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Country Study 9

Author

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  • Abdel-Khalek, Gouda

Abstract

Since joining the International Monetary Fund in 1945 as an original founding member, Egypt has signed four stabilization agreements with the Fund. These agreements were: a credit facility in May, 1962, which collapsed fairly rapidly; a stand-by arrangement in April 1977; an extended fund facility in July 1978; and the new stabilization package agreed in May, 1987, which is supported by a stand-by credit of SDR 250 million. Some of the most important items in the new programme are the following:A gradual devaluation-cum-unification of the exchange-rate structure, with the establishment of an official free market in foreign exchange; an increase in energy prices; an increase in purchase prices of agricultural commodities; action to reduce the budget deficit to 13 per cent of GDP; an increase in interest rates; and (undisclosed) limits on monetary expansion.This package must be viewed against a dismal background of a stagnant economy, rapidly-rising inflation (estimated unofficially at 30 per cent in mid-1987) and a budget deficit which the author of the following paper, Dr Abdel-Khalek, reports to have been 27 per cent of GDP in 1985-86 - and possibly even higher in 1986-87.The real purpose of this programme, which the IMF was persuaded to moderate considerably from its original demands, was to clear the way for a Paris Club rescheduling. Subsequently, about one-quarter of Egypt's medium and long-term debt of about USD40 billion has been rescheduled over ten years, including a five-year grace period.In the author's judgment, the new package may turn out to be self-defeating, and could well founder through failure to control the budget deficit. This failure would leave behind a legacy of a greatly depreciated currency and excessive interest rates. The author concludes that Egypt 'may soon find itself facing a crisis situation even more difficult than the one which led to the present package'.

Suggested Citation

  • Abdel-Khalek, Gouda, "undated". "Country Study 9," WIDER Working Papers 295392, United Nations University, World Institute for Development Economic Research (UNU-WIDER).
    • Handle: RePEc:ags:widerw:295392
    DOI: 10.22004/ag.econ.295392
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    References listed on IDEAS

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    1. J. J. Polak, 1957. "Monetary Analysis of Income Formation and Payments Problems," IMF Staff Papers, Palgrave Macmillan, vol. 6(1), pages 1-50, November.
    2. Alderman, Harold & von Braun, Joachim, 1984. "The effects of the Egyptian food ration and subsidy system on income distribution and consumption:," Research reports 45, International Food Policy Research Institute (IFPRI).
    3. Bienen, Henry S. & Gersovitz, Mark, 1985. "Economic stabilization, conditionality, and political stability," International Organization, Cambridge University Press, vol. 39(4), pages 729-754, October.
    4. Lance Taylor, 1986. "Stabilization and Growth in Developing Countries: How Sensible People Stand," Working papers 415, Massachusetts Institute of Technology (MIT), Department of Economics.
    5. Ground, Richard Lynn, 1984. "Orthodox adjustment programmes in Latin America: a critical look at the policies of the International Monetary Fund," Revista CEPAL, Naciones Unidas Comisión Económica para América Latina y el Caribe (CEPAL), August.
    6. Katseli, Louka T, 1983. "Devaluation: A Critical Appraisal of the IMF's Policy Prescriptions," American Economic Review, American Economic Association, vol. 73(2), pages 359-363, May.
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