The Egyptian Banking System Liberalization Competition and Privatization

07-06-1998
Author(s): Alan R. Roe
Publication Number: ECES-WP28-E

Abstract:

Egypt’s efforts to liberalize its financial sector in the l990s have been impressive. Egyptian authorities have been successful in reversing more than three decades of interventionist policies. The fundamental building blocks of this liberalization process now seem solid. They include a reduced fiscal deficit, and the unification and freeing of exchange rates, interest rates, and lending decisions from administrative control. The initial privatization of large banks has removed some of the extensive ownership links between banks—one likely cause of uncompetitive banking. The benefits of reform are beginning to show: inflation control consistent with growth rates, confidence in local currency, and buoyant stock market activity buttressed by numerous prominent privatizations. Capital flows into the economy have also been much stronger. Nevertheless, the transformation of the Egyptian financial sector into a modern market-oriented system is still in its infancy. In the future, economic changes which policies can affect should go hand in hand with institutional and attitudinal changes which are potentially more difficult to bring about. Policy makers must continue to work hard to build on the foundations they have laid thus far.

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