Egypt - Central Bank Economy Politics Government

The economy of Egypt was a highly centralized planned economy focused on import substitution under President Gamal Abdel Nasser. In the 1990s, a series of International Monetary Fund arrangements, coupled with massive external debt relief resulting from Egypt's participation in the Gulf War coalition, helped Egypt improve its macroeconomic performance. Since 2000, the pace of structural reforms, including fiscal, monetary policies, taxation, privatization and new business legislations, helped Egypt move towards a more market-oriented economy and prompted increased foreign investment. The reforms and policies have strengthened macroeconomic annual growth results which averaged 8% annually between 2004 and 2009 but the government largely failed to equitably share the wealth and the benefits of growth have failed to trickle down to improve economic conditions for the broader population, especially with the growing problem of unemployment and underemployment. After the 2011 revolution Egypt's foreign exchange reserves fell from $36 billion in December 2010 to only $16.3 billion in January 2012, also in February 2012 Standard & Poor's rating agency lowered the Egypt's credit rating from B+ to B in the long term.[12] In 2013, S&P lowered Egypt's long-term credit rating from B- to CCC+, and its short-term rating from B to C on worries about the country's ability to meet its financial targets and maintain social peace more than two years after President Hosni Mubarak was overthrown in an uprising, ushering in a new era.

Egypt will reduce spending on fuel subsidies by nearly 43 percent in the 2016/17 budget due mainly to lower global energy costs, officials said on Saturday.

Finance Minister Amr al-Garhy told a news conference state energy subsidies would fall to 35 billion Egyptian pounds ($3.94 billion) from about 61 billion pounds in the 2015/16 budget.

Consumers reacted angrily when the government cut spending on energy subsidies in mid-2014, a measure that caused domestic prices of natural gas, diesel and other fuels to rise by as much as 78 percent. They were reduced again in the current budget.

However, the deputy finance minister for fiscal policy said a decline in international oil prices would account for the bulk of the reduced subsidy spending in the next fiscal year.

"Most of the savings in petroleum product subsidies will be a result of lower global oil prices," the deputy minister, Ahmed Kojak, told Reuters.

"There is also a saving of about 8-10 billion (Egyptian) pounds that will come as a result of new reforms that the Petroleum Ministry will outline in agreement with us," he added.

Egypt is struggling to revive its economy since a popular uprising in 2011 shook investor confidence and drove tourists and foreign investors away. Its foreign currency reserves stood at $16.56 billion in March, down from about $36 billion in 2011.

The government has been trying to cut subsidies, which eat up a big chunk of the budget.

President Abdel Fattah al-Sisi has approved a draft state budget that reduces the budget deficit in the 2016/17 fiscal year to 9.8 percent of gross domestic product (GDP) from the current 11.5 percent.

Egypt and Saudi Arabia signed an agreement late on Saturday to set up a 60 billion Saudi riyal investment fund among other investment agreements including an economic free-zone to develop Egypt's Sinai region, Egyptian state television reported.

The signing of the agreements took place in Egypt's Abdeen palace in the presence of Egypt's President Abdel Fattah al-Sisi and Saudi's King Salman, during a rare 4-day visit to Egypt.

Egypt has struggled to spur economic growth since the 2011 uprising ushered in political instability that scared off tourists and foreign investors, key sources of foreign currency.

Egyptian state TV said the agreement was to establish "a Saudi-Egyptian investment fund with a capital of 60 billion riyals between the Saudi Public Investment Fund and the entities belonging to it and the Egyptian government and the entities that belong to it."

A memorandum of understanding was also signed between the Saudi Public Investment Fund and the Egyptian International Cooperation Ministry to set up an economic free-zone in Sinai. No other details were announced.

The two countries also signed agreements to develop a 2250 Megawatt electricity plant with a cost of $2.2 billion, set up agriculture complexes in Sinai and develop a canal to transfer water, a statement from the Presidency said.

The statement also said that a company was set up to develop 6 square kilometers of the industrial zone around Egypt's Suez Canal worth $3.3 billion, without giving further details.

The investments are part of a change in strategy from Saudi Arabia to focus more on financial support that will also benefit Saudi Arabia with return on investment.

Saudi Arabia, along with other Gulf oil producers, has pumped billions of dollars, including grants, into Egypt's flagging economy since the army toppled President Mohamed Mursi of the Muslim Brotherhood in 2013 after mass protests against his rule.

Some of the projects announced on Saturday include private sector investments. Last week the deputy head of the Saudi-Egyptian Business Council told Reuters that Saudi businessmen are investing around $4 billion in projects in Egypt and have already deposited 10 percent of that sum in Egyptian banks.

Egypt is aiming for direct foreign investment of around $8-$10 billion in 2015/16.

On Friday, King Salman announced that a bridge connecting Egypt and Saudi Arabia would be built across the Red Sea. No details were given.

Egypt also signed development agreements with Saudi Arabia worth $590 million, Egyptian International Cooperation Minister Sahar Nasr said on Friday.

She said the agreements, signed with the Saudi finance minister, covered development in the Sinai peninsula, agriculture, housing and a university.

The agreements also include a memorandum of un