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1. The state of the Sustainable Development Goals in Egypt 2. Data and data systems 3. Integrated national financing framework 4. Budget design and priorities 5. Social protection as a budget priority 6. Role of the business sector 7. Role of the financial sector 8. Debt management in Egypt and financing the Sustainable Development Goals 9. Trade as an engine for sustainable development and growth 10. Science, Technology, Innovation, and Digitalization 11. Localization 12. International development cooperation 13. A way forward

Financing Sustainable Development
in Egypt


Foreword and Preface

H.E. Mr. Ahmed Aboul Gheit

Secretary General of the League of Arab States (LAS)

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H.E. Dr. Hala El-Said

Minister of Planning and Economic Development Egypt

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Dr. Mahmoud Mohieldin

The United Nations Secretary General Special Envoy on Financing the 2030 Development Agenda and Executive Director, International Monetary Fund

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1. The state of the Sustainable Development Goals in Egypt:

focus on poverty and inequality

Racha Ramadan

Associate Professor, Economics Department, Faculty of Economics and Political Science, Cairo University

Background

Egypt is committed to achieving the Sustainable Development Goals (SDGs) by 2030, and progress had been made under many indicators since 2015. According to the Sustainable Development Report 2021, the country has received an SDG Index Score of 68.6 per cent and is ranked eighty-second among 165 countries.

A. The Sustainable Development Goals in Egypt

The progress Egypt has made towards achieving the SDGs is not uniform across all Goals.

Major challenges persist in 7 of the 17 SDGs, including zero hunger (Goal 2); good health and well-being (Goal 3); gender equality (Goal 5); decent work and economic growth (Goal 8); life below water (Goal 14); life on land (Goal 15); and peace, justice and strong institutions (Goal 16).

Goal 2: zero hunger

Egypt suffers from the triple burden of malnutrition (Indicator 2.2.2): obesity, stunting and micronutrient deficiencies (anemia).

Prevalence of stunting, wasting and anemia for children under 5 years of age

Source: Ministry of Planning and Economic Development, 2021.

Goal 3: good health and well being

Egypt succeeded in reducing the maternal mortality ratio (Indicator 3.1.1) between 2015 and 2019.


Over the same period, there was a decrease in indicators concerning tuberculosis incidence; the adolescent birth rate; and the mortality rate attributed to cardiovascular disease, cancer, diabetes or chronic respiratory disease.

The COVID-19 pandemic sheds the light on the importance of the health sector. A substantial increase in health financing and the development of the health workforce (Target 3.c) is critical to ensuring the resilience of the health sector and its ability to face the current pandemic and any future health crises. It is worth noting that the universal health coverage (UHC) service coverage index for Egypt increased between 2015 and 2017

Trends in selected indicators under targets 3.1 and 3.2
Source: Central Agency for Public Mobilization and Statistics, Egypt, 2019. National Statistical Report for Monitoring the SDGs.

Goal 4: quality education

The gender gap in education has decreased over the years, with females performing better than males at all levels. The female to male ratio of school enrolment at pre-primary, primary and secondary levels is over 95 per cent.

Female-to-male ratio of school enrolment at pre-primary, primary and secondary levels

Source: Central Agency for Public Mobilization and Statistics, Egypt, 2019. National Statistical Report for Monitoring SDG Indicators in Egypt.

Goal 5: gender equality

Egypt faces significant challenges in achieving Goal 5 and has not seen improvement in a number of indicators. In order to empower women, all forms of violence against them must be eliminated in public and private spaces.

At the economic level, female labour force participation in Egypt is among the lowest in the world, at only 18.46 per cent in 2019.

pic-1

Goal 8: decent work and economic growth

The economic growth achieved in Egypt did not produce enough decent jobs for new entrants to the labour market, resulting in an increase in informal employment.

Female and male unemployment (modelled ILO estimate)


Source: World Bank, 2021. World Development Indicators database. Available at https://databank.worldbank.org/source/world-development-indicators (accessed on October 2021).

B. Goal 1: end poverty in all its forms everywhere

According to the most recent Egyptian Demographic and Health Survey, conducted in 2014, 5.2 per cent of the Egyptian population is considered multidimensionally poor, 6.1 per cent are vulnerable to multidimensional poverty and 0.6 per cent live in severe multidimensional poverty.

Distribution of the poor by contract type



Source: Author, based on the 2017 Household Income, Expenditure and Consumption Survey, conducted by the Central Agency for Public Mobilization and Statistics, Egypt.
Distribution of the poor by economic sector

Source: Author, based on the 2017 Household Income, Expenditure and Consumption Survey, conducted by the Central Agency for Public Mobilization and Statistics, Egypt.

C. Goal 10: reduce all types of inequalities

Sociodemographic characteristics such as gender, geographical location, education level and employment status are key factors in explaining inequalities in Egypt.

Income share held by the highest 10 per cent and the lowest 10 per cent
Source: World Bank, 2021. World Development Indicators database.
Prevalence of caloric deficiency by gender of the head of household, 2015
Source: Central Agency for Public Mobilization and Statistics, Egypt, 2019. National Statistical Report for Monitoring SDG Indicators in Egypt.

D. Government programmes and policies to eradicate poverty and reduce inequality

Recent economic reforms implemented by the Egyptian Government resulted in economic growth of 5.6 per cent in the fiscal year 2018/19, compared to nearly 2.92 per cent in 2014.

Social protection programmes in Egypt play a key role in reducing poverty and ensuring food security, especially during periods of crisis. Food subsidies reduced the poverty rate by three percentage points in 2019.

Programme
"Takaful"

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Programme
"Sakan Kareem"

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Programme
"Forsa"

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Programme
"Haya Karima"

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E. Concluding remarks and policy recommendations

The proportion of individuals living below the national poverty line decreased for the first time in 20 years, to 29.7 per cent in 2019/20.

The Government implemented several economic reforms and expanded its social protection programmes to protect vulnerable households against the health and economic impacts of the pandemic and to ensure that the Egyptian economy is resilient to any future shocks.

The following recommendations may be considered to eradicate poverty, reduce inequalities and achieve other SDGs:



    • Ensure equal access to education, which is the main contributor to poverty. With the increase in remote work and e-learning as a result of the COVID-19 pandemic, unequal access to digital devices may increase inequality in terms of access to education and income. Government policies must ensure equal access to education, technology and economic opportunities for all individuals, regardless of their income group, gender or geographical location.

    • Tackle gender inequality by ensuring that women have equal access to economic opportunities and sustainable sources of income. This would close the gender economic gap and increase investment in the education and health of future generations.

    • Reduce spatial inequality by ensuring equal investment in the social and physical infrastructure of rural and urban areas in all governorates.

    • Increase investment in the manufacturing, infrastructure and agribusiness sectors to ensure economic diversification and resilience and to generate additional decent jobs.

    • Reform and expand social protection programmes and ensure their effectiveness using evidence-based research to analyse the distributive and fiscal impacts of the various programmes.


















2. Data and data systems

Mazen Hassan

Associate Professor, Faculty of Economics and Political Science, Cairo University

Engi Amin

Assistant Lecturer of Socio-Computing, Faculty of Economics and Political Science, Cairo University

A. The role of data availability in policy selection

Data are produced at an unprecedented scale. According to Oracle, a computer technology corporation, approximately 90 per cent of the world’s data were created in the last two years. Data have become an essential part of running operations and making decisions in both the public and private spheres.

This chapter focuses on the connection between data and sustainable development in Egypt by investigating three questions:



    • To what extent are data on the SDGs available, accessible and usable in Egypt, and how could they help the Government to identify possible gaps and courses of action?

    • What possible bottlenecks need to be addressed to improve the speed and efficiency of the Government’s data generating process?

    • Even if not fully updated or complete, could available data inform the Government on where best to mobilize resources in order to achieve the maximum possible impact for development?









B. Assessment of multiple data quality parameters

The Central Agency for Public Mobilization and Statistics (CAPMAS) is the official statistical agency of Egypt responsible for collecting, storing, processing and publishing data in all major national and State fields at the national, governorate and subgovernorate levels.



Excerpt from the CAPMAS Informatics Monthly Statistical Bulletin of November 2020 (Billions EGP)
Source: CAPMAS, Egypt, 2020. Informatics Monthly Statistical Bulletin (November), pp. 21–22.

C. Effectiveness of data collection mechanisms

This section shares some of the insights gained from attempts to obtain development data on Egypt. Two groups of obstacles were identified.


Problems at the source
  • There seems to be a lack of what could be called “trained data officers” in various ministries and government departments, particularly at the local level where disaggregated data are supposed to be collected.
  • Based on interviews conducted by the authors, some institutions are still applying a slow, low-tech process for gathering and sharing data.
  • Stronger networking among CAPMAS, the Ministry of Planning and Economic Development and other ministries could also speed up the data collection process and help to identify bottlenecks more quickly.
The lack of a legal framework for data availability
  • Based on interview data, the authors posit that the two main obstacles are a lack of ownership and concerns about the misuse of data. Both must be addressed to allow Egypt to begin producing better data at a faster pace in order to guide development decisions.
  • With regard to the lack of ownership, previous drafts of the bill have been introduced by different ministries.
  • Assigning responsibility to one institution would be a first good step.

D. Conclusion and policy recommendations

“The coming years will almost certainly be even more data-driven, as both individuals and Governments are doing more online than ever before. The COVID-19 pandemic has only accelerated this trend, which provides an opportunity for the Egyptian Government to collect more data in real time. This trend also creates the potential for big data analysis, particularly as the Egyptian Government is launching a number of e-portals to provide specific services.



How data could guide development decisions

    • Training – and decreasing the turnover of – data officers at the different line ministries while achieving greater networking between them and CAPMAS. The purpose of that training would be to increase human capacities in managing the data collection and data streaming processes. Such training could be supported by several UN bodies.

    • Ensuring greater integration of SDGs indicators into the periodic surveys published by CAPMAS. These surveys have the advantage of being tailored for disaggregated data and are conducted frequently. Linking them to the SGD framework would ensure that more SDG- related data are generated regularly. (short term)

    • Creating some binding benchmarks regarding the updating frequency and level of disaggregation of SDG data. These benchmarks should then be met by government agencies. Obviously, before the issuing of such benchmarks, the relevant resources (human and technological) have to be made available to enable meeting the benchmarks. (medium term)

    • Unifying data the depository for SDG data (possibly at CAPMAS), to make sure SDG data are integrated in one national and all-inclusive source that can be used more effectively to guide policies. (medium term)

    • Develop initiatives to use Big Data to monitor development, assess the impact of developmental projects or compensate for the unavailability of data on many SDG indicators. Certainly, Big Data is an area that first requires investing in data specialists. This would be a good starting point to unlock such potential. (short term)

    • Disclose data about SDG indicators, in a timely, transparent, and accessible manner and invest in a culture that supports trust in government data – whether positive or negative – the space for ‘fake data’ shrinks. This should be associated with adopting legislative reforms that contribute to strengthened governance, particularly laws on freedom of information. (short term)









3. Integrated national financing framework

Diaa Noureldin

Economist, International Monetary Fund

The views expressed herein are those of the author and should not be attributed to the International Monetary Fund, its Executive Board or management.

Reham Morsy

Research Director, Synerjies Center for International and Strategic Studies

Background

Achieving the SDGs at the country level depends largely on the ability to harness different sources of financing, whether private or public, through domestic or external flows. Countries with significant gaps in terms of achieving the SDGs are expected to simultaneously increase the volume of financial flows and enhance their diversity. Fortunately, countries are now facing a financing for development (FFD) landscape that is more diversified and therefore offers various financing opportunities. Nevertheless, it is also becoming clear that the global financing agenda for the SDGs will not be sufficient to meet the growing challenges. This is particularly true given the significant economic scarring from the COVID-19 pandemic and its medium- to longterm impact on indebtedness. As a result, countries must inevitably rely on homegrown solutions as 2030 approaches.

A. Development finance assessment

The DFA is an analytical mapping tool for studying financial flows in the economy with the intention of capturing trends, identifying gaps and highlighting sustainability concerns.

government revenue and public borrowing are both under the control of government policy and can be deployed to spending programmes that are easily aligned with development objectives.

Financing for development flows – mapping for Egypt

img
img Source: Authors, using data from the Ministry of Finance of Egypt, the CBE and the World Bank World Development Indicators Database.

B. Gap analysis and options for policy and institutional reforms

Significant FFD flows such as private domestic and foreign investment are sensitive to the policy environment and the institutional set-up in the host economy. Egypt has made considerable progress to close the gap with its peer group, although some areas still lag behind.

Gap analysis
Source: Authors, using data from the World Bank, the World Economic Forum and UNCTAD.

C. Conclusion and policy recommendations

According to the UNDP Development Finance Assessment Guidebook 3.0, the process of operationalizing an INFF comprises three phases: inception, development and ongoing operations.

The following policy recommendations can be proposed:

    • Reprioritize spending to adopt a comprehensive public-private partnership approach, especially in development priorities, such as education, health care and infrastructure, which could contribute to crowding in the private sector, provide more space for participation and increase the availability of funds.

    • Reduce the reliance on foreign borrowing and volatile external inflows such as portfolio investments to address the twin deficit dynamic. They constitute an external vulnerability and are subject to shocks, as observed globally during the pandemic.

    • Complete the INFF by activating its third and fourth building blocks (monitoring and review, and governance and coordination, respectively). They should be geared towards reassessing national developmental objectives, increasing coherence across public and private financing policies, and improving collaboration among actors in each area of financing.

    • Continue the recent path of fiscal consolidation by enhancing the capacity to raise tax revenue without increasing the tax burden, redirecting public spending to match developmental objectives without crowding out the private sector, and assessing policy measures that help increase private savings in the long run.

    • Leverage and provide data on other sources of funding, including climate financing, South-South cooperation and philanthropy, to assist in bridging the financing gap for specific SDG-related challenges such as the impact of climate change and water scarcity. A noteworthy first step in this direction for Egypt was the first issuance of sovereign green bonds in September 2020.














4. Budget design and priorities

Khaled Zakaria Amin

Professor, Faculty of Economics and Political Science, Cairo University

Israa A. El Husseiny

Associate Professor of Economics, Faculty of Economics and Political Science, Cairo University

Background

Fiscal policy plays a vital role in achieving the SDGs. Public domestic resources from tax and non-tax revenues represent the main source of development financing, especially given declining flows from both ODA and the private and non-profit sectors. Through fiscal policy, Governments can reduce income and gender inequalities. Social spending and progressive taxation contribute significantly to the social dimension of sustainable development. In addition, various corrective fiscal measures can be used to overcome environmental challenges, such as climate change and the unsustainable use of natural resources.

A. The role of public finance in achieving the Sustainable Development Goals

Fiscal policy plays a significant role in supporting the achievement of various SDGs and their targets, particularly in terms of domestic resource mobilization; distribution policy, income redistribution and poverty alleviation; and environmental protection.

The mobilization of domestic public resources by efficiently raising taxes and other non-tax revenue is necessary to secure the funds needed to finance public goods and achieve the various SDGs.

A conceptual framework of the role of fiscal policy in achieving the Sustainable Development Goals


Source: El Husseiny, I.A. (2020). Enhancing the role of fiscal policy in achieving the Sustainable Development Goals (SDGs): insights from behavioural economics with a special reference to Egypt. European Journal of Economics, Finance and Administrative Sciences, No. 106, pp. 22–43.

B. Government expenditure from the perspective of the Sustainable Development Goals

The Government’s decisions in terms of allocating expenditures among recurrent items (i.e. wages and salaries, goods and services, interests and transfer payments) and capital items (i.e. investments) has its own synergies with the SDGs.

As a result, the extent to which the Government’s budget structure is biased towards recurrent versus capital expenditure would reflect in the progress made under various SDGs.

The fact that the majority of government expenditure is dominated by public debt transactions under the public and general services sector has unfavourable implications for the SDGs.

It is worth mentioning that the increase in government expenditure on interest payments during the period of analysis was the result of increased public borrowing to finance national megaprojects that aim to improve the infrastructure and public services provided to citizens.

While government spending on health is comparable to the average of lower-middle-income countries (1.4 per cent of GDP in 2018), spending on education is lagging behind (approximately 4 per cent of GDP in 2018).

In addition, the current structure of the State budget, indicates that environmental protection receives the fewest resources, constituting an average of 0.3 per cent of the total government expenditure and 0.1 per cent of GDP.

Structure of government expenditure by functional classification, as a percentage of gross domestic product (2014/15 to 2020/21)

Source: Authors, based on the final accounts of the Egyptian State budget for the fiscal years 2014/15 to 2019/20 and the modified budget figures from 2020/21, prepared by the Ministry of Finance. Data on GDP for the respective years are extracted from the financial and analytical statements of the Egyptian State budget as published by the Ministry of Finance.

C. Conclusion and policy recommendations

While the COVID-19 pandemic and its associated economic, fiscal and social impacts could exacerbate existing sustainable development challenges in Egypt, they could also provide an opportunity to introduce further structural reforms and continue those that have already begun in an effort to speed up the recovery and enhance the delivery of the SDGs.


Approaches to integrating the Sustainable Development Goals in budgetary processes

The analysis presented in this chapter provides the foundation for a number of policy recommendations regarding public finance and sustainable development in Egypt:

    • The allocation of additional funds to the social protection sector in Egypt should therefore be accompanied by greater attention to policy design and implementation to improve the targeting and efficiency of government expenditures.

    • Government reforms introduced since 2016 that phased out energy subsidies and restructured public spending on social protection serve not only environmental SDGs, but various social and economic SDGs as well. Moreover, the resources saved by these measures would allow the Government to eliminate distortive taxes on labour and capital, which would positively affect employment, private investment and economic growth. These measures would also free up budget resources to be allocated for social spending, which would benefit the most vulnerable segments of the population and hence contribute to reducing income inequality.

    • Strategic decisions should be made regarding the optimal tax mix for Egypt, based on national economic and social structures and political priorities. The political environment for changes in the tax mix should also be considered, since widening the tax base means that some constituencies who were not paying taxes previously, or were paying very little, will be asked to make greater contributions to domestic public resources.

    • Various social and economic issues would be served by introducing corrective taxes and subsidies and eliminating or rationalizing existing distortive and inefficient subsidies. These measures have the benefit of increasing government revenue and financial savings, which could be used to support the delivery of various SDGs.

    • The shift towards a more fiscally decentralized system is important in localizing the SDGs. This should take advantage of the planning process in Egypt to begin working on localization tools to create an enabling environment, as well as the implementation of constitutional obligations regarding decentralization.














5. Social protection as a budget priority

Walaa Talaat

Lecturer of Economics and International Development, Ain Shams University

Background

The 2030 Agenda aims to achieve prosperity and sustainable development for all. The main goals are to ensure that everyone has access to a basic income, food security, primary and secondary education, essential health services, affordable drinking water and adequate sanitation. Governments should ensure that no one is left behind by servicing all needs, including those of the “missing middle”

A. Social protection programmes in Egypt: expenditure, coverage and targeting

Egypt is a lower-middle-income country with various social protection programmes.

Since 2005, the Government of Egypt has faced numerous challenges that have resulted in high inflation and low salaries.

Poverty rate across geographical regions in Egypt
Source: Central Agency for Public Mobilization and Statistics, Egypt (2020). Household Income, Expenditure and Consumption Survey (2019/20).

Social safety net programmes
  • Food subsidies programme

    • Given the politically sensitive challenge of reforming the existing food subsidies programme, the Government chose to gradually move away from the old paper-based ration card system and introduce a new smart ration card system, for which participants register using their national identification number.

    Government budget expenditure on food subsidies increased from LE 21 billion in 2008 to approximately LE 83 billion in 2020/21

    Nevertheless, as a percentage of total annual government expenditure, food subsidies have declined from 6.5 per cent in 2017/18 to 5.3 per cent in 2020/21.

  • Fuel subsidies

    • Fuel subsidies encompass government spending on diesel, gasoline, liquefied petroleum gas and other fuel products.

    Fuel subsidies in Egypt have been reduced from LE 126 billion, which accounted for 17.9 per cent of total expenditure in 2013/14, to LE 28 billion, which represented 1.37 per cent of total expenditure in 2020/21

  • Takaful and Karama

    • In a shift towards more targeted programmes, Egypt has been providing two separate schemes called Takaful and Karama since 2015/16 through the Ministry of Social Solidarity. The World Bank provided initial support with a financing loan of LE 6.32 billion. Beneficiaries who meet the eligibility criteria were moved from the social solidarity pension to the Takaful and Karama programmes. Approximately 3.3 million households were enrolled in the Takaful and Karama programmes in 2020.

    This supports the decision to prioritize the programme’s launch in the poorest 19 districts across 6 governorates in Upper Egypt, where the poverty rate is approximately 50 per cent. In 2021, approximately 3.7 million households received benefits.

Social insurance
Health insurance
  • The Government provides health care to the poor; however the system is complex and pluralistic, combining public and private providers and financers.
  • For decades, the health-care system suffered from a number of challenges, primarily limited coverage, poor service delivery and high out-of-pocket payments.
  • To address health-care challenges in Egypt, Law No. 2 of 2018 on universal health insurance was adopted. The new law mandates health insurance for all the citizens except those living abroad.

B. Conclusion and policy recommendations

As the world is shaped by global trends like the pandemic, digitization, globalization and automation, social protection systems must adapt to changing contexts and demands.

Several policy recommendations can be suggested, as follows:

    • Integrate social protection into a broader policy context to respond to crises and risks.

    • Implement strategies to extend national social protection based on an appropriate mix of cash transfers and services financed by taxes and contributions in order to provide adequate benefits and sustainable universal social protection for the entire population.

    • Establish a dynamic social protection system to formulate policies, design and implement programmes in place and coordinate responses among the State, local stakeholders and non-State actors.

    • Invest in and improve the universal health insurance system by strengthening health infrastructure, capacity-building and staff retention, especially in the poorest areas. Universal health insurance should follow a rights-based, universal and equitable approach based on financial solidarity.

    • Introduce universal basic income together with universal health insurance as a first step towards normalizing universal social protection to grant basic human rights.










6. Role of the business sector

Moataz Yeken

Economic Development and Investment Expert

Background

In order to realize the Egypt Vision 2030, billions of dollars and advanced technical and managerial expertise must be mobilized and invested in national development projects, with a view to bridging the gaps in the economic and social infrastructure and achieving the SDGs.

A. The business sector’s contribution to the Egyptian economy

Data from the latest economic census from fiscal year 2017/18 indicate that there are a total of 3,742,562 economic establishments in Egypt, with 3,741,026 private establishments. Ninety per cent of private sector companies are active in the top five industries with private sector involvement. Chart below demonstrates the relative weight of the number of private establishments per industry.

Top five industries with private sector involvement
Source: Author, based on Central Agency for Public Mobilization and Statistics, Egypt, (2018). Results of the Fifth Economic Census 2017/2018 for Egypt by Economic Activity and Governorates.

Despite the negative impact of the COVID-19 crisis on the number and value of new companies incorporated in the manufacturing sector in particular, the overall number of new companies established by the end of fiscal year 2020/21 recorded growth of 27 per cent. The number of companies that expanded capital decreased by 8 per cent for the same period.

B. Opportunities for the business sector

This section will highlight opportunities for the business sector to contribute to the SDGs in Egypt by investing in economic and social infrastructure, which is considered the backbone of sustainable economic development.

Potential pipeline for infrastructure business opportunities

C. Conclusion and policy recommendations

The business sector, including public enterprises and the private sector, has great potential to contribute to government investment activities in order to provide public services and improve public infrastructure and facilities.

The following policy recommendations can be made:

    • Translate the national planning framework, based on the Egypt Vision 2030 development objectives, into quantifiable metrics that clearly identify gaps and required investments, highlighting the potential for private contributions. This should involve an enriched public-private dialogue to better adjust policies and should be led by wellorganized business associations and clear policy advocacy mechanisms.

    • Ensure that public investment priorities are results oriented, based on clearly defined policy goals, realistic, well informed and founded on evidence. They should also be robust, with investments that can position the country competitively in the global context. Investment plans should also be resilient; identify social, environmental and economic impacts; ensure value for money; and adapt efficiently to changes in resource allocation.

    • Improve investment support by reinforcing the expertise of public officials and institutions involved in facilitating investments and publicprivate partnerships at the national and subnational levels. This is essential to laying the foundation for a streamlined business environment and efficient tendering processes for public projects selected for private sector contributions.

    • Develop and apply targeted strategies to promote foreign direct investment focused on SDG sectors. Priority should be given to the proactive promotion and facilitation of SDG investments and to the creation of a continuous pipeline of bankable, green and inclusive projects to be offered to foreign investors.

    • Support businesses’ corporate social responsibility activities through relevant tax and non-tax incentives and improve the processes for project creation and selection by employing a participatory programmatic approach that actively engages local communities in the design and implementation phases.














7. Role of the financial sector

Noha Emara

Professor of Economics, Helwan University-Egypt and Rutgers University-USA

A. An overview of the financial sector in Egypt

The financial sector has undergone significant changes since the 2015 Addis Ababa Action Agenda. A major driving force is the development of digital technology, bringing about critical changes to both banking and non-banking institutions.

Role of the financial sector in Egypt concerning the six aspects listed below.


  1. Dominance of the banking sector

    In Egypt, banks play a dominant role in the formal financial sector, and the efforts of CBE to strengthen the banking sector and achieve financial inclusion cannot be overlooked. Nevertheless, the current size of the banking sector does not entirely meet the demands and needs of all people and businesses in Egypt.

  2. Limited role of non-banking financial institutions

    The non-banking financial sector in Egypt is relatively small in market size and highly underdeveloped. It has a small insurance sector; limited private equity, hedge fund and pension fund activity; and underdeveloped capital markets.

  3. Informal finance

    To address the undersupply of financial services in the formal financial market, informal finance has emerged and thrived in Egypt. It has become quite popular among households and SMEs, which have limited or no access to formal finance.

  4. Financing for sustainable development

    Egypt must develop a financing strategy to implement the 2030 Agenda in order to promote inclusive economic growth, protect the environment and enhance social inclusion.Several sources of finance to consider are taxes, domestic investment, foreign direct investment, portfolio investment, remittances, loans and ODA.

  5. Potential role of the private sector in closing financing gaps and supporting development objectives

    The private sector can play a crucial role in ensuring that there are sufficient funds to close the financing gaps in Egypt. Securitization, a process of transforming an illiquid asset or group of assets into a security through financial engineering, is one of the ways to attract private investment.

  6. Unique financial challenges and policy implications

    Given the current situation in Egypt, the financial challenges must be acknowledged. Only when the challenges and problems are addressed can Egypt move towards achieving the SDGs.

B. The 4x2 framework

In order to measure financial development more accurately with respect to economic growth and poverty reduction, the World Bank Global Financial Development Database has developed a 4x2 framework, which consists of four dimensions: financial depth, access, efficiency and stability. Applying these four dimensions to both financial institutions and financial markets should, in theory, provide a holistic view of the level of financial development in a specific economy.

Financial depth

In particular, a higher proportion of private credit to GDP is an indicator that the economy has a relatively deep financial system.

According to the latest available data, Egypt has one of the lowest ratios of private credit to GDP in comparison with other countries in the MENA Region, at 27 per cent in 2020.

The stock market capitalization-to-GDP ratio of Egypt was one of the highest in 2008, but it quickly dropped significantly and is currently one of the lowest in the MENA Region. Such a significant drop in the size of the stock market may be attributed to the global financial crisis in 2008.

Egypt must improve its financial depth to catch up with other MENA countries.

Financial access

Improvement in access to finance by both individuals and firms has proven to reduce poverty and increase economic growth in the MENA Region.

According to the latest available data, only 33 per cent of adults in Egypt had a commercial bank account in 2017, which is one of the lowest proportions among all MENA countries.

The outbreak of COVID-19 has further motivated the CBE to increase the use of electronic channels by abolishing the fees and commissions applied when using electronic points of sale and by issuing electronic wallets and prepaid cards for free for six months.

Egypt’s ratio of market capitalization excluding the top 10 companies to total market capitalization was 55.2 per cent in 2018, one of the highest in the MENA Region, but it has not yet stimulated real investment opportunities that contribute to economic growth.

Financial efficiency

Specifically, the bank cost-to-income ratio in Egypt was 37 per cent in 2020, which is considered low and generally efficient compared to the operational efficiency of banks in other MENA countries.

Financial stability

For financial institutions, a common measure is the z-score, which compares returns and capitalization with their associated risks. A higher z-score, therefore, corresponds to a lower probability of insolvency.

The z-score of banks in Egypt was 22.59 in 2020, which is not far from the average z-score of banks in the other MENA countries (27.87). This implies that banks in Egypt are relatively stable.

C. Conclusion and policy recommendations

In conclusion, achieving the aggressive FFD goals as they currently exist will require Egypt to undertake a series of progressive measures.

Additionally, Egypt must improve the mobilization and use of domestic resources.

The following policies and strategies are recommended for improving the sector’s capacity and enhancing its contribution to achieving the SDGs:

    • Streamline the informal sector: in addition to the benefit of mobilizing domestic resources, this would empower players in the informal sector and enable them to have a financial footprint and benefit from literacy efforts usually offered by formal providers.

    • Encourage inclusivity in promoting financial inclusion: this would ensure better allocation of the benefits to be reaped from greater access and usage of financial services. A concrete example would be formulating a strategy for increasing access to the Internet in parallel with promoting digitization and Internet banking to ensure that no one is left behind.

    • Expand the uses of e-government: in line with measures already being adopted, the Government should seize the opportunity to increase awareness of the efficiency of services provided through the Internet. It should also widen the scope of services offered through its e-portal to include paying for taxes and government services, among other options.

    • Increase touch points by financial service providers: this is particularly important given the high population density in urban areas. The introduction and improvement of branchless banks, mobile banking services, agency banking and other emerging technologies is expected to significantly increase banking penetration and access to finance.

    • Invest in innovation ecosystems: it is critical to support fintech companies and other financial innovation ecosystems, given that this sector is already extremely promising. While initiatives undertaken by the CBE and the Egyptian Sovereign Wealth Fund are important, they remain insufficient. The Government must spend more on fintech and incentivize the private sector to invest in it.














8. Debt management in Egypt and financing the Sustainable Development Goals

Sarah El-Khishin

Assistant Professor of Economics, British University in Egypt

Background

There are general drivers of debt that are common to all emerging markets and developing economies. Egypt has its own debt issues that require debt sustainability to be defined in a way that suits the Egyptian context and accounts for the country’s specific economic and political dynamics.

While debt vulnerabilities in many emerging markets and developing economies are generally driven by surging private debt and non-financial borrowing owing to a lowinterest environment, debt vulnerabilities in Egypt arise mainly from fiscally driven public debt owing to longstanding structural imbalances and poor institutional performance. Since the 1990s, Egypt has been engaged in successive attempts at structural reform to address its macrofiscal imbalances and debt problems. However, several factors impeded the sustainability of the outcomes from these reforms.

A. Egyptian debt: an overview

Debt vulnerabilities in emerging markets and developing economies are generally driven by surging private debt, especially non-financial borrowing.

Debt in Egypt is primarily fiscally driven. Approximately 72 per cent of total debt is public debt.

In 2018, public debt still constituted around 93 per cent of GDP in 2018, the highest share of public debt as a proportion of GDP among the countries selected for comparison.

Domestic public debt is considered the main driver of debt vulnerabilities in Egypt.

Debt composition in Egypt and emerging markets (first quarter of 2020)
Source: Tiftik, E. and K. Mahmood (2020). Global Debt Monitor: Sharp Spike in Debt Ratios. Washington, D.C.: Institute of International Finance.

In Egypt, the proportions of short-term external debt to reserves and to external debt have declined slightly in recent years; however, the country still needs to improve its external debt vulnerability position by decreasing the share of short-term debt and improving its balance of payments.

External debt vulnerability during the COVID-19 pandemic – Egypt among emerging markets and developing economies

B. Debt sustainability, the Sustainable Development Goals and Egypt Vision 2030

Debt is essential to achieving public investment goals relating to the SDGs. Debt sustainability involves the ability to achieve such goals without increasing debt ratios or the effective use of borrowed resources. Egypt is committed to achieving the SDGs and its national development agenda, which has been designed and revised to be consistent with SDG commitments.

Sectors with SDG-related public spending in reviewed studies
Benchmarks for additional public spending in sectors related to the Sustainable Development Goals

C. Egyptian debt management framework for the Sustainable Development Goals

In recent years, Egypt has already initiated many radical shifts in its strategic directions and has begun to reformulate its vision for development. In addition to constitutional requirements, these new directions are evident in recent strategic frameworks, recognized international efforts and economic diplomacy, laws drafted and institutional and implemented actions.

Egyptian medium-term debt strategy (2021–2024)

D. Conclusion and policy recommendations

    • Egypt has debt problems arising from its status as an emerging country, with growing needs and financing gaps in addition to longstanding macrofiscalfinancial imbalances. While debt vulnerability in emerging markets and developing economies is generally driven by private external debt, debt in Egypt is mainly caused by spending.

    • Key risks to the sustainability of the Egyptian debt profile arise from limited fiscal space, short-term maturity and low tradability of domestic debt. This is in addition to extrabudgetary activities and contingent liabilities arising from institutional weaknesses.

    • The Government recently took radical steps to reform its macrofiscal performance. In addition to structural and institutional reforms, it is introducing new financial tools to support its development finance agenda, engage the private sector and lessen fiscal burdens. Such measures will certainly have an impact on the sustainability of the country’s debt path.

    • The shock of the COVID-19 pandemic reversed an austerity path that began in 2016 and caused an increase in debt levels, which are expected to continue rising before resuming a downward trend towards the desired 70 per cent debt-to- GDP benchmark for emerging markets.

    • The SDG financing gap in Egypt is estimated to reach approximately 10.31 per cent of GDP in 2030. Funding this gap while maintaining debt sustainability requires securing different sources of finance, as well as improving the efficiency of public spending.














9. Trade as an engine for sustainable development and growth

Chahir Zaki

Professor of Economics, Faculty of Economics and Political Science, Cairo University

Background

While trade openness plays an important role in boosting economic growth, it might not be sensitive to sustainable development. This may be the case if it negatively affects the environment, increases inequality or deteriorates labour conditions. The 2015 Addis Ababa Action Agenda is therefore aimed at increasing world trade in a manner consistent with the SDGs, including exports from developing countries, while committing to integrating sustainable development into trade policy at all levels; supporting the integration of small, vulnerable economies in regional and world markets; and recognizing the need for value addition by developing countries and for further integration of MSMEs into value chains.

A. Overview of trade flows and trade policies in Egypt

Egypt has one of the more diversified economies in the MENA Region, along with Jordan, Morocco and Tunisia. In terms of its trade policy, it has implemented several reforms aimed at liberalizing trade and improving export performance.

The main trading partner of Egypt for both exports and imports is Europe (mainly the European Union, as well as some countries that are not member States), with 43 per cent of exports and 35 per cent of imports in 2019.

At the product level, the export structure of Egypt is more diversified than other emerging economies.

Export Diversification Index (2014)
Source: Author, based on data from the International Monetary Fund Export Diversification Database. Available from https://data.imf.org/?sk=A093DF7DE0B8- 4913-80E0-A07CF90B44DB. Accessed on 15 August 2021.

Along with tariffs and non-tariff measures, trade agreements explain why trade and competitiveness in Egypt has not really improved over time. In fact, the country has signed several trade agreements. While shallow agreements deal only with tariff reduction (i.e. trade liberalization), deep ones address issues such as non-tariff measures, mobility of persons, capital mobility and trade in services. It is worth noting that the majority of trade agreements of Egypt at both the bilateral and regional levels are rather shallow. They have therefore led to more liberalization but without any real integration into the global economy.

Policy areas included in free trade agreements of Egypt
Source: Author, based on the World Bank Deep Trade Agreements database 1.0.
Abbreviations: MERCOSUR, Common Market of the South; GAFTA, Greater Arab Free Trade Area; AA-EU, European Union Association Agreement; EFTA, European Free Trade Association; COMESA, Common Market for Eastern and Southern Africa.

B. Conclusion and policy recommendations

Several reforms are required in order to make trade policy more inclusive and thus help to achieve the SDGs.

    • For SDG 9 on industry and innovation, attract and channel more foreign direct investment into the manufacturing sector in general, and in priority sectors in particular, to develop global value chains and create more jobs. This will require a mainstreaming of industrial policy within trade policy. In other words, more coordination is needed between industrial priorities and trade policy developments.

    • For SDG 8 on decent employment, encourage domestic investment and channel foreign direct investment into the manufacturing sector to increase exports. A freer environment is associated with less informality, which will help to achieve this SDG.

    • For SDG 5 on gender equality and SDG 10 on reduced inequalities, remove service restrictions and non-tariff measures that negatively affect wages in order to make trade freer. This will lead to increased competition and a higher demand for more productive workers, thus increasing wages and reducing inequalities.

    • Expand the country’s trade agreements to address such issues will improve their effectiveness in terms of sustainable development. Moreover, strengthening multilateralism, international cooperation and global partnerships is crucial to avoiding protectionist measures that might impede the achievement of the SDGs.














10. Science, Technology, Innovation, and Digitalization

Khaled El-Sayed

Managing Director, Synerjies Center for International & Strategic Studies

Maged Ghoneima

Assistant Professor Mechatronics, Ain Shams University

Background

The role of science, technology and innovation (STI) has long been recognized as essential to achieving sustainable development. In fact, one of the shortfalls of the Millennium Development Goals (MDGs) was their limited emphasis on the role of STI in meeting their targets. Conversely, of the 169 targets of the 2030 Agenda, 48 directly relate to STI, with technological innovation also having a notable role to play in relation to the remaining targets. With the global onslaught of the COVID-19 pandemic, it has become clearer that STI is an essential tool for achieving the SDGs and is instrumental in building resilient societies and reducing the likelihood of shock.

A. Current status of science, technology, innovation and digitization in Egypt

While the Third International Conference on Financing for Development does not provide quantitative targets for STI action areas, various indicators can be used to evaluate development in STI at the national level. Key among them is the annual WIPO Global Innovation Index (GII), which measures the performance of every national economy.

As for knowledge creation, the number of scientific and technical journal articles published per million people in Egypt has historically been higher than the average for Arab States (except in 2017 and 2018) and at an average position in relation to comparator countries

B. Challenges

STI+D is in no way dormant in Egypt. Nevertheless, there remain systemic issues with the STI+D landscape in Egypt that prevent greater strides in related international indices such as the GII.

  • The financing environment

    • One of the more obvious and unsurprising systemic issues is the lack of adequate funding, as spending on research and development remained stable over a decade at around 0.7 per cent of GDP

  • The digital divide

    • The digital divide is already recognized in the 2021 VNR of Egypt as one of the key challenges facing the country’s development efforts. The report cites an urban-rural divide in computer ownership and Internet access in households and a male-female divide in Internet usage and smartphone ownership

Digital divide in Egypt


Source: Authors, based on data from the Digital Development Dashboard of the International Telecommunication Union. Available from www.itu.int/en/ ITU-D/Statistics/Dashboards/Pages/Digital-Development.aspx. Accessed December 2021.

C. Conclusion and policy recommendations

Enabling a proper STI+D ecosystem would significantly benefit Egypt in two respects:

  • Increasing the efficiency of government services, improving governance and reducing corruption, which improves the inclusivity of government services and better enables them to serve grass-roots communities and include these communities in the development process.
  • Being able to identify and foster talents early and provide them with a tailored education and the means to innovate could allow creative solutions for localized issues to prosper, thereby decreasing the country’s dependence on foreign knowledge and reducing the national “brain drain”

The following recommendations can be considered in the area of STI+D:

    • Improve the linkages between national developmental priorities and public and private research and development by offering various incentives to researchers and innovators in general, as well as incentives targeting the country’s current priorities. It is also critical to ensure that knowledge creation is linked to knowledge utilization, a key factor in activating the role of STI in FFD, which requires strong engagement with the various stakeholders, particularly in the private sector.

    • Continue the current path of digital transformation for government services while improving the quality, accessibility and inclusivity of digital infrastructure, pooling resources through public-private partnership projects in digitization and ensuring good governance and monitoring and evaluation.

    • Enhance the primary and preparatory education curricula by introducing STI-enabling subjects such as scientific methods, scientific concepts, research methods and basic ICT skills. In general, addressing the quality of primary education is critical to the long-term success of any national STI plans. While the current Education 2.0 plan is a strong first step, adding key STIenabling school subjects to curricula has the potential to positively impact the country’s overall innovative outputs.

    • Set and activate an overarching national innovation strategy while ensuring its sustainable operationalization by setting measurable targets and enforcement mechanisms. Partnerships should be ensured by engaging relevant stakeholders, particularly the private sector, and local communities. The strategy should also address systemic issues such as the availability of risk financing and how to bridge the digital divide and improve the necessary legal infrastructure.














11. Localization

Suzanna Elmassah

Professor of Economics and Development, Cairo University and Zayed University

Background

The adoption of the 2030 Agenda in 2015 signalled a commitment from world leaders to pursue a more sustainable path towards inclusive and equitable growth. Under the 2030 Agenda, 17 SDGs were formulated to cover a broad range of development issues, tying them to 169 targets and 231 unique indicators.

A. Methodology

A map for localization stakeholders

Source: Author.
This chapter focuses on developing the localization approach in order to achieve the SDGs for Egypt by identifying the current process and the targeting gaps at the governorate level.

The analysis attempts to assess Egyptian efforts to use localization to achieve the SDGs using intervention logic. It estimates the gap in implementation of localization efforts by examining government efforts in the three phases of the intervention logic, which are defining local targets, deploying local resources and achieving desired effects.

Furthermore, the leading accelerators for the localization process in Egypt are identified, including the output-outcome framework for budgetary allocation at the governorate level as a foundation step to align governmental public spending and development and welfare efforts with the SDGs.

B. Unleashing the Sustainable Development Goals at the local governorate level in Egypt

There have been several attempts at administrative, economic and political reforms in the decentralization process in Egypt over the decades; however, Egyptian Governments have never been successful in completing the ideal form of decentralization that improves the quality of life for local citizens.

While there seemed to be little progress in decentralization in Egypt over the years, localization would be the right course of action in view of its non- politicized nature and its particular focus on the local agenda for development to achieve national goals.

Megaprojects and the Sustainable Development Goals at the governorate level

img

Source: Ministry of Planning and Economic Development, Egypt, 2020.

C. Conclusion and policy recommendations

While government commitment, actions and spending are increasingly directed towards the SDGs, there remains a pressing need to tackle the difference between performances of governorates at the local level.

Well-integrated policies and governance

The Egyptian Government has implemented several commendable initiatives, in collaboration with other stakeholders, to provide local areas with the necessary financing and capacities. As previously mentioned, however, these attempts are fragmented and not well-integrated with local public administration units.

A well-tailored arrangement for multilevel governance based on the principles of subsidiarity and respect for local autonomy can better facilitate successful localization.

Refined financial ecosystem

During the last two years, the Egyptian Government started to align national financing and planning with local needs to achieve its national targets for 2030.

Mobilizing financial resources became more pressing with the outbreak of COVID-19. Local governorates became obliged to invest in measures to increase resilience to protect against future shocks. Tremendous efforts are needed to estimate the actual costs of the SDGs and the financial gaps at the governorate level.

Multi-stakeholder engagement

According to the intervention logic approach, identifying local targets is a critical step towards localizing the SDGs. Nevertheless, ownership, local accountability and the efforts of local institutions are the primary enablers in being able to successfully play a role in accelerating the 2030 Agenda. Local targets are best owned by relevant stakeholders, who plan and execute a local action plan to achieve the set targets.

Measuring effects and digital ecosystems

Measuring the impact of interventions on the SDGs targeted by governorates is crucial for successful localization. The governance model should shift from simple outlay reporting to detailed reporting on the public money spent on various development projects, the delivery of government services and the creation of infrastructure in each fiscal year.

Localization of the SDGs would therefore be enabled through the effective planning of local governments by ensuring that budgetary allocations reflect the priorities of local communities.

The following policy recommendations can be made:

    • Ensure multi-stakeholder engagement for the ownership of local targets. Relevant stakeholders best own local targets. Promoting local ownership of national strategies is therefore vital. If local and regional governments have a sense of ownership of the SDGs and a role in determining their roles and responsibilities, their involvement in implementation will be greater. Owners will work for and calibrate success. The Egyptian Government embarked on producing governoratelevel SDG localization reports and is on the track to produce human development reports at the subnational level. Local human development indicators will allow for monitoring progress and achievement towards the SDGs at the local level. This is a short-term goal.

    • Generate consistent, disaggregated data to map localization to the SDG indicators at the governorate level. Digitization creates a potential for big data sets of indicators at the local level. Efficient local monitoring systems require local and national statistics systems to provide adequate human, technical and financial resources. Simultaneously, efforts must include better collaboration between governorates and national statistics offices and a search for alternative systems that are able to produce consistent data related to the SDGs targets and indicators. Without these, national reporting processes will lack a clear local perspective and will tend to ignore the real needs and aspirations of local people, particularly the most vulnerable. This is a short-term goal.

    • Adopt well-integrated policies and governance. A well-tailored multilevel governance arrangement based on the principles of subsidiarity and respect for local autonomy can better facilitate localization success. Such an approach is crucial to develop the notion of local ownership of the SDGs. This is a medium-term goal.

    • Establish a refined financial ecosystem for localizing the SDGs. Localizing the SDGs requires effective planning from local governments' by ensuring that budgetary allocations reflect local communities' priorities. There is a need to consider allocating the budget in a way that links to the local SDGs. Simultaneously, identify and capitalize on the comparative advantage of each governorate based on the local priorities that align with the national strategy.

    • Ensure that local communities and/or governorates receive adequate funding from diversified financing sources to fulfil the local SDGs targets. The next step should be strengthening the local own-source revenues and allowing more governorate access to innovative financing mechanisms. Reshaping the fiscal policy could create an additional source of local finance. This is a medium-term goal.




















12. International development cooperation

Rawda Said Ali

Policy and Development Consultant

Background

The SDGs provide a compelling vision of what is to be achieved, and the FFD process offers an understanding of what this vision requires in order to be realized. Complementing this by addressing how we partner and work together will not only ensure that it is possible to address the magnitude and complexity of development challenges more effectively, but also guarantee that it is done in a faster manner.

A. Official development assistance

Traditionally, ODA has been almost synonymous with development cooperation. This is because the OECD Development Assistance Committee defines the concept of ODA and the criteria for its expenditure, and because it provides the largest proportion of resources for development assistance.

Disaggregating the ODA portfolio by category over the period from September 2015 to June 2019 shows that Egypt mainly secured ODA funds in two broad categories: concessional loans and grants.

From September 2015 to June 2019, the World Bank topped the list of development partners (both bilateral and multilateral) by the total value of signed ODA agreements, with 32 per cent.


Disaggregation by financing source

Source: Auhtor, based on data from periodic reports issued by the Ministry of International Cooperation of Egypt in 2019
Distribution of official development assistance by top donors September 2015 to June 2019
Source: Auhtor, based on data from periodic reports issued by the Ministry of International Cooperation of Egypt in 2019

ODA-SDG mapping, December 2020

B. Private sector engagement in Egypt

In 2018, the Ministry of International Cooperation partnered with OECD to conduct an important case-study on private sector engagement in development in Egypt using ODA flows, as part of OECD efforts to set international guiding principles for private sector engagement.

The findings showed that:

    • Private sector engagement through development cooperation largely comes from multilateral development finance institutions, followed by bilateral (Development Assistance Committee) donors and their implementing agencies.

    • Large domestic private sector actors are the most prominent partners in reviewed private sector engagement projects (62 per cent of projects), followed by large transnational companies (39 per cent). Domestic MSMEs accounted for only roughly 8 per cent.

    • For 77 per cent of projects examined, private sector partners are recipients of finance (47.3 per cent of projects overall, including debt financing). Following this role, they act as an implementing partner (31 per cent), financier (or resource provider, 25 per cent) or an on-lender to MSMEs (20 per cent).

    • Finance represents the most common modality for private sector engagement in Egypt, where blended financing is used for about 42 per cent of the implemented projects. Capacity development was the next most prominent modality of engagement at 15.4 per cent (42 projects), followed by technical assistance (9.2 per cent, 25 projects), policy dialogue (2.9 per cent, 8 projects), knowledge-sharing (1.1 per cent, 3 projects) and research (1.1 per cent, 3 projects). In this context, 49 projects (17 per cent) included more than one modality.

    • Sectors of focus in private sector engagement through development cooperation are finance, energy, manufacturing and agriculture, accounting for 32 per cent, 14 per cent, 13 per cent and 8 per cent of projects, respectively.











C. Conclusion and policy recommendations

Different cooperation tools have been examined as external finance channels and as powerful catalysts and levers for domestic resource mobilization, allowing for acceleration of the achievement of the SDGs in Egypt.

Two sets of recommended policy actions are proposed.

Strategy-oriented recommendations

1. Adopt a national development cooperation policy

A comprehensive and overarching legal framework that covers a broader scope of external financing resources, including ODA, can better support the INFF discussed in chapter 3 and will act as an enabler that increases the coherence and effectiveness of development cooperation in Egypt. The policy should: (i) be closely linked to national and global sustainable development goals; (ii) stress the critical set of external resources that international development cooperation encompasses to support the realization of the SDGs (this includes financial transfers, capacity support and policy advice with primary development impact, all of which can fill resource gaps and provide targeted support to realize national development efforts and contribute to international ones); and (iii) reflect the clear roles and responsibilities of a wide range of actors in development cooperation. This includes governmental actors at the national and subnational levels, bilateral and multilateral development partners, the private sector, civil society and charities.

2. Adopt a national ODA strategy

The ODA coordination and management system in Egypt can be strengthened with the adoption of a legal framework, reflected in a national ODA strategy. The strategy can be formulated in the medium term to be part of a larger overarching framework for the national development cooperation policy suggested above. It should be focused on the purpose of ODA, declaring the goals, priority sectors and priority geographic zones for intervention that would optimize its use, thereby maximizing the development impact of ODA and contributing to achieving national priorities. In this way, the strategy will serve as a compass, pointing towards what needs to be done, where and in which areas. In turn, it can serve as a tool to better understand the role that development cooperation and concessional finance can play compared to other sources of finance. It will therefore guide the Government with regard to decisions on the allocation of ODA and support it in managing the competing sectoral interests. The strategy will also guide development partners by indicating national objectives and increasing alignment with them. Moreover, it will increase the efficiency of the ODA system by ensuring that development cooperation resources are better allocated with the development priorities defined in the national strategy and plans and respond to the SDGs. Lastly, adopting a clear national ODA strategy will enhance national capacity in the medium-term predictability of development cooperation indicators, improving the country’s ranking in the principle of country ownership.

3. Formulate a national policy framework

Formulate a national policy framework for private sector engagement through development cooperation and beyond. Developing such a policy framework will contribute to building more inclusive partnerships and increasing country ownership through greater participation by local stakeholders. This process should be aimed at clearly outlining the objectives of private sector engagement, benefits to different stakeholders, opportunities for engagement and conditions of engagement (such as monitoring, evaluation and results reporting). The organized multistakeholder platforms focused on private sector engagement should be used as a medium to reach this policy framework and as a starting point for this process.

Action-oriented recommendations

1. Extend the regulatory frameworks

Extend the regulatory frameworks to comprise and promote private sector engagement in social sectors. This step will stimulate and increase financing for innovative business models, such as social enterprise models that target socioeconomic needs. The Government must provide incentives for the private sector to move from economic investments to impact investments generating social, environmental and financial returns. This may include presenting fiscal and non-fiscal incentives (endorsements, labelling, training and information) to help businesses and private sector front runners to target development challenges in specific sectors and regions that lag behind with an explicit focus on the poor and the most vulnerable.

2. Create a road map for blended finance

Create a road map for blended finance that is linked to the INFF. As mentioned earlier, the Government of Egypt is currently conducting a DFA to map and analyse FFD flows and their associated policy and institutional frameworks. In that regard, and in cooperation with different development partners, the Government can spearhead an exercise to evaluate the potential of adopting blended finance for different priority development sectors and projects with financing challenges. It is important to measure the cost of blending compared to other financing structures and to identify the most appropriate instrument that addresses the existing challenge and helps to achieve the desired impact. The evaluation should be based on the sustainability of the underlying programme or intervention, the potential for increased efficiency by engaging the private sector and the interest of private sector partners. Adopting a strategy will allow the Government to use blended finance in a strategic and systematic way that helps to close the financing gap, stimulates innovation in high-impact sectors and fosters the development of the domestic market.

3. Adopt a strategic blended capital approach at the level of MSMEs

In relation to the previous recommendation, it is important to adopt an appropriate approach for the stage of maturity and capital needs of enterprises that perform social activities in the public interest. For example, early-stage capital is required for innovative businesses and projects, which may be able to attract commercial financing in the medium to long term but require highly concessional capital in the short term. Such early-stage organizations can be provided with grant funding, while entities that are in a growth stage should be considered for investment capital. Adopting a strategic blended capital approach will ensure that dormant account funds are used efficiently and private capital is directed towards sustainable development.

4. Form a dedicated and functional mechanism

Form a dedicated and functional mechanism to support efforts to tackle illicit financial flows in a more coordinated manner and reinforce financial integrity for sustainable development. Such a mechanism is desired to effectively coordinate between all national bodies involved in curbing illicit flows and to promote policy coherence by overcoming any existing conflicts in relevant policies. The mechanism can take the form of a high-level committee that is missiondriven, time-bounded and reports directly to the President to guarantee the inter-agency collaboration that is needed to improve financial transparency mechanisms and communicate progress to the public.

5. Address challenges in the national regulatory frameworks

Address challenges in the national regulatory frameworks, enforcement mechanisms and capacities to effectively curbing illicit financial flows. It would be useful to reconsider the repeal of banking secrecy for tax administration purposes and the effective exchange of information. On the one hand, it would enable the competent authorities to combat tax evasion, money-laundering and other financial fraudulent activities. On the other hand, it would establish a framework for complying with international standards on the exchange of information. Nevertheless, implementing this step should be coupled with strict safeguards that protect against the political misuse of any such provision by government bureaucrats and against breaking the public trust in banks, which would have a negative impact on the economy. Any amendments must ensure that information will only be used for the intended purposes and specific cases clearly stated in the law. It is also key to continue to provide ongoing support to effectively implement the tax and customs services reform and to upgrade their digital technology infrastructure and tools to enhance their administration and implementation capacities in order to effectively detect and deter illicit transactions.

6. Strengthen the management of information on development cooperation

Using an advanced and integrated information system for managing ODA and similar data flows (including South-South cooperation and climate financing) is key to ensure the availability and timeliness of accurate statistics on development cooperation projects. The system is also expected to enhance coordination between the ministries involved in development cooperation to ease monitoring and maintain a results-focused approach. Improving the monitoring system in place will help to overcome the challenges of limited reporting and disaggregation of information on the allocation and use of ODA at the national and subnational levels, which will consequently better inform and guide policy interventions to ensure that no one is left behind. It will further increase the accessibility, transparency and reliability of public information, as well as operate as an accountability tool that enables the national Government and various development partners to make improved, informed decisions based on emerging evidence.

7. Invest in the development of human capacities

Invest in the development of human capacities to scale up private sector engagement and knowledge-sharing. The national experience of Egypt, as well as other international experiences, shows that institutional and human capacitybuilding go hand in hand. This suggests that the mapping of existing finance needs and resources must be accompanied by efforts to address the human capacity gaps at the national and local levels. Capacity-building to scale up private sector engagement and knowledgesharing are two areas that must be targeted as a matter of priority. Increasing the quantity and quality of private sector engagement for sustainable development requires ensuring that the appropriate skill sets are available for work with the private sector throughout the project development process. Investment in the recruitment and technical training of staff able to prepare projects properly, with experience across a range of financial instruments, is therefore crucial. Moreover, the fact that concessional blended finance is relatively new calls for a focus on building capacities in documentation and knowledge-sharing with regards to: (i) the structures and approaches that worked in Egypt; (ii) the projects and sectors in which those structures and approaches were deployed; and (iii) why they did or did not work, elaborating on the enabling conditions for replication of such efforts.

13. A way forward

Dahlia El- Hawary

Economic Advisor and Former Advisor to the Minister of Investment

Miral Shehata

Economic Researcher

Background

Over the past few years, the world has witnessed a paradigm shift in the way economies have been operating; they are moving towards a new business model based on ensuring sustainability by mainstreaming environmental, social and governance considerations in core policies, strategies and operations. This structural transformation has been ignited by the 2030 Agenda, which was formally adopted by world leaders in 2015. It provides the blueprint for transitioning to more inclusive, green and resilient economies through the achievement of 17 SDGs across three main pillars of sustainability: economic, social and environmental. It also emphasizes a universal goal to leave no one behind.

A. Dimensions of the Sustainable Development Goals

The 17 closely interlinked SDGs can be grouped into six categories.



Dimensions of the Sustainable Development Goals

Source: Mohieldin, 2021b.

B. The sustainable development path for Egypt

Egypt has been committed to the achievement of the SDGs and, on average, is 68.6 per cent of the way to the best possible outcomes, ranked eighty second among 165 countries A key step in the path towards the SDGs is to identify national development priorities in light of the country’s initial conditions and constraints.

Some of the most important issues to be addressed and the role of enablers, which should be reinforced during the transition:

    • Hayah Karima

      The Presidential initiative, Hayah Karima meaning “decent life”, represents a milestone in the country’s progress towards improving the lives of the poor, particularly by targeting the poorest villages in Upper Egypt and other marginalized rural areas. It is considered the largest project to localize the SDGs in the world, taking advantage of the interlinkages between the SDGs and changing the landscape for sustainable development at the local level.

    • Economic reform programme and structural transformation in Egypt

      Following the successful implementation of the first phase of reforms, the second phase was launched in 2021. The national structural adjustment programme aims to stimulate the supply side of the economy and ultimately achieve well-balanced, green and inclusive growth. Targeting a deeper structural transformation of the economy presents key challenges, particularly during times of crisis, as it seeks to address persistent structural imbalances that have created long- standing weaknesses in the real economy, particularly at the sectoral and market levels.

    • Digital transformation

      The ICT sector in Egypt has been growing at an average rate of 16 per cent over the past few years. In 2020, over $1 billion has been secured to accelerate the digital transformation of Egypt. This is because digital transformation has been envisioned to play a significant role as a major enabler for implementing the aspired structural transformation of the economy, as an integral component for supporting “Hayah Karima” initiative, and as a major cornerstone to the implementation of the SDGs.

    • Sustainable finance and climate finance

      The absence of quality data as well as well-developed, commonly accepted metrics, classification standards, definitions and methodologies have limited stakeholders’ ability to efficiently adjust to business-related risks and opportunities. This acts as a barrier to scaling up sustainable finance in general, and climate finance in particular, in Egypt and the region as a whole.

    • Export orientation

      The export composition for Egypt has shown bias towards traditional products and raw materials, reducing potential gains associated with exporting higher value-added products. In that respect, it is important to strengthen the link between the trade policy and other policies to improve the variety and complexity of exports and their contribution to GDP.





















Key Policy Recommendations

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No poverty, reduced inequalities and social protection

A. Goal 1: no poverty and Goal 10: reduced inequality

  1. Ensure equal access to health, quality education, technology and economic opportunities for all.
  2. Address gender inequality by ensuring that women have equal access to economic opportunities and sustainable sources of income, especially in rural areas.
  3. Reduce spatial inequality by ensuring adequate investment in social and physical infrastructure of rural and urban areas in all governorates.

B. Social protection system

  1. Expand Social Safety Net Programs horizontally by adding new beneficiaries and vertically by increasing the benefit size (inflation indexing), while also revising the targeting methods.
  2. Improve reach out and targeting through building a comprehensive database using the Unified National Registry and connecting it to the civil registry.
Integrated national financing framework and public financial flows

A. Integrated national financing framework:

  1. Maintain current efforts on the first and second building blocks of the INFF: assessment and diagnostics and the financing strategy while closing the cycle by activating its third and fourth blocks: monitoring and review as well as governance and coordination.
  2. Continue the recent path of fiscal consolidation and reduce reliance on foreign borrowing and volatile external inflows to address the twin deficit dynamic of government budget and the current account.

B. Fiscal Policies and Public Domestic Resources

  1. Reform the Public Financial Management System. On the expenditure side, strengthen program and performance-based budgeting and introduce a Medium-Term Expenditure Framework.
  2. Invest in a tax administration system in terms of transparency, efficiency, collection effort, enforcement and compliance while strategically identifying the optimal tax mix based on national economic and social structures as well as national political priorities.

C. External Public Flows

  1. Consolidate efforts through the adoption of a National Development Cooperation Policy framework that covers a broader scope of external finance resources: official development assistance (ODA) and beyond, to better support the INFF, increase the coherence and effectiveness of development cooperation, and identify clear roles and responsibilities for all relevant stakeholders.
  2. Optimize the use of ODA flows for catalytic purposes to leverage private investments and maximize finance for development.
  3. Create a roadmap for Blended Finance highlighting national priority development sectors and projects that can benefit from this financing modality.
  4. Form a dedicated mechanism to support tackling Illicit Financial Flows to effectively coordinate between all entities involved in curbing such flows.
  5. Enhance technical assistance, capacity development and knowledge transfer associated with development cooperation.
  6. Strengthen the development cooperation coordination and information management through using advanced information technology and data systems for managing ODA and alike-flows.

D. Public debt management

  1. As a rule of thumb for development finance, maintain a priority for investment over borrowing.
  2. Ensure a declining trajectory for public debt, both domestic and foreign, as a ratio of GDP as well as for debt service as a ratio of exports of goods and services.
  3. Within prudent limits, prioritize domestic currency borrowing for lines of finance that do not have foreign returns.
  4. Increase the tradability and liquidity of the debt instruments and strengthen Egypt’s financial markets to fund SDGs spending gaps.
  5. Develop prudent measures and strengthen the institutional framework to govern the new types of innovative financing instruments; such as sovereign green bonds, Islamic Sukuk and Climate-SDGs debt swaps.
  6. Strengthen fiscal risk management and enhance fiscal and debt rules to promote debt transparency, accountability and reporting.
Business and Financial Sectors

A. Business sector

  1. Translate the national planning framework into quantifiable targets to identify gaps and required investments, highlighting the potential for private investment through information sharing.
  2. Improve the dialogue with the business sector, domestic and foreign, and emphasize knowledge sharing in a dynamic way while focusing on sectoral and geographic potentials.
  3. Realize the potential of public-private partnership through a new approach based on international best practices and revise institutional responsibilities, governance and coordination among the public entities and enhance the investment promotion approach of the public-private partnership framework.
  4. Adopt a clear business engagement model with the private sector based on well-defined “traffic light” signal- system:
    Areas for full private sector engagement under effective regulations (Green);
    Areas for possible partnerships with the State (Orange);
    Clearly restricted areas for operations (Red).
  5. Align the mandate of existing zones: economic, investment, free and industrial with development goals, at the national, governorate and sectoral levels, while reinforcing export promotion, private sector engagement, foreign direct investment, and integration into global value chains.
  6. Ensure that investment and production are green and smart, supported by digitalization, innovation, and effective logistics.
  7. Enhance the integration of environmental, social and governance considerations into the business sector’s core strategies and operations through effective regulations and incentives, and showcase some of the good examples of firms’ compliance in the context of the preparation for COP27.

B. Financial sector

  1. With an average share of private sector credit to total credit hovering around 22%, and an average market capitalization ratio to GDP reaching 14%, over the past three years, this demonstrates a critical need for improving private sector’s access to finance.
  2. Improve other areas of financial services such as insurance and leasing based on international standards.
  3. Develop a comprehensive policy for financial development to support funding Vision 2030 ambitions and the required growth strategy. This is critical to complete the requirement for development finance which is normally based on effective regulations, competitive market and adequate policy framework.
  4. Promote the role of the financial sector in funding socially responsible and environment friendly investment by:
    Providing incentives for incorporating environmental, social and governance considerations into their activities.
    Ensuring financial sector’s compliance with new rules related to sustainability, as informed by the Task Force on Climaterelated Financial Disclosures.
  5. Provide adequate investment in digital infrastructure and new modalities for providing financial services through digital platforms and enhancing relevant financial literacy to maximize the benefits of the digital dividends and minimize the challenge of digital divide.
Trade

Recommendations

  1. Develop and implement an Export strategy with concrete measures to achieve the USD 100 billion target of exports of goods, while capitalizing on competitive advantage and geographic proximity.
  2. Diversify Exports and raise their complexity and GDP contribution by enhancing policies related to education, labor, governance, institutions, infrastructure, technological readiness and open trade.
  3. Promote trade with regional partners, including Arab, African and European countries.
  4. Tap on new markets by promoting connectivity through better transportation systems, effective logistics, easing trade barriers, fostering the adoption of technology and investing in information communication technology to support digitalization.
  5. Provide Institutional support for export finance, advancing credit and improving guarantees, to support export promotion.
  6. Provide special incentives to foreign direct investment which fosters innovation, R&D, technology transfer and higher value addition to reinforce export orientation.
  7. Increase domestic and foreign investment in the manufacturing and priority sectors, to better integrate into Global Value Chains.
Science, technology, innovation and digitalization (STI+D)

Recommendations

  1. Adopt an overarching national innovation strategy that ensures sustainable operationalization by setting measurable targets and enforcement mechanisms.
  2. Increase investment in digital infrastructure, data systems and platforms in cooperation with the private sector.
  3. Enhance the primary and preparatory education curricula through introducing Science, Technology and Innovation-enabling subjects, such as, scientific thinking, research methods, artificial intelligence and information technology skills.
  4. Continue the current path of digital transformation of government services while improving the quality, accessibility, and inclusiveness of the digital ecosystem.
  5. Strengthen the regulatory framework to address emerging risks associated with digitalization, such as cyber security.
Data and data systems

Recommendations

  1. Develop capacities in managing data collection and data streaming processes.
  2. Create binding benchmarks for SDG data updating frequency and level of disaggregation, including data at the governorate level.
  3. Develop initiatives to use Big Data to monitor and evaluate the impact of development projects.
  4. Adopt legislative reforms that contribute to strengthened governance, particularly laws on freedom of information and data security.
Localization

Recommendations

  1. Capitalize on the investments of Hayah Karima by enhancing productivity and competitiveness to guarantee that the newly developed rural Egypt becomes a major contributor to production, job creation, and the export orientation of the economy.
  2. Adopt a financial ecosystem for localizing the SDGs by ensuring adequate budgetary allocations and strengthening the local revenue mobilization capacity.
  3. Ensure multi-stakeholder engagement for the ownership of development goals and targets, following the participatory approach adopted by Hayah Karima.

Acknowledgements, Acronyms, References