Country Report Egypt Egypt at a glance: 2005-06 OVERVIEW In July the president, Hosni Mubarak, finally moved to address long-standing popular disquiet with the government of Atef Obeid by reshuffling the cabinet. The government of the new prime minister, Ahmed Nazif, faces a number of testing economic challenges, primarily arresting the deterioration in public finances, tackling rapidly rising inflation and raising extremely low business confidence. The economic team appointed to the new cabinet, comprising well-regarded economic liberals, would appear to have the expertise to address these problems. It has embarked on its task with vigour and imagination, outlining a far-reaching programme for reform, which includes slashing customs duties and proposing sharp reductions in income and corporate taxes. Crucially, the president has so far identified himself closely with the reform programme. However, socially unpopular measures!such as accelerating privatisation or rationalising Egypt’s costly subsidies programme!that carry a short-term social cost will prove a sterner test of the president’s resolve. Meanwhile, any liberalisation in the political sphere will be cautious and is unlikely to significantly diminish the overwhelming dominance of the state. Key changes from last month Political outlook • The looming presidential elections have galvanised political activists in Egypt who, in an unusually bold petition, have demanded limits on the number of terms a president can serve and direct presidential elections. However, the president has said that economic reform, rather than political liberalisation, is the government’s priority. Economic policy outlook • The new cabinet has unveiled a far-reaching programme of economic reform. It will require continuous presidential support to succeed. Economic forecast • The Economist Intelligence Unit has raised its forecasts for economic growth in fiscal 2005 (July 1st 2004-June 30th 2005) and fiscal 2006 to 3.5% and 4.7% respectively to reflect our expectation of strengthening business and consumer confidence. November 2004 The Economist Intelligence Unit 15 Regent St, London SW1Y 4LR United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For over 50 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. 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Egypt 1 Contents Egypt 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2005-06 7 Political outlook 8 Economic policy outlook 10 Economic forecast 13 The political scene 17 Economic policy 28 The domestic economy 31 Oil and gas 32 Financial and other services 36 Foreign trade and payments List of tables 10 International assumptions summary 12 Forecast summary 18 New tariff structure 20 Personal income tax rates 22 Budget sector fiscal outturn 29 Inflation: IMF data 30 Inflation: national data 30 Domestic credit 31 Money supply 32 Hydrocarbons production 33 Tourism 34 Tourism arrivals 37 Quarterly current account 38 Quarterly capital account 38 Foreign reserves Country Report November 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 2 Egypt List of figures 13 Gross domestic product 13 Consumer price inflation 27 Exchange rate 36 Hermes Index Country Report November 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 Egypt 3 Egypt November 2004 Summary Outlook for 2005-06 In July the president, Hosni Mubarak, finally moved to address long-standing popular disquiet with the government of Atef Obeid by reshuffling the cabinet. The government of the new prime minister, Ahmed Nazif, faces a number of testing economic challenges, primarily arresting the deterioration in public finances, tackling rapidly rising inflation and raising extremely low business confidence. The economic team appointed to the new cabinet, comprising well- regarded economic liberals, would appear to have the expertise to address these problems. It has embarked on its task with vigour and imagination outlining a far-reaching programme for reform, which includes slashing customs duties and proposing sharp reductions in income and corporate taxes. Crucially, the president has so far identified himself closely with the reform programme. However, socially unpopular measures!such as accelerating privatisation or rationalising Egypt’s costly subsidies programme!that carry a short-term social cost will prove a sterner test of the president’s resolve. Meanwhile, any liberalisation in the political sphere will be cautious and is unlikely to significantly diminish the overwhelming dominance of the state. The political scene Mr Mubarak has made clear that economic reform, rather than political liberal- isation, is his priority. Speculation has mounted that he will be succeeded by his son, Gamal. Opposition activists have demanded direct elections and curbs on the number of terms a president can serve. Bombings of tourist facilities in Sinai, which killed 34 people, marked the first such attacks in seven years. Economic policy The new cabinet has unveiled a far-reaching and broad-ranging programme of economic reform. This includes the reduction of customs duties and income taxes, the reinvigoration of privatisation, reform of the banking sector, the appointment of younger, reformist-leaning figures to head key government departments and the overhaul of monetary policy. The domestic economy Firms saw economic growth strengthen in 2004. Inflation has shown signs of easing. Lending to the private sector has continued to fall as a proportion of total credit extended. Tourist arrivals rose strongly in January-July. There was only a small downturn in arrivals following the Sinai bombings. Foreign trade and payments The current-account surplus widened in April-June. The surplus was more than offset by the capital-account deficit, as strong capital outflows persisted. At mid- 2004 foreign reserves covered a comfortable eight months of imports. Editors: Ben Faulks (editor); Keren Uziyel (consulting editor) Editorial closing date: November 14th 2004 All queries: Tel: (44.20) 7830 1007 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report November 2004 www.eiu.com © The Economist Intelligence Unit Limited 2004 4 Egypt Political structure Official name Arab Republic of Egypt Legal system Based on the constitution of 1971 National legislature Unicameral Majlis al-Shaab (People’s Assembly) of 444 directly elected members and ten additional members nominated by the president. Deputies serve for a five-year term. All candidates contesting the elections now run as individuals. The president may dissolve the Assembly only if he gains the support of the people in a referendum. The National Democratic Party has a decisive majority in the Assembly Electoral system Universal direct suffrage National elections Next elections due by October 2005 (presidential) and October-November 2005 (legislative) Head of state President, nominated by a two-thirds majority of the Assembly and elected by referendum. Currently Hosni Mubarak, who was re-elected for a fourth six-year term in 1999 National government Council of Ministers headed by the prime minister. The president is responsible for appointing and dismissing ministers. The Assembly can require a minister to resign if it passes a motion of no confidence. Should a motion of no confidence in the prime minister be passed against the president’s