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Country Study Realizing the Millennium Development Goals through socially inclusive macroeconomic policies Country Study Assessing Development Strategies to Achieve the MDGs in The Arab Republic of Egypt Motaz Khorshid (team leader) Cairo University & Arab council for Graduate Studies and Scientific Research Ahmed Kamaly American University in Cairo Heba El-Laithy Cairo University Sohair Abou El-Enein Institute of National Planning (INP) United Nations Department for Social and Economic Affairs March 2011 i This (unedited) report was elaborated as part of the capacity-development project “Realizing the Millennium Development Goals through socially-inclusive macroeconomic policies”, which was implemented by the Development Policy an Analysis Division of the United Nations Department of Economic and Social Affairs (DPAD/UN-DESA), in close collaboration with the World Bank and the Regional Bureau for Arab States (RBAS). The overall objective of the project was to strengthen the capacity of policymakers to formulate and evaluate socially-inclusive macroeconomic policies aimed at facilitating the achievement of the MDGs through the adaptation of an integrated modelling framework to country-specific conditions. The methodological framework is based on the adaptation of the economy-wide model system, known as Ma quette for MDGs Simulation (MAMS) – a dynamic computable general equilibrium (CGE) model that includes a special module for the “production” of services associated with the Millennium Development Goals (MDGs). It also compromises methodologies at the micro level to identify determinants of MDG achievement, on the one hand, and to quantify effects on poverty and inequality, on the other. The views and opinions expressed herein are those of the authors and do not necessarily reflect those of the United Nations and the World Bank or their member states. © "Realizing the Millennium Development Goals through socially inclusive macroeconomic policies" Project (http://www.un.org/en/development/desa/policy/capacity_building.html). ii CONTENTS 1. Introduction......................................................................................................................... 7 2. Macroeconomic Stance........................................................................................................ 9 2.1. Economic Growth and Reform ............................................................................................ 9 2.2. Fiscal Policy...................................................................................................................... 11 2.3. Monetary Policy................................................................................................................ 12 2.4. Investment......................................................................................................................... 14 2.5. Inflation............................................................................................................................. 15 2.6. Unemployment and Real Wages........................................................................................ 17 2.7. External Sector.................................................................................................................. 18 2.8. Recent Economic Changes ................................................................................................ 19 3. MDG Trends ..................................................................................................................... 21 3.1. Poverty.............................................................................................................................. 21 3.2. Education .......................................................................................................................... 25 3.3. Gender............................................................................................................................... 26 3.4. Health................................................................................................................................ 26 3.5. Environmental Stability..................................................................................................... 28 4. Determinants of the MDGs: a literature review.................................................................. 31 5. Estimation of the SAM and calibration of MAMS for Egypt.............................................. 35 5.1. Introduction....................................................................................................................... 35 5.2. Specific Structural Features of the SAM and MAMS......................................................... 36 5.3. Estimation of the SAM...................................................................................................... 39 5.4. Structural Features of the Egyptian Economy .................................................................... 42 5.5. Structure of GDP............................................................................................................... 42 5.6. Value added matrix ........................................................................................................... 43 5.7. Government account.......................................................................................................... 43 5.8. Balance of Payments ......................................................................................................... 45 5.9. Savings – Investments Balance.......................................................................................... 45 5.10. Pattern of household consumption ..................................................................................... 46 6. Assessing Strategies for achieving MDG for Egypt ........................................................... 47 6.1. Introduction....................................................................................................................... 47 6.2. Assumptions and medium term projections of the reference path....................................... 48 6.3. Market Closure Rules for Egypt ........................................................................................ 51 6.4. Results of the reference Path.............................................................................................. 52 6.5. Evaluating alternative strategies to achieve the MDGs....................................................... 56 6.6. Economy-wide Impact....................................................................................................... 57 6.7. Performance of MDG Indicators........................................................................................ 59 7. Analysis of Micro-simulation Results ................................................................................ 72 7.1. Micro Simulation Methodology......................................................................................... 72 7.2. Employment and Poverty Links......................................................................................... 73 iii 7.3. Micro Simulation Results .................................................................................................. 74 7.4. Reference Path scenario..................................................................................................... 75 7.5. MDG scenarios.................................................................................................................. 76 8. Main Findings and policy recommendations...................................................................... 81 9. References......................................................................................................................... 89 10. Appendices........................................................................................................................ 92 TABLES Table (2.1): Main Macroeconomic Indicators, 1990-2007 ............................................................. 10 Table (2.2): Structure of Tax Receipts, FY2002-FY2007 .............................................................. 11 Table (2.3): Domestic and External Public Debt, FY2001-FY2006 ............................................... 12 Table (2.4): Nominal Exchange Rate, June 2000 – June 2008 ....................................................... 13 Table (3.1): Aggregate poverty measures, 1990/91 – 2008/09 (Percent) ........................................ 23 Table (3.2): Incidence of Poverty Using Different Poverty Lines and the Gini coefficient (in percentage points), 1990-2009 ...................................................................................................... 24 Table (3.3): Growth and redistribution effects on changes in poverty incidence P 0, 1990/91 - 2008/09......................................................................................................................................... 24 Table (3.4): Indicators of the Millennium Development Goals ...................................................... 30 Table (5.1): Sources and Applications of GDP in LE Million, 2006/2007...................................... 43 Table (5.2): Structure of the Value Added in LE million, 2006/2007............................................ 43 Table (5.3) Structure of government revenues and spending, 2006/2007, (LE million and %) ....... 44 Table (5.4): Structure of the Balance of Payments, 2006/2007 (LE million and %)........................ 45 Table (5.5): Structure of savings and investment, 2006/2007
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