The 2006 report on Fiscal Policy Transparency produced by Oxford Analytica (OA) rated Egypt's overall compliance with this standard as "Enacted." Since 2002, Egypt has undertaken significant reforms that have had a positive impact on both the content of its fiscal policy and the quality of fiscal transparency, and the pace of these reforms has increased since 2004. Egypt has brought its budget classification into compliance with the International Monetary Fund's (IMF) 2001 Government Financial Statistics Manual (GFSM) and has created a macro-fiscal unit within the Ministry of Finance (MoF) charged with the development of a medium-term budget framework and producing risk and sustainability analyses. These were previously lacking. Modernization of the budget process through the implementation of an "e-governance" project has moved forward, as well, and tax reforms have been introduced that have simplified and enhanced collections and made greater dissemination of tax information to the broader public possible. A major improvement in transparency was achieved with the establishment of a single, consolidated government treasury account at the Central Bank, resulting in the closing of approximately 42,000 individual agency accounts. Finally, progress continues in the privatization of State Owned Enterprises and the restructuring of public agencies, although difficulties have been encountered as the process turns toward the privatization of "politically sensitive" industries. In 2005, Egypt became a subscriber to the IMF's Special Data Dissemination Standard (SDDS), but improvements remain necessary in the quality and timeliness of its fiscal data.

General Overview

In 2006, the Oxford Analytica (OA) report titled "Egypt: Fiscal Transparency," which rates Egypt's overall fiscal transparency as "Enacted," noted that reforms initiated in 2004 are still ongoing, and that these are "enhancing transparency of the budget and government activities" (p. 140). The International Monetary Fund's (IMF) 2006 Article IV Consultation described these reforms as "bold and wide-ranging" and asserted that they have "contributed to macroeconomic stability and higher growth and employment" (p. 3). Both the OA and IMF reports single out the 2006 introduction of consolidated fiscal accounts that accorded with the IMF's General Financial Standards Manual of 2001 (GFSM 2001) as an important improvement that has enhanced fiscal transparency, as has the adoption of a medium-term budget framework and the formation of a macro-fiscal unit responsible for the analysis of fiscal sustainability. OA cited as a continuing problem the fact that Egypt has not yet moved from a cash-accounting to an accrual-accounting basis, but notes that there are plans to move to an accrual basis by 2011. The 2006 IMF consultation adds that "the authorities are in the process of addressing a number of remaining issues, notably, fully harmonizing the coverage of the fiscal accounts 'above' and 'below the line' and reconciling financing flows with debt stocks" (p. 9). With regard to the seven key indicators identified by the International Budget Project's Open Budget initiative, in 2006 researcher Lobna Adbul Lattif rated Egypt's performance as at only 18%, which the index describes as "Scant or None." The rating is based on the fact that Egypt only makes available to the putlic in-year, mid-year, and annual budget report documents, produces neither a pre-budget document or citizen's budget, and restricts access to the auditors reports and the executive's budget proposal to internal use only.

The OA report also praised Egypt's consolidation of some 48,000 government accounts into a single treasury account at the Central Bank of Egypt (CBE), to better the control and tracking of cash management and "enable the government to target the reduction of the Public Sector Borrowing Requirement" (p. 141). OA also notes that the privatization process of the past two years is ongoing, but the pace has slowed to some extent. Plans for the merger of two of the four state-owned banks are still underway, and a third is 80 percent owned by the Sanpaolo IMI Bank of Italy, as of late 2006. Privatization of Steel and telecoms has also been successful, but OA notes that "more politically sensitive ones remain, including electricity generation, petroleum distribution, and pharmaceuticals" (p. 141). Restructuring of the National Investment bank to convert it to a development bank is also ongoing.

Egypt became a subscriber to the IMF's Special Data Dissemination Standard (SDDS) in 2005 but does not as yet attain optimal standards in timeliness and periodicity for some of its fiscal data reporting (IMF SDDS website). The OA report specifies shortcomings in Egypt's historical data and judges the labor market data to be "unreliable." The OA also noted that "there remains a 45-day lag in the release of quarterly fiscal data" (p. 141).

The IMF's 2006 Article IV Consultation report enumerated a number of upcoming reforms in the fiscal arena, all of which were due to be phased in gradually over 2006 and 2007. They include continuing reforms in the tax system, including "reforming the general sales tax to a unified value-added tax with a broader base, a single rate, and a higher threshold, [and] with a presumptive tax regime for small businesses" (p. 11). Additionally, the property and stamp tax bases are to be broadened and the rates streamlined. Tighter controls are to be placed upon the operating flows with state enterprises, and debt management is to be improved. Structural improvements will also include "streamlining the flow of funds between the budget, the National Investment Bank (NIB), and the Social Insurance Funds." (p. 11). In addition there are plans for comprehensive civil service reform to complement the ongoing fiscal consolidation program.

In the estimation of the IMF 2006 Consultation staffers, net public debt could be reduced over the next five years to between 58 and 65 percent of the GDP, depending on how ambitious a fiscal policy is followed. However, the IMF report warned that, if the government adopts a passive approach, "public debt would continue rising along recent trends and reach 83 percent of GDP in 2011" (p. 13). The IMF report did mention that near-term vulnerabilities normally arising from such debt levels are mitigated, in part, by "the investor base, structure, and composition of Egypt's domestic public debt stock" (p. 13).

The Principles

Clarity of roles and responsibilities.

EN

The OA's 2006 Fiscal Transparency Report on Egypt rated the country's compliance with this principle as "Enacted." The Egyptian Constitution, and subsequent amendments and decrees, allocates to the various levels of government their specific structural requirements and responsibilities. It specifies the division of the federal government into independent legislative, executive, and judicial branches. It establishes procedures for the selection and election of governmental officials to their offices, and, since 2005, mandates direct, competitive elections for the presidency. The president may veto legislation and issue decrees with the force of law. To the legislative branch, the parliament, is accorded the responsibility of budget approval. Reforms ongoing since 1991 helped enhance the distinction between public and private economic sectors, yielding increased clarity in fiscal policy making. According to the 2006 OA report, July 2004 marked a watershed moment in the reform process, when Prime Minister Ahmed Nazif and several well-respected new cabinet members were appointed. When they took office, the pace of reform increased significantly. One contributing factor to this improved reform climate, in the opinion of the 2006 OA report, is an "improved clarity over the division of responsibility between the Ministry of Finance (MoF), the Ministry of Foreign Trade and Industry (MoFTI), the Ministry of Investment, and the Central Bank of Egypt" (p. 142).

The consolidation of government revenue deposits into a single treasury account at the CBE in May 2006 is cited by the OA report as an additional positive step. The law by which this was accomplished explicitly forbids subordinate governmental agencies from setting up separate accounts without the approval of the MoF. This is a significant departure from historical practice and contributes greatly to achieving fiscal policy transparency, as well as enabling "better supervision of off-budget expenditures and revenues" (p. 143). Although details regarding the conduct of fiscal policy at the sub-national level are limited, this may change in the near future. The MoF has announced plans to delegate certain budget coordination and management duties to the sub-national governmental level. Restructuring and consolidation has also been underway since 2002 to rationalize the organization of ministries and governmental agencies. For instance, in 2004, the MoFTI was created out of its precedent organization, the Ministry of Foreign Trade.

The MoF is clearly mandated by the Constitution to conduct fiscal planning, draft the budget, and manage the government's finances. Less clear, in the opinion of the 2006 OA report, are the MoF's responsibilities regarding dissemination of information relating to these responsibilities. Risk and sustainability analyses are inadequate at present, but the OA report notes that a new initiative, involving the creation of a macro-fiscal unit charged with medium-term budget projection and sustainability analysis, was begun in 2005. The OA report evaluated the first product of this unit, which was to include a three-year budget projection in the 2006-2007 budget, as a good first step, and notes that "debt sustainability analysis carried out with IMF assistance is due for release in June 2007" (p. 143).

The MoF has also made advances in modernizing the budget process. According to the 2006 OA report, the ministry launched phase one of its planned "budget automation project." This should improve the efficiency and accuracy of the budget process and has made it possible to do medium-term budget forecasts. When completed, the project should permit the electronic coordination of inter-ministry data compilation and budget preparation, as well as improve the recording and tracking of expenditures. The program enabling this initiative is called the Automated Government Expenditure System (AGES), which is compliant with the classifications employed by GFSM 2001

Still in need of improvement is the regulatory framework governing several public sector agencies. According to the OA 2006 report, this is being addressed. For example, the OA cites recent developments involving the restructuring of the NIB into a development bank. "Previously, the NIB's task was to finance government capital expenditure projects; it was funded mainly by pension funds, but also by post office savings accounts and investment certificates from the National Bank of Egypt. However, as of this year [2006], the MoF borrows directly from such funds (mainly pension), bypassing the NIB" (p. 143). The OA goes on to caution that the NIB does not make its audits publicly available.

Equally in need of clarification, according to the 2006 OA report, is the breakdown of fiscal and monetary responsibilities between the government and the CBE. The Central Bank Law establishes the CBE as the debt agent of the treasury. According to the OA report, "the MoF and the CBE are largely autonomous and coordinate at the cabinet level" (p. 144), but in the absence of official, mandatory procedures governing their coordinated activities, the relationship remains too vague to inspire public trust. On the other hand, the distinction between the public and private sectors has been clarified, largely as a result of ongoing success in the privatization of formerly state-owned enterprises. According to the OA 2006 report, 87 state-held assets have been privatized in the years between 2004 and 2005. The pace of the banking sector privatization program faltered in 2006, with delays in the planned merger of two public-sector banks (originally slated for finalization in 2005), and there are doubts that the merger can ultimately be successful. A further difficulty, involving the privatization of certain "politically sensitive" industries, notably electric companies, pharmaceuticals, and petroleum. With privatization comes the need for anti-trust legislation, and June 2005 saw the passage of Egypt's first anti-trust law. According to the OA 2006 report, "a Competition Authority has been established with the help of the UK Competition Commission, and seven cases have already been referred to it" but adds that "utilities and infrastructure are exempted and mergers and acquisitions do not come before the Competition Authority (p. 144).

Law No. 53 of 1973 (as amended) governs the budget process. According to the law, public agencies must submit their individual budgets to the MoF, which reviews them and consults with the CBE to coordinate the fiscal, monetary, and credit policies within the framework of both the approved annual plan targets and the overall policies of the state. Thus, as the OA 2006 report concludes, "the administrative framework for fiscal management is largely determined by the MoF" (p. 144). With the passage of Law No. 97 in 2005, the MoF now prepares the budget in accordance with the IMF's GFSM 2001. Further legislation aimed at clarifying the budget process and fiscal management are currently being contemplated.

Tax reform is another area where major progress has been achieved. In 2005, Income Tax Law No. 91 was passed and, in the judgment of the 2006 OA report, has introduced greater transparency to the system while cutting both the corporate and individual tax rates. The MoF's creation of a taxpayer center to collect corporate taxes has also improved revenue collection. In the words of the OA report, "the tax system is now far more efficient and less corrupt" (p. 145), and revenues from this source have improved greatly. It remains the case, however, that only 20% of the population comprise the whole of Egypt's tax base. New tax-related legislation is in the works, including a new sales-tax law set for passage during 2007. The government makes information regarding changes in tax law publicly available. This information will also be included on the MoF website. According to the OA report, "further reforms are required on stamp duties and real estate taxes" as well (p. 145). Finally, with regard to ethics in the public service sector, the 2006 OA report notes that "a code of practice does exist,... but the extent to which it is followed in practice is limited" (p. 145).

Open budget processes

EN

The 2006 OA report on fiscal transparency rated Egypt's compliance with this principle as "Enacted." The Ministry of Finance is responsible for formulating fiscal policy and disseminating to the press any significant policy changes. There is no formal, systematic procedure in place for such announcements, and policy objectives are not included in published budget documents. However, the MoFTI does present Egypt's official macroeconomic framework in its Quarterly Economic Digest. The OA report notes that, at present, budget documents do not adequately assess economic risk, nor do they provide information on extra-budgetary transactions. The widespread public knowledge that such transactions regularly occur means that the lack of reporting has led to low public confidence in the reliability of the official budget. Fiscal reform, which is ongoing, should help address this problem.

The 2006 OA report found that fiscal sustainability is not yet assessed with any appreciable detail in most economic publications, but that the newly created macro-fiscal unit in the Ministry of Finance seeks to address this shortcoming. Moreover, the OA report notes that recently commissioned reports on the progress of decentralization efforts in the publicly sensitive areas of water, transportation, health, and education were made available to and published by the International Bank for Reconstruction and Development (IBRD). The public expenditure review program from which these reports arose is also directed toward the development of a performance-based budget process. As yet only two pilot programs, in health and education, have been set into motion. Social security reform has also begun. The OA report noted that "Egypt has now moved from a publicly managed, defined benefits scheme to a privately managed, defined contributions scheme and has ceased to pay excess funds to the National Investment Bank" (p. 149), noting that the pre-existing system was subject to little control or legal restraint.

The Egyptian Constitution prescribes the submittal process of the annual budget. Articles 86 and 115 require that the parliament receive the document for review no later than two months prior to the end of the prior fiscal year (July 1--June 30). The discussion within parliament must consider each budgetary provision individually, and the budget must be approved before the parliamentary session may be adjourned. Should parliament desire to modify the budget, it must gain the consent of the executive. Should the fiscal year end without an approved budget, the prior year's budget remains in force until a new one is ratified. The 2006 OA report finds this process inadequate with regard to transparency, because "even after parliament has approved the budget, a limited amount of information is disseminated to the public, even to government ministries and institutions" (p. 149). In addition, Egypt has not yet moved from cash accounting to accrual accounting,

Nonetheless, the 2006 OA report found that some progress has been made. The adoption of the GFSM 2001 classification was praised, as was the clarification of indirect subsidy statistics and the use, since 2005, of a medium-term budget framework. A training program for members of parliament to enhance their understanding of -- and their ability to ask appropriate questions about -- budget matters has also been initiated. The OA report also applauded the dissemination of time-series data via the Ministry of Finance website.

The MoF's Office of Management and Budget (OMB) is the oversight agency for budget execution. This task is rendered difficult, in the judgment of the 2006 OA report, by the fact that the OMB has little insight into budget targets, and because the budget debated in parliament often differs substantially from the final document that is ratified and published in the Official Gazette. The OA report found that execution and monitoring of the budget need to be improved, that Egypt must adopt "a more systematic use of standards and common methodologies" (p. 149), and that it must move more quickly toward performance-based budgeting.

The MoF, the Egyptian Society of Accountants and Auditors (a member of the International Accounting Standards Committee, IASC), and the International Federation of Accountants (IFAC) set the standards to be applied in the accounting process. According to the OA 2006 report, the MoFTI publishes a summery of the national budget operations that includes the general government budget balance, with quarterly revenues from central government, tax, transferred profits, other non-tax sources, local government, public revenues, and figures relating to "service authorities investment self-financing and sales of assets or other capital revenue" (p. 149-150). The OA report judges that the reporting of government procurement data lacks adequate transparency. There remains too much discretion for government officials to give preferential treatment to favored vendors, and for the prime minister to interfere in setting contractual terms. In addition, the figures reported for annual procurements are incomplete. Financing problems have been cited as the reason for the MoF to delay implementing improvements recommended by the World Bank. The OA report of 2006 notes that the U.S. Agency for International Development (USAID) will be providing financial support in this area during the 2007-2008 fiscal year, however, so there may be progress in this area in the relatively near future. Finally, the OA report characterized the Egyptian civil service as disproportionately large. Inefficiencies in the civil service are being addressed through various incentives, but the likelihood that the overall numbers of civil servants could not be cut without incurring popular discontent.

Final accounts are constitutionally required to be submitted to parliament no later than 12 months after the end of the fiscal year to which they apply. Here again, the OA 2006 report finds significant insufficiencies. Parliamentary scrutiny remains weak, even though the training program for members of parliament has been underway for some time. Transparency also suffers because of the MoF's failure to publish an annual final accounts report. In the words of the OA report, "the overall level of reporting remains poor" (p. 150). This inadequacy is compounded by the reports that are, in fact, publicly available, because the data in the various sources are inconsistent. For example, the MoF provides final accounts on its website, but the Central Bank of Egypt releases data on the consolidated fiscal operations of the government in its Monthly Statistical Bulletin, but where the data overlaps between these two sources, the numbers disagree, often substantially. Fiscal data is also disseminated in the local media and the Government Information Service.

Public availability of information.

EN

The 2006 OA report on fiscal transparency rated Egypt's compliance with this principle as "Enacted." Contributing to this improved rating is the introduction, in 2005, of the MoF's new website, which is clear, easily navigated, and comprehensive in the range of publications, news articles, and other offerings. The website offers presentations of its fiscal policy intentions and makes the state budget available annually, broken down into economic and functional classifications. Links to important related sites are now live, including links to the text of the annual budget, budget related legislation, and other significant documents. At present, the link to a document entitled "Public Debt Management" does not function. The MoF disseminates three documents that regularly contain fiscal information: the Quarterly Egyptian Economic Monitor, the quarterly Selected Economic and Financial Indicators, and the online publication, Financial Monthly, which offers a broad range of statistical information on national accounts, the budget, debt, prices, and other matters. These are supplemented by the MoFTI's Quarterly Economic Digest. In addition to availability on the website, all these sources may be requested in hard-copy from their originating ministry. The OA 2006 report also notes that there is a monthly publication produced by the Cabinet Information and Decision Support Center, called the Egyptian Economic Bulletin, which provides performance data on the macroeconomy and individual sectors (p. 146).

The OA 2006 report applauds the improvement in data availability accomplished by Egypt to date, at least in some categories, but finds that availability is still in need of work. Principle among the deficient areas is the explanation of policy decisions and targets. The OA report discloses that there is now a television channel dedicated to the real-time broadcast of the parliament in session, including budget discussions. In presenting data on public sector operations, there has been little increased availability, however. The 2006 OA report notes that the release of such data has been only occasional, and limited to data on public institutions and State Owned Enterprises (SOEs) currently slated for privatization or restructuring/reform. The OA report calls for "more systematic information on public sector companies, such as published financial statements" (p. 146). The law requires that important SOEs and public institutions be treated separately from the national budget, but, in practice, the government has covered their losses in the past.

Egypt subscribed to the IMF's SDDS in January of 2004, and makes data available for publication on the SDDS bulletin board. In 2006, the OA report noted that these data still show deficiencies, particularly in historical data and data on unemployment and the labor market (p. 147). In addition, the SDDS website shows a continuing problem with timeliness in the reporting of quarterly fiscal data, which is subject to a 45-day lag. Debt reporting, which is the province of the CBE, is comparatively good. The data is published in the CBE's Monthly Statistical Bulletin and included in MoF publications as well. According to the OA 2006 report, "data are given for external debt by type, cumulative arrears, the profile of external short-term debt, and the profile of both public and publicly guaranteed medium- and long-term debt. Similar data are given for domestic debt, including the level of government borrowing from the NIB" (p. 147). The MoF makes available time-series data covering a 5-year period through 2004. Advance release calendars have been provided since 2004, but the OA report finds these of limited utility, because the MoF presently disseminates data only indirectly, through the MoFTI's publications.

Independent assurances of integrity.

ID

The OA's 2006 Report on Fiscal Transparency rated Egypt's compliance with this principle as "Intent Declared." It cautioned that fiscal data quality has yet to reach a point where it inspires user confidence, particularly in its labor and unemployment statistics. Compilation methodologies across ministries and agencies are not harmonized. The OA report specified the government's treatment of national accounts, price information, balance of payments, GDP, employment, and wages data as in need of improvement. According to the OA report, "fiscal data were still not accompanied by sufficient assurances of quality" (p. 151).

Law Number 144 of 1988 establishes the independence of the Central Auditing Agency (CAA) and confers upon it corporate public status. Its responsibilities under the law include the review of government and public agency funds and of the final budget accounts. Since 2004, the CAA has also worked with the prime ministers office and the government privatization program. It receives the accounts submitted to the MoF by the line ministries and conducts an audit according to internationally accepted principles. Its final report is sent to Parliament for review but is not made available to the broader public. It may be extracted, and portions released through the media. According to the 2006 OA report, there are plans for new legislation governing accounting and auditing procedures. There is as yet no audit department within the Ministry of Finance, but one is being contemplated.

The Ministry of Economic Development (formerly the Ministry of Planning) oversees the work of the Central Agency for Public Mobilization and Statistics (CAPMAS), the independent national statistical agency. The OA report notes that "within CAPMAS, the National Accounts office is directly responsible for national accounts data, and it reports directly to the minister of finance" (p. 151). Since 2004, CAPMAS has expanded and improved its dissemination of data through the creation of a public relations office and the regular publication of quarterly economic reports. It already offers a national consumer price index and, in 2005, worked with the IMF on a producer price index (IMF 2006, p. 35). With regard to statistical quality, however, the OA 2006 report notes that public confidence remains low. Increased autonomy for CAPMAS would help in this regard. Advances toward greater assurances of quality and integrity have been made through an extensive training program on accounting practices within the principle ministries, and younger staff are actively recruited and trained to ensure high-quality capabilities in the future. Egypt has adopted the 1993 System of National Accounts, according to the 2006 OA report, and it has prepared time-series data covering the period from 1995 to 2002, with plans to extend this resource forward to more recent years.