Financial Sector Reforms In Egypt

During the period 1981 to 1991, the different banks, which were owned by the states looked into approximately 80 percent of the financial operations. The banks monopolized the financial segment of the country. This period (1981 to 1991) marked a very slow progress in financial sector reforms in Egypt.
The Egyptian government had set limitations pertaining to nominal rates for lending and deposits. It also exercised its control by deciding as to how much ought to be assigned for a particular project. However, in the year 1991, several financial sector reforms in Egypt were embraced by the government in Egypt.

To be more precise, these reforms, financial, economic and structural were in accordance with the reforms prescribed by the World Bank as well as the IMF or the International Monetary Fund. Financial sector reform in Egypt took place in two phases. The first reform was executed between 1991 to 1996.

Financial sector reforms in Egypt, the first one was characterized by the programs pertaining to stabilization of the macroeconomic indicators. These were orthodox programs assigned by the International Monetary Fund(IMF) as well as World Bank and were propounded with a view of restructuring the capital markets, financial segment and banking segment of the economy.

Financial sector reforms in Egypt-features of the 1st reform:
The reforms comprised decreasing monetary constraints, fiscal deficit. Financial liberalization was also aimed at along with alterations in the foreign exchange markets. There was abolition of control pertaining to exchange rates. With achievements made in the Egyptian currency convertibility, exchange rates in Egypt became stable in the year 1991. Convertibility feature along with a healthy interest rate that encouraged flow of capital. Financial sector reforms in Egypt (first phase) bringing about financial liberalization comprised abolition of interest rate limitations. It was abolished for private as well as the public sector. There was issuance of treasury bills, in an attempt to create markets for various financial assets. The rates of interest for these financial assets were to be estimated as per the demand and supply graph.
Financial sector reforms in Egypt – 2nd phase (features):
The second phase of the reform commenced in the year 1996 and lasted upto 2001. This phase was marked by price liberalization. Embracing liberalization in foreign trade, deregulation as well as privatization were in their nascent forms. It was during this period that Social Development Fund was started. This fund was introduced in order to ease the consequences of reforms. It is reckoned that between the years 1997 to 2000, as much as USD$800 million was spent by the fund for soft loans as well as grants. It is also estimated that approximately 300,000 job opportunities were provided, which were permanent. All efforts were being directed towards an aim, which would allow the private sector to exercise control over 80% of Egypt economy. During that period, measures were being taken so that the state owned companies, banks as well as insurance companies could be privatized.
Bottom line:
Studies reveal that Egypt had no set backs in its economy like currency crisis or credit crunch. However, it was observed that financial reforms in Egypt has taken place. One could also regard these reforms as though the country was trying out new strategies to better the financial sector in the country. One notable point in this regard is that the country has always adopted that extra cautious attitude pertaining to the financial sector, in fact all the sectors of the economy. There are instances, which show us that probably these reforms would have otherwise back fired in other nations or may have been successful as it was in Egypt. In this context, it will not be wrong to mention that even though the banks in Egypt had to cope up with effects of acquisitions and mergers, a pressure of improving quality of services, the government has not acted drastically or in haste. Cost reduction, handling non performing loans, increasing capital adequacy ratio are some of the measures adopted by the Egyptian government. In other words, a wise Egyptian government has manifested all the essential requirements of making financial sector reforms in Egypt a success. So, the implementation of the financial sector reforms in Egypt was done with much caution.

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Last Updated on : 26th June 2013

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