Abstract
This paper assesses the performance of the monetary policy in Egypt during the periods following the introduction of the economic reform and structural adjustment program (ERSAP). It sets out to answer the question why the Central Bank of Egypt (CBE) has not been able to achieve the goal of price stability under the ERSAP? The study compares the economic performance from the 1990s with both its counterpart in Germany, during the same periods, and with the economic performance of the Egyptian economy during the periods before the 1990s, i.e., 1975-1990. The study concludes that the CBE could have brought the rate of infl ation down; nevertheless, the unemployment and real GDP growth rates have worsened and a price stability is still far away. The failure to achieve price stability is explained by two reasons, namely, a conflict between monetary policy objectives and a chronic budget deficit financed by issuing new money.
Highlights
The failure to achieve the goal of price stability under the economic reform and structural adjustment program (ERSAP) can be explained by two reasons, namely, a conflict between monetary policy objectives, i.e., pegging the foreign exchange (FX) rate and the attempt to use an independent monetary policy to achieve some other goals, and a chronic deficit in the general budget financed by issuing new money
This paper assesses the performance of the monetary policy in Egypt during the periods following the introduction of the ERSAP in the early 1990s
The paper intends to answer the question why the central bank of Egypt (CBE) has not been able not achieve the goal of price stability under the ERSAP
Summary
The most radical changes in macroeconomic policy in Egypt since the 1950s occurred in the early 1990s when the Egyptian government endorsed an agreement with the IMF and the WB, known as the economic reform and structural adjustment program (ERSAP). This agreement came into being in the aftermath of a critical economic performance of the Egyptian economy in the late 1980s, where the ratio of external debt (% of nominal GDP) reached 131.7% and 115.23% in the years 1988 and 1989 respectively. The ERSAP incorporated two broad objectives, namely (i) switching the economy to a market-based economy via price liberalization, FX rate, interest rate and trade; and (ii) stabilizing the economy and rectifying macroeconomic policies. The most radical changes in macroeconomic policy in Egypt since the 1950s occurred in the early 1990s when the Egyptian government endorsed an agreement with the IMF and the WB, known as the economic reform and structural adjustment program (ERSAP).. The most radical changes in macroeconomic policy in Egypt since the 1950s occurred in the early 1990s when the Egyptian government endorsed an agreement with the IMF and the WB, known as the economic reform and structural adjustment program (ERSAP).1 This agreement came into being in the aftermath of a critical economic performance of the Egyptian economy in the late 1980s, where the ratio of external debt (% of nominal GDP) reached 131.7% and 115.23% in the years 1988 and 1989 respectively.. I organized this paper as follows: Section 2 highlights the monetary policy objectives and tools under the ERSAP.
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