afrol News, 4 December - The International Monetary Fund (IMF) is convinced about the sound economic growth of the Egyptian economy. The developments have been attributed to the "sustained and bold reforms, prudent macroeconomic management and favourable environment."

Egypt has gone beyond registering another year of impressive performance, but also created numbers of jobs. Its estimated 7.1% real GDP in 2006/7 is the highest it had registered in several years.

An IMF mission to the North African country commended the Egyptian authorities' sound macroeconomic management and bold economic reforms.

"Fiscal adjustment and significant achievements in privatization and financial sector reform have increased market confidence and boosted investment, thereby helping to sustain a high pace of economic growth," the mission reported.

However, the mission raised concerns about the government's "high budget deficit, shallow financial intermediation, and remaining bureaucratic barriers to private sector activity." It was not also satisfied that the country's "domestic demand continues to cause inflationary pressures", and warned that "slow trickle-down of the benefits of economic growth could weaken public support for the reform effort."

The Egyptian government's commitment to reduce the fiscal deficit to 3% of GDP by fiscal year 2010/11 was highly welcomed, as this will help further "increase investor confidence, improve the economy's resilience to exogenous shocks, reduce the public debt, and underpin macroeconomic stability."

The IMF directors hailed Egypt's fiscal adjustment achievements last year, which were made possible mainly due to reform of tax administration and public finance management and the reduction of fuel subsidies. Its further plans to reducte fuel subsidies have been welcomed.

Egypt has been advised to control inflation through Increased currency flexibility.

Its current exchange rate level is "broadly in line with economic fundamentals" and that its trade balance is not a threat to financial stability.

The financial institution said by "allowing a greater role for market forces in determining the exchange rate would help to deal with pressures arising from capital inflows and to underpin the move to inflation targeting."

Currency flexibility, which has accelerated this year, is expected to help the central bank tackle inflation.

"Going forward, monetary policy will need to be vigilant in light of continued demand pressures," the IMF noted, advising that plans to adopt inflation targeting "should be introduced after steps are taken to ensure a competitive banking system and a consistent monetary policy framework."

By staff writer

© afrol News

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