As the man pushing the Arab world’s most populous nation, of 78.9 million, from a bloated, inefficient, state-dominated economy towards a dynamic, private-sector driven one, Youssef Boutros Ghali faces the inevitable tough choices.
With official unemployment running at 10% and a fifth of Egyptians living in poverty, he is pushing ahead with bold fiscal reforms. These include cutting fuel subsidies and pledging to cut the budget deficit by at least 1% a year.
But the 55-year-old economist is being helped along by a simple fact – Egypt’s economy is growing at over 5% for the first time since 2000. “With a strong rate of growth, I can trim the deficit while still improving standard of living,” he tells Emerging Markets.
The IMF has praised the country’s increasingly robust macroeconomic framework, efforts to control inflation, privatization and banking reforms. Egypt’s credit rating is stable at one notch below investment grade and at around $60 billion capitalization; its stock market is the biggest in the Arab world.
Boutros Ghali is aiming for at least 6% growth a year, starting this year. In the long run, he says, strong growth will deliver more benefits to the majority of Egyptians than government spending will. He aims to target spending more effectively to provide healthcare and income support to the poorest. Public spending on roads, hospitals and transport will be shared with the private sector through public-private partnerships.
His crowning achievement this year was to introduce a new tax law, which streamlined corporate and individual taxes and trusted the Egyptian taxpayer with self-assessment. Even though tax rates have been lowered and the exemption rate for low-income households increased, the number of tax returns increased by 1.2 million, to 3.6 million.
“We are done changing the mindset of the tax authority and the way they look at the taxpayer,” he tells Emerging Markets. A mass awareness campaign “changed the atmosphere from one of suspicion to one of confidence”.
This year also saw the settlement of a third of non-performing loans in the banking sector, preparing Egypt’s state-owned banks for sale. The sale of Alexandria bank, the fourth largest commercial bank, should be concluded by November.
Investors have voted with their dollars. Egypt’s stock market rose by 125% during 2005, and although it fell sharply in February, falling almost 20%, the correction was less severe than on other Middle Eastern bourses. Things have since started to improve, and Egypt achieved net foreign direct investment inflows of $4.6 billion during the last financial year, and net portfolio inflows of $2.8 billion.
Boutros Ghali, a graduate of the Massachusetts Institute of Technology, was a professor of economics at the American University of Cairo until the early 1990s. A scion of a Coptic Christian family that has produced one Egyptian prime minister and a secretary-general of the UN, his first ministerial portfolio was International Cooperation in 1993. He later served as economy minister, becoming finance minister in July 2004. —Maria Ahmed