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On Going Research
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Focused Projects
Every year, the Center selects several timely issues that are of chief concern to Egypt's economic reform schedule. Generally, these studies are headed by one or two economists who investigate, develop and produce the final results. Focused projects usually conclude with a presentation in the form of a workshop, distinguished lecture or roundtable discussion and the publication of the study in the ECES Working Paper or Distinguished Lecture series. |
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Reviving the Waqf (Endowment) System in Egypt
This study will discuss ways of reviving and improving the Waqf (endowment) system in Egypt, a longtime source of sustainable development in Islamic and Arab societies and a forerunner of what are currently known as civil society organizations. Although once active in areas such as science, education, services and even entertainment, the Waqf system is no longer the way it used to be. This study will highlight ways of bringing the Waqf system to its past glory in an attempt to make it once again a main pillar of public interest and development. Specifically, the study will address the following questions: (i) Does the current Waqf law, or other laws, allow the establishment of public interest organizations? If yes, what are the required procedures and to what extent these organizations are afforded legal protection? To answer these questions, the study will review the legal framework governing these organizations in Egypt, drawing a comparison with the cases of Turkey and Iran, as well as the laws applied in the UK and the US. Finally, the study will explore the need for introducing a new law or reviving and improving the old Waqf law. Research findings will be published in the working paper series.
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Impact of Phasing out Subsidies of Petroleum Energy Products in Egypt
The main objective of this ongoing study is to assess the expected impact of phasing out subsidies of energy products in the short and medium runs. In order to capture this impact on most relevant economic variables and sectors, the study uses an input-output analysis and a computable general equilibrium (CGE) model based on an estimated social accounting matrix (SAM) for the Egyptian economy for 2006/2007. The structure of the SAM will enable an explicit presentation of impact of energy products, especially those receiving the greater amounts of subsidies. Households are also disaggregated according to expenditure level, so that impacts of different policies on poor households can be analyzed. Research findings will be published in the working paper series.
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Deregulation of Housing Rents
Rent control creates several distortions in the housing market. In addition to increasing demand and reducing housing supply, it decreases profitability of house rentals and discourages maintenance, leading to a rapid deterioration of the housing stock. Moreover, it encourages the conversion of housing units from rental to owner-occupied status. To a large extent, rent control is responsible for the imbalances in the housing market in Egypt. In 1996, a new rent law was issued allowing rents in new contracts to be determined according to market supply and demand, while existing rent contracts are not subject to this new law during the tenant’s occupation. The number of contracts drawn under this law increased, especially during the period 2001-2006. Despite the positive impact of this law on the housing sector in Egypt, the problem of rent control applied to old contracts still prevails.
This study will analyze the current situation of rent control in Egypt and its impact on the housing sector. In light of international experience, the paper will suggest reform measures to accelerate rent decontrol and assess the expected outcome of these measures on the housing market, economic welfare and income distribution. The paper will also analyze the impact of liberalizing rent control on equity and on housing affordability. Research findings will be discussed in a workshop at ECES and disseminated as part of the working papers series and possibly as a policy viewpoint.
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Global Financial Crisis and Foreign Investment Flows to Egypt
The global financial crisis is bound to have a major economic impact. The IMF downgraded its world growth forecast for 2009 to 2.7 percent (compared to 5 percent in 2007) in light of the prevailing liquidity crunch and the decreasing international financial flows available to finance growth. Private financial flows to developing countries are expected to fall from record highs in 2007 by more than 25 percent in 2009 (Cali, Massa and te Velde 2008).
These expected drops are bound to change the policy challenges facing Egypt. Over the past two years, the most pressing issue has been containing inflation when monetary and fiscal policies were constrained by limited exchange rate flexibility, large-scale capital inflows, and a growing cost of fuel and food subsidies. As we stand now, inflation appears to be past its peak and the more urgent challenge is to maintain growth and balance of payments (BOP) stability in the context of the rapidly deteriorating international economic outlook.
Egypt’s BOP performance during July-September 2008 manifested the need for action; the capital and financial account figures revealed a significant decline of 44 percent in net foreign direct investment (FDI), compared to the corresponding period of 2007/08. Meanwhile, foreign portfolio (FPI) outflows were $3.5 billion during the period. If these trends were to continue, the growth Egypt enjoyed since 2004 could be threatened.
Thus, it is important to estimate the effect of the global financial crisis on the movement of foreign investments (both FDI and FPI) to Egypt over the coming two years and to propose appropriate policy options to handle declines in such flows, which is the focus of this study. The research findings and policy recommendations will be disseminated at a workshop and published as a working paper.
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Effects of the International Financial Crisis on Economic Growth and Employment
This study decomposes economic growth into domestic demand growth and net export growth. The domestic demand growth acts through the wealth effect that is quantified by computing the marginal propensity to spend out of the wealth generated from stock and housing markets, through the budget deficit effect and through the FDI effect. The effect on net exports is straightforward and can be quantified by using the elasticities approach (e.g., non-oil exports and imports, tourism and Suez Canal). Once the effect on economic growth is quantified under the “business as usual” scenario and the worst case scenario, the effect on employment growth can be easily quantified based on the relationship between economic growth and employment growth. Research results will be presented in a roundtable discussion and published in the working papers series.
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An Analytical Monetary Policy Framework for Egypt
Until mid-2005, monetary policy in Egypt relied on a set of ineffective instruments to address a host of overlapping and (often) conflicting objectives (price stability, exchange rate support, external competitiveness, availability of cheap credit to preferred sectors and activities among others). Monetary policy was largely discretionary and there were often no clear objectives or quantified targets. Moreover, the heavy burden of financing the large budget deficit constrained the effectiveness of monetary policy.
An important step was taken in June 2005 when the Central Bank of Egypt (CBE) adopted, for the first time, a consistent policy framework for conducting monetary policy, with price stability as its overriding objective. The operational target for conducting monetary policy shifted to guiding the overnight interest rates within an interest rate “corridor”. The rate on the CBE’s overnight deposit facility and its overnight lending rate to banks established successively the floor and the ceiling of the corridor. The CBE signals its policy stance by adjusting the corridor rates. The policy signals help guide inflationary expectations.
The CBE’s monetary policy framework is part of a longer term plan to put in place a formal inflation targeting (IT) mechanism once the required preconditions are met.
The CBE also influences the monetary conditions through its exchange rate policy. Egypt’s exchange rate system is defined as a managed float. Indeed, given the limitation of its interest rate policy, the exchange rate has emerged as the most effective monetary policy instrument since late 2004 when the CBE introduced an interbank foreign exchange market.
The purpose of this research is to conceptualize a simple structural model which can be estimated/calibrated and used for policy analysis and simulation. The model attempts to capture the response of inflation and output growth to two policy variables: the interest rate and the exchange rate. With the exception of output data, which are only available on a quarterly basis, all variables included in the model are available on a monthly basis from the CBE publications. The time frame could be extended to 2002/2003, but allowance must be made in the estimation/calibration for the regime change that occurred in mid-2005. The findings will be disseminated in a workshop at ECES and circulated as a working paper and possibly as a policy viewpoint.
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The Impact of Current World Financial Developments on the Textile Industry in Egypt
Egypt’s textile industry and ready-made garments have been known to enjoy a high potential comparative advantage, but also suffer from various problems that prevent this industry from fully utilizing this advantage. Aside from general problems related to the business environment, these industries particularly in the lower-end of the value chain have remained controlled by the public sector. Public firms have suffered from neglect of maintenance and renovation or upgrading, large size of the labor force and low financing resources. These problems have been compounded by the recent financial crisis and the ensuing world economic slowdown.
The purpose of this study is to assess the expected impact of these developments on the textile and clothing industry in Egypt. It will also offer recommendations to maximize benefits to the sector and the domestic economy. The findings of the study will be disseminated in a roundtable discussion with concerned stakeholders, government officials, academia and the media. They will also be published as a working paper.
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