Fiscal Policy Responses to the Global Economic Slowdown Collaborative Africa Budget Reform Initiative 5th Annual Seminar: Strengthening Budget Practices in Africa Dakar, Senegal 7-9 April 2009 Fiscal Policy Responses to the Global Economic Slowdown Amgad Hegazy Economist Macro-Fiscal Policy Unit Ministry of Finance Egypt

I. Pre-Crisis Developments and Outcomes CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown I. Pre-Crisis Developments and Outcomes

Robust growth and job creation CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown Robust growth and job creation Sound fiscal consolidation while preserving social balance Strong External balances Prudent and supportive monetary policy conduct by CBE

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown II. Crisis Impact

Real economic activity retreats CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown Real economic activity retreats Expenditure side: investments growth deteriorates, while consumption remains firm Sectorally: both commodity (especially manufacturing ) and services sectors (SCA and tourism) slow notably External sector is hit IMF and other int’l institutions’ forecasts for world growth and trade flows: very pessimistic -> interlinkage to domestic economy - Both current acc (mostly services: SCA and Tourism) and Capital account flows (particularly FDI) feel the brunt of the crisis as global trade flows fall - Trade flows and net exports: affected to a much lesser extent (exports growth falls as external demand from main trade partner economies wanes, while imports growth retracts amid drop in international prices).

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown SCA and Tourism sectors actually recorded negative growth during Q2 alone. Manufacturing weight in GDP is quite high: some 16% in 07/08 and reaches 33% upon adding extractive industries.

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown

Fiscal sector taxes remain relatively unaffected to date, CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown Fiscal sector taxes remain relatively unaffected to date, except corporate activity and taxes on international trade -> Deficit rising slightly

III. Fiscal Policy and Government Response CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown III. Fiscal Policy and Government Response

Objectives of Main Package: CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown Objectives of Main Package: Sustaining growth, boosting domestic demand and employment, maintaining social balance while ensuring medium-term fiscal and debt sustainability Features: Designed to be deficit neutral (fully self –financed) Acceleration of already planned investments in Inv. Plan. Details of Stimulus Package enacted: Investment spending on infrastructure, public utilities (water and sewage projects), port development and support to industrial zones to maintain export competitiveness (expenditure side), customs tariff reductions on intermediate and capital inputs to support manufacturing/production (revenue side) Financing the Stimulus – means and methods List of other complementary measures being adopted (non-quantitative)

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown This distribution has been in agreement with the MOED

Supplementary policy measures (non-quantitative): CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown Supplementary policy measures (non-quantitative): A) Business sector and business environment: a set of structural and administrative measures: - Remove obstacles facing petroleum refinery in free zones. - Empower GAFI to issue licenses to establish companies, and to implement one-stop shops - Facilitate land provision to investors - Extend operations and areas of activity of economic courts (dispute settlement) - Pass additional set of legislation to boost economic regulation: Law governing bankruptcies and conciliation, draft corporate law, law organizing market supervision over non-banking financial transactions - Develop a coherent investment promotion strategy to attract investors and keep FDI at sustainable levels (especially low-risk sectoral projects e.g. infrastructure, logistics, transportation) - Establish a council of government officials and experts to identify ways to enhance competitiveness of the domestic industrial sector - > policies to reduce production costs

Supplementary policy measures (non-quantitative): CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown Supplementary policy measures (non-quantitative): B) Monetary and Banking Sector measures: - CBE to entice banks to lend - > reduce required reserve ratio - Growth in credit to private sector and SMEs to be reviewed, role of companies providing mortgage finance to SMEs - Monetary Authority to adopt policy supporting establishment of private investment funds -> favor L-term borrowing operations through interest rate swaps, and further financing for external trade through implementation of currency swaps (via CBE or Mof)

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown IV. FY 2008/09 Expected Outturns and New Budget Proposal for FY 2009/10

CABRI 5th Annual Seminar: Fiscal Policy Responses to the Global Economic Slowdown