Beginning in 1952 when Colonel Gamel Abdel Nasser deposed the king and established a new regime led mainly by military officers, Egypt's economic system undertook a new form of "Arab socialism" that placed an emphasis on governmental direction of the economy (Sodaro, 2004). These policies emphasize the state's responsibility for guiding the economy and were executed in tandem with strong authoritarian government. With the collapse of the Soviet Union, Egypt underwent a gradual but ongoing transformation which is reflected in its macroeconomic policies on both the fiscal and monetary levels. This essay will explore current policies and then present recommendations as to how fiscal and monetary policy in Egypt can be improved to foster ongoing economic development.
Panizza (2001) has suggested that one of the major macroeconomic problems faced by Egypt in the 1990s despite growth was the presence of liability dollarization and pass-through form exchange rate to prices which limited the country's ability to conduct an independent monetary policy. It also failed to allow for necessary exchange rate flexibility. Panizza (2001) also asserted that throughout the 1990s, Egyptian fiscal policy tended to be pro-cyclical which mandates that some degree of monetary independence would be necessary for output stabilization. Panizza (2001) called for constructing a macroeconomic policy framework in Egypt that would allow the development of countercyclical fiscal and monetary policies.
With this in mind, Oxford Analytica (2006) commented that the Egyptian government undertook a reform program to enhance budgetary transparency. This included publishing the national budget and developing a single Treasury account which would close down some 48,000 separate government accounts. This consolidation was seen as helping to enhance transparency of government operations while improving the management of funds and debts. Working with the ...