Analysis Of Balance Of Payment

7 Pages 1760 Words

ely to buoyant foreign exchange receipts from oil exports, workers' remittances, and tolls from the Suez Canal and tourism.

However, slow global growth and the fall in world oil prices in the mid-1980s caused massive fiscal and current account deficits and the inherent structural rigidities which had hitherto been masked began to exert strains on the economy. Debt rose to over 100% of GDP, debt service to 50% of export earnings and foreign reserves covered only 2 months of imports. Fiscal deficits increased to 18% of GDP and inflation accelerated to more than 20%.

In May 1991, the IMF and Egypt agreed an Economic Reform and Structural Adjustment Programme (ERSAP), underpinned by balance of payments support and Paris Club forgiveness of 50% of the net present value of Egypt’s debt to be written off in three trenches, subject to satisfactory implementation of the ERSAP. The first stage of the reform programme focused on stabilizing the economy, involving fiscal and monetary tightening, exchange rate liberalization and price deregulation. The Egyptian Pound was pegged to the US$. Phase two saw a further deregulation of prices, investment reform, trade liberalization, as well as private sector and financial sector reform.

In October 1996, the IMF approved a new 24-month standby credit arrangement for Egypt focusing on further liberalization of trade, and financial and legal reform. The agreement triggered the release o...