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Interest rate policy in Egypt : its role in stabilization and adjustment

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  • Dailami, Mansoor
  • Hinh T. Dinh

Abstract

An appropriate interest rate policy is considered essential to the success of stabilization and adjustment programs that Egypt might undertake. The broad objectives of such a policy would include deregulating credit and investment, raising the interest rate, and developing a"core"short-term debt market to serve as a reference point for market determination of interest rates. And as the government moves away from a regulated environment of controlled credit and regulated investment toward a more liberal system, interest rates will be the prices that guide investment decisions and ensure allocative efficiency. The authors describe some of the structural problems Egypt's economy has faced in the past decade and policy initiatives that the government has undertaken, and review the economy's financial sector. They analyze the role that interest rate policy could play in Egypt's stabilization and adjustment program, particularly how it would affect the outcomes of the important objectives of attracting workers'remittances, encouraging domestic residents to hold deposits in local currency, and increasing investment efficiency. The authors recommend that changes in the level and structure of interest rates be planned in several steps and carried out in conjunction with other adjustment measures, such as reducing the budget deficit, reforming public enterprises, and streamlining public investment.

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Bibliographic Info

Paper provided by The World Bank in its series Policy Research Working Paper Series with number 655.

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Date of creation: 30 Apr 1991
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Handle: RePEc:wbk:wbrwps:655

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Keywords: Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Financial Intermediation; Financial Economics;

References

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  1. Martin Feldstein & Lawrence Summers, 1978. "Inflation, Tax Rules, and the Long Term-Interest Rate," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 9(1), pages 61-110.
  2. Roe, Alan R., 1982. "High interest rates: a new conventional wisdom for development policy? some conclusions from Sri Lankan experience," World Development, Elsevier, vol. 10(3), pages 211-222, March.
  3. Ortiz, Guillermo, 1983. "Currency Substitution in Mexico: The Dollarization Problem," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 15(2), pages 174-85, May.
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Cited by:
  1. Chhibber, Ajay & Dailami, Mansoor, 1990. "Fiscal policy and private investment in developing countries : recent evidence on key selected issues," Policy Research Working Paper Series 559, The World Bank.
  2. Dinh, Hinh T. & Giugale, Marcelo, 1991. "Inflation tax and deficit financing in Egypt," Policy Research Working Paper Series 668, The World Bank.

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