Wednesday, March 12, 2008

Government subsidising bakeries in Egypt

It looks like Mubarak faces a new opposition- it's the economy.

What does the IMF say?- Egypt: Reforms Trigger Economic Growth
With Egypt's labor force growing rapidly, sustained growth that produces jobs will be essential. This will require sustained higher investment. Structural reforms therefore need to continue to tackle constraints on business development, such as inadequate infrastructure, red tape, poor public service delivery, and the scarcity of skilled labor.

To improve access to finance, particularly for smaller firms, the authorities aim to rapidly complete the bank recapitalization and restructuring program and further improve banking supervision. Complementary regulatory and judicial reforms—such as setting up specialized economic courts and enhancing the role of the private sector-led credit bureau—should help improve contract enforcement and creditor protection. These steps will facilitate bank lending to smaller enterprises.

The authorities have also started to tackle the underpricing of energy. They hiked diesel prices in mid-2004; further adjusted retail prices in mid-2006; and, in late 2007, launched a three-year program to phase out most industrial energy subsidies.

However, prices for most energy products are still far below international prices. This distortion could attract investment into sectors where Egypt does not have a long-run comparative advantage. It also encourages levels of energy consumption that impose high environmental costs and uses up public funds that could be spent more productively, for example on education or infrastructure.

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