth of the country did not take off. But the period of 1975 till 1985, the country was enjoying a high growth rate in the GDP levels and this was because of the introduction of the Open door policy and from the business created through the Suez canal.

Between 1986 - 1991 there was a sharp increase in the inflation rates. The rise in inflation during that period was due to the government's expansionary monetary policy to finance the fiscal deficits which was about 15% of the GDP during that period. Also during this period the government adopted the fixed exchange rate policy which resulted in a very flourishing black market. After 1991, the government of Egypt introduced stabilization efforts and the fiscal deficit decreased from 15% to 1.

3 % of GDP and the inflation has returned to single digit values. Also during this period the government adopted the privatization of the state enterprises and also free exchange rate mechanism was introduced. The level of budget surplus of Egypt was -20% in 1991 and there is a huge improvement in the budget surplus to -2% in 2003 because of the combined effect of these policies. According to a study, "between 1999 - 2003, though there was an increase in the budget the country experienced several shocks including the Luxor terrorist attack in 1997, the global financial crisis of 1997-99, and a domestic financial scandal in 1998-99.

All of these events had severe repercussions for Egypt and sent the economy into a decelerating growth phase. The financial scandal, in particular, had a chilling effect on the growth of credit to the private sector. Negative shocks continued for the next few years, as witness the September 11 attack (2001) and the subsequent invasion of Iraq (2003). The Egyptian government reacted to the initial shocks by expansionary fiscal policies (clearing of arrears as a stimulus to the private sector, as well as an increase in public investment in "mega" projects), which resulted in a worsening fiscal stance.

Budget deficits increased from 0.9% of