ADB continues participation in development
CAIRO: Egypt has been awarded a loan of $500 million (LE 4.2 billion) from the African Development Bank (ADB), which will be used to support the country s structural and financial reform program, also known as the Financial Sector Reform Program.
The program, launched in September 2006, constitutes part of a reform agenda launched by the government (specifically the Ministry of Investment and the Central Bank of Egypt), with the help of ADB, the World Bank and USAID, covering a two-year period. The estimated cost of the program is LE 50 billion ($8.7 billion). The government plans to finance it through a combination of privatization proceeds, budget support grants and loans, debt instruments, and direct fiscal resources.
In recent years, the government has come to realize that the speedy privatization process in the banking, and its related sectors, is not enough to encourage and drive development and growth in the country. The fact of the matter remains that the financial sector continues to be weighed down by slow, poor, faulty, and sometimes corrupt policies and regulations.
In order to eradicate these obstacles, the program was launched with four major goals in mind: the introduction of a comprehensive and transparent monetary policy framework; improving the functioning of the Foreign Exchange Market; implementing banking sector reform; and strengthening the non-bank financial sector.
Through the program, the government, with the assistance of its donors, plans to develop a market-based, competitive and reliable financial system, replacing the outdated, obstacle-wrought system that is currently in place.
The program also aims to enhance the efficiency of financial intermediation and risk management, which the parties involved believe will contribute to building strong banking and non-bank financial sectors. This will be accomplished through structural and financial reforms, all of which will help Egypt speed up economic growth and development in the long run.
According to an official statement made by ADB, the loan, in the form of a development budget support loan, will be used to support activities specifically aimed at increasing private sector participation in the financial sector, implementing financial, institutional and operational restructuring of state-owned banks and strengthening the regulatory and supervisory capabilities of financial sector regulatory agencies.
It will also help restructure the insurance industry and reduce the state’s dominance in the sector through privatization and expansion of the capital market.
This is not the first time that ADB, which began operating in Egypt as far back as 1974, has participated on the frontlines of development in the country. To date, its commitments in the country stand at $2.2 billion (LE 12.65 billion) in 48 operations.
Most recently, in 2005, the bank signed a loan agreement in the amount of 176 million euros with the government to finance the energy sector, specifically the El Kureimat Combined Cycle Power Plant Project in Egypt.
The project involves the construction of a 750 MW combine cycle power plant in the existing El Kureimat Power Station to meet in part the electricity demand in the short and medium term and is expected to improve the provision of energy at minimum cost to the various sectors to promote economic growth and improve the population’s standard of living.
Also in 2005, ADB approved a loan of $200 (LE 1.1 billion) million to the National Bank of Egypt (NBE) to finance the Small and Medium Enterprises Support Project. The project comprises a $200 million (LE 1.1 billion) line of credit and was launched to support the government in their efforts to promote economic growth and poverty alleviation in Egypt through the development of SMEs, which represent more than 97 percent of the country’s private sector companies in the non-agricultural sector.
More than 200 SMEs in the manufacturing, tourism, construction and services sectors were expected to benefit from the project.
