Measuring the Degree of Central Bank Independence in Egypt

The past few years have witnessed a trend of increased delegation of authority to central banks. Increasing central bank independence is a recommended strategy for governments to establish a credible commitment to price stability as the final objective of the monetary authority, even at the cost of other objectives that may be more appealing to the political authorities. Existing literature on measuring central bank independence focuses on developed countries where quantifying the independence of central banks is easier, since quantifying the legal charter is sufficient to reflect the degree of central bank independence. However, in developing countries this task is thorny as quantifying the legal charter is often insufficient, since laws are often incomplete, ambiguous, or simply not respected. Thus, quantifying other indicators that reflect actual practice is required to capture any divergence between legal and actual practices. This paper attempts to quantify the degree of independence in the central bank of Egypt (CBE), from both a legal and behavioural context, since its establishment in 1961 until 2004. The study uses four indices in line with the work of Jacome (2001), Cukierman, et al. (1992), and Cukierman and Webb (1995), where each index is designed in such a way to capture a somewhat different aspect of independence. This study captures the discrepancies between the degree of independence conferred to the CBE by law and actual practice. The empirical findings of this paper offers insights about the direction of efforts that should be made to enhance central bank independence which is the key to achieving price stability and the stability of the financial system in general.Central bank independence, Central Bank of Egypt, price stability, central bank credibility, indices of central bank independence, monetary policy

Inward FDI in Egypt and its policy context

Egypt, starting from the second half of the first decade of the 21st century, has begun to realize its potential as an important recipient of foreign direct investment (FDI) among developing economies. Having received only US$500 million of inward FDI (IFDI), amounting to 0.5$ 9.4 billion (approximately 5.7% of GDP), in 2008. While investment in oil and gas accounted for a large share of IFDI (over half in 2006-2009), the remainder is fairly well diversified. Developed economies account for three-quarters of Egypt's IFDI, but the share of emerging markets has risen recently. Largely because of the global financial crisis, inflows dropped in 2009, by 30%. IFDI is likely to be adversely affected in 2011 following the political turbulence associated with the January 25 Revolution. However, this democratic transformation carries the seeds of genuine political stability based on effective institutions and the rule of law, which would encourage long-term domestic and foreign investment

Does the Budget Deficit Crowd-Out Private Credit From the Banking Sector? The Case of Egypt

Driven by the observed growing budget deficit and the heavy reliance on debtfinancing from the banking sector, this study sets to test the lazy banking hypothesis for Egypt. According to this hypothesis, government borrowing crowds out private investment through its dampening effect on private credit. The study estimates a VAR model using quarterly data spanning for almost four decades. The estimated model has unearthed a number of interesting results. As the government issues more debt instruments to finance its deficit, banks shift their portfolio away from risky private loans and opt for lazy behavior characterized by a shrinking overall credit tilted more and more toward government debt-instruments. This behavior not only limits their exposure to the private sector, hence reducing private investment, but also adversely affects investment and hence overall growth potential. In addition, evidence shows that output growth positively impacts the willingness of the banking sector to extend more credit to both the government and the private sector. Finally, and consistent with the lazy bank model, impulse response functions show that the effect of a government borrowing shock is contractionary (as opposed to the effect of private credit shock which is slightly expansionary) with regard to the overall banking sector credi

A multi-level analysis of public spending, growth and poverty reduction in Egypt:

"Egypt is a lower middle-income country with a per capita gross domestic product (GDP) in 2003 of US$3,949 measured in international dollars, or purchasing power parity (World Bank 2005a). In the decade from 1975 to 1985, Egypt enjoyed rapid economic growth... however... Egypt still lags behind many middle-income countries in key social indicators. Further reforms are necessary to reduce poverty, especially if Egypt is to achieve the United Nations' Millennium Development Goal (MDG) of halving the number of poor between 1990 and 2015. Government expenditures are an important means of promoting economic growth, reducing poverty, and improving income distribution... The overarching objective of this report is to use a multi-level analysis approach to assess both the effects of various government expenditures on growth and poverty reduction and the trade-offs between these two goals in order to determine policy options toward the achievement of the MDGs. The study involves analyses and simulations at household, sectoral, and regional levels, and at macro-levels using alternative analytical tools. While the analyses at each level were carried out independently, the report provides a synergy of the findings... The report concludes with a synthesis of the different levels of analysis." Authors' AbstractPublic investments, economic growth, Poverty reduction, Social indicators, Income distribution, Millennium Development Goals,

On the guidelines of good planning : The case of the Arab region

The paper uses a structured database of national planning that ESCWA is compiling to identify the well-known and lesser-known features of development planning in the Arab region. The paper first explores international best practices and reflects on country-specific context to develop a typology of good planning criteria for the Arab region. Based on this typology, the paper offers preliminary stylized facts about planning and compares individual planning initiatives across the region. Above all, the findings indicate the region is suffering with the following difficulties: (1) a lack of structure among individual planning documents, (2) a weak relation to international frameworks, (3) the paucity of specific measurable indicators that would help to effectively monitor achievements, (4) many countries did not publish any planning documents targeting the long-term and medium-term development of their whole economy at all or (5) did not make them readily available on-line, which points towards insufficient transparency and impaired participation. Finally, the paper envisions a way forward for integrative planning in the Arab region while linking it to the 2030 Agenda

Inward and Outward FDI Country Profiles, Second Edition

This second edition contains a series of 77 standardized country profiles dealing with the inward and outward foreign direct investment (FDI) performance of 40 economies. The profiles have been peer-reviewed by a global network of experts. The publication is intended to contribute to the analysis of trends in foreign direct investment and policy issues related to them. More specifically, the individual profiles discuss FDI trends and developments (country-level developments, the corporate players); effects of the recent global crises; and the policy scene. Each profile contains a standard set of tables, including on FDI stocks and flows, sectoral and geographical FDI distributions, the largest M&As and greenfield investments, the principal foreign affiliates (for inward FDI), and the principal multinational enterprises (for outward FDI). The standardized template used to produce the profiles allows cross-country comparisons. The volume is meant to be a reference tool for anyone interested in foreign direct investment

Calendar anomolies and stock market volatility in selected Arab stock exchanges

While seasonal effects for both advanced and emerging markets have been investigated extensively in mean and variance equations, Arab region asset markets have received much less attention. The objective of this article is to fill this gap in the literature by investigating the day-of-the-week effect in 12 major Arab stock markets using Arab Monetary Fund (AMF) daily index returns from May 2002 to December 2005. Our estimation strategy utilizes Autoregressive (AR) and Generalized Autoregressive Conditional Heteroscedastic (GARCH)-type specifications to allow for a time-varying variance. Among the most important results of this article are, first, is one-third of these markets exhibit significant day-of-the-week effect in returns. Second, two-third of these markets exhibit significant day-of-the-week effect on volatility. Third, most of these day-of-the-week effects are focused within the beginning and the end of the trading week. Finally, the existence of a significant risk premium was confirmed in five of the 12 studied markets.

A Multi-level Analysis of Public Spending, Growth and Poverty Reduction in Egypt

The overarching objective of this report is to use a multi-level analysis approach to assess the effects of various government spending on growth and poverty reduction and their trade-offs between these two goals and to offer future policy options to achieve the Millennium Development Goals (MDGs). The study involves analyses and simulations at the different levels: household, sector/region as well as macro levels. Different analytical tools are used at the different levels. Analyses at the different levels are initially executed independently, but final synergy is drawn through an integrated macro-micro framework. This new approach has enabled us to gain new knowledge as well as new policy insights. The study confirmed previous studies that universal subsidy is inefficient and usually achieves its intended goal at a much higher cost. Targeted approach is much preferred. If a well-targeted program is designed, more poverty reduction and much better income distribution can be obtained. Moreover, saved government resources can be used for productive investments in human capitals, infrastructure, and agricultural technology that would have long terms impact on growth and poverty reduction. Among all types of targeted programs, direct income transfer deserves a special attention. Aged, women, children and rural population are also special groups for targeting as they account for the majority of poor. In order to achieve the maximized growth and poverty reduction impact, public investment needs to be better prioritized. Investing in human capital and infrastructure, particularly in rural Egypt, offers the highest return in terms of both growth and poverty reduction. This is conformed by all levels of analyses: household, regional and macro levels: In terms of regional priorities, investment in Upper Egypt would lead to largest poverty reduction as poor are increasingly concentrated in the region. Investing in agriculture is potentially pro-poor and can contribute to long term national food security and economic growth. But the current trade policy that isolates domestic market from the international one leads to lower returns to these investments, particularly in terms of rural income and rural poverty reduction. Most of the benefits from agricultural investment under an autarky economy are reaped by urban consumers and majority of rural population may suffer and they account for majority for Egyptian poor population. In summary, investing in agriculture and in rural areas is a must to lift rural poor out of poverty, but free trade in agriculture is a pre-condition for this to happen