Egypt—Searching for Binding Constraints on Growth

IMF Working Papers, March 1, 2007

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Since 2004 Egypt's growth has been accelerating in step with the launching of a series of ambitious reforms, reversing a trend during the preceding half-decade when Egypt's growth rate fell below that of most regional peers and well below that of the average developing country.
The paper seeks to identify factors that held back Egypt's growth in the recent past, and explores whether recent reforms have removed the most binding constraints to allow at least a temporary growth spurt.
Overall assessment: the Egyptian reforms launched in 2004 appear to have focused well on the most critical constraints—reducing red tape and tax rates, and improving access to foreign exchange—thereby getting a strong growth response out of a limited set of reforms.

Reforms launched in 2004 produced a strong growth response by addressing critical constraints:
- Reducing red tape.
- Reducing tax rates.
- Improving access to foreign exchange.
Remaining and emerging constraints:
- Inefficient bureaucracy remains an important obstacle to higher growth; reforms in this area should continue to have high payoffs.
- Inefficient financial intermediation is an ongoing constraint and may already be binding.
- High public debt is an ongoing constraint and may already be binding.
- Improvements in education may rapidly become a critical factor for sustaining higher growth.

Continue reforms to improve bureaucratic efficiency to unlock higher growth potential.
Address weaknesses in financial intermediation to prevent this constraint from limiting growth.
Implement policies to manage and reduce high public debt to avoid future binding constraints.
Prioritize improvements in education to sustain higher growth over the longer term.

Real per Capita GDP Growth
- Real per Capita GDP Growth (Markdown version)
- Real per Capita GDP Growth (PDF)