New economic laws behind shift from public to private sector
CAIRO: According to Minister of Finance Youssef Boutros Ghali, the private sector’s contribution to the gross domestic product (GDP) has risen from 30 percent to 80 percent over the past 15 years.
In an official statement published by the ministry, Ghali stated that the country’s growth rate has risen from 3.5 percent to 6.5 percent due to a shift in the economic conditions in the country, including the facilities and discounts that have been offered by the new economic laws set in place and the new tax law, spearheaded by the 50 percent cut in taxes.
The minister was also quoted as saying to a Japanese delegation, headed by the Japanese deputy state minister for economic and financial services (which is currently in Egypt), that the tax base has soared despite tax cuts. He also stated that the real target of the ministry is to curb the budget deficit, which has been projected by the country’s annual economic report to be 9.2 percent, largely due to big subsidy costs and high oil prices, according to the report.
The jump in private sector contributions to the GDP has been achieved due to the continuity of economic reform that the country began 15 years ago, stated Ghali. The effects of privatization have also contributed to the private sector’s involvement in GDP growth.
The government has managed to liberate foreign exchange rates and to determine interest rates, said Ghali, while noting that while public sector participation had once been an overwhelming 70 percent, for the most part, it has been replaced by the private sector, whose performance has contributed 80 percent of the country’s GDP.
Although private sector growth was negatively affected by the economic slowdown during the early years of the millennium, the growth of consumption demand in 2003-04 (which has carried into 2004-05) is owed mainly to a stronger private sector, as public sector consumption weakened. In real terms, total consumption is almost exclusively driven by private consumption demand, according to a report on the Egyptian economy, published by the Ministry of Finance. Furthermore, the macro-economy will be more favorable to private sector-led growth in 2005. As a result, private sector growth will dominate the uptake in consumption demand, according to the report.
The ways in which the revenues from privatization in the state budget have been used came into question earlier this month, when a number of parliament members began to question their allocation following reports that stated the figures were misrepresented.
Addressing such concerns, the minister has stated that in 2005-06, the state budget listed LE 6.42 billion as revenues from assets derived from the sale of Egypt Telecommunications shares.
Ghali also said that privatization, which began in 1996, has paved the way for the sale of a number of state-owned assets to banks or other parties, thus not necessarily fully owned by the government as represented by the Ministry of Finance. Ghali said that in some cases, the companies might be fully state-owned or owned by other public sector companies, such as banks, in which case the revenue from the sale to the treasury is nil because the owner is a different entity, he stated.
As of 2005-06, the total collection from privatization will be listed in the budget and then re-allocated (as was the case with oil funding), in a collective government effort to be transparent.
Ghali also stated that the reason a portion of sales assets was being poured into the state budget from privatization is due to the fact that the government, as capital owner of companies, has been overburdened with financing the poor performance of such companies in order to be able to put them on the market for sale.
