Stabilization and Adjustment in Egypt
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Stabilization and Adjustment in Egypt

Reform or De-Industrialization

Gouda Abdel-Khalek

This book studies the impact of Egypt’s Economic Reform and Structural Adjustment Programme (ERSAP), the effects of which have been of great interest to the international community. Organizations such as the World Bank and the IMF uphold the programme as a success story and example for other countries to follow. ERSAP also has its critics, however, who resent its tendency to downsize government and fear possible negative effects on growth and development. The author discusses these concerns along with those regarding the possible negative social effects of ERSAP.
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Chapter 3: The Macroeconomic Effects of ERSAP: Structural Reform or Dutch Disease?

Gouda Abdel-Khalek


INTRODUCTION In this part of the study, we shall examine the most important effects of ERSAP at the macroeconomic level. Some aspects of the economic impact of ERSAP were discussed before, dealing with effects on the balance of payments, the budget deficit, inflation and output and employment (Korayem, 1993). Special emphasis will be placed here on particular elements of the programme which we deem critical for studying the impact of ERSAP on the prospects of industrialization in Egypt. Foremost among these are trade policy reform, foreign exchange reform and financial liberalization. Monetary and fiscal policies under the programme will only be dealt with in the context of examining the other elements just mentioned. Some guiding principles will be adopted as criteria for judging the effects of ERSAP at the macroeconomic level. These include growth, equity, and employment generation (Abdel-Khalek, 1994). In addition, the main structural features of the Egyptian economy will be highlighted in order to serve as a background for determining the likely effects of ERSAP. Three such features deserve attention, namely: the large food deficit, heavy reliance on imported intermediates and the importance of external shocks. EXTERNAL SHOCKS – NATURE AND MAGNITUDE As a background to the analysis of the impact of ERSAP, it is necessary to examine the external shocks which impacted on the Egyptian economy in the second part of the 1980s and the policy responses to these shocks. In this context, it is important to emphasize that the Egyptian economy has become rather...

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