A STUDY OF THE MAJOR CONSTRAINTS ON EGYPTIAN ECONOMIC GROWTH DURING THE PERIOD 1998-2008: Inflation rates

A STUDY OF THE MAJOR CONSTRAINTS ON EGYPTIAN ECONOMIC GROWTH DURING THE PERIOD 1998-2008: Inflation ratesThat was a result of a successful macroeconomic management of the policies controlling inflation. The figure shows that Malaysia’s ratio of the current account balance to the GDP has been higher than that of Egypt during all the mentioned period, which was a major support to its managing macroeconomic imbalances.
The current account has been in surplus since 1998 and net exports have been positive since 1996. The loan-to-deposit ratio in Egypt has been lower than Malaysia. Lending to state owned enterprises (SOEs) remains high for state-owned banks compared to private banks: 15.2% versus 2% as of June 2006, which affects the banks role as an efficient financial intermediation.
Egypt’s education index in the year 2005 was 0.732, while Malaysia’s was 0.83. The adult literacy rate (aged 15 and above) in the year 2007 in Egypt was 66.4% versus 91.9 in Malaysia in the same year. The average percentage out of the total government expenditure allocated to education during the period in Egypt was 12.6 versus 25.2 in Malaysia.
These data highlights the continuing problem of low education in Egypt that contributes significantly into the value of the education index. According to the data of Egypt’s human development report 2008; 14.7% of children in Egypt between the ages of 6 and 18 have never enrolled in basic education or have dropped out of school, amounting to over three million children that have not gained basic literacy and numeracy skills.
Analyzing Egypt’s growth performance during the period 1998-2008 and trends we divide the period into three intervals. The first interval from 1998-2002 witnessed a decline of the GDP growth rate as a result of the impact of the financial crisis on some of the Egypt’s main revenue sources. The monetary policies undertaken during that period resulted in the following: foreign exchange imbalances, hard currency shortages, foreign reserves decline and increased budget deficit. The budget deficit was financed by banking system thus transferring the problem to the business sector and causing severe liquidity problem. The second interval from 2002-2008, at which GDP growth rate increased. The period witnessed increased in inflation rates, decline in Domestic credit to the private sector’s share of GDP which reflected financial sector inefficiencies, but at the same time Egypt witnessed a rise in some of its major revenues; mainly current account surplus (as a percent of GDP) that have allowed Egypt to build up strong foreign currency reserves, high inflow of foreign capital, and an increase in the value of industrial investments. The third interval is from 2008-2009; this interval witnessed a sharp drop in the foreign resources, with a rising level of inflation and lower values of most of the country’s major revenues.

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