Egypt establishes sovereign fund

The Egyptian government has moved to establish a sovereign fund as part of reforms intended to boost the economy and shrink unemployment.

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May 2, 2018

Egyptian economists lauded the government’s April 11 approval of a draft law establishing a sovereign fund intended to make use of state assets with a capital of 5 billion Egyptian pounds (about $285 million).

The Egypt Fund, which will be managed by the Ministry of Planning and the Finance Ministry, is seen as a crucial step to benefit from state assets and carry out several infrastructure projects, create job opportunities and reduce the budget deficit.

Al-Anba reported April 12 that at a news conference at the Cabinet headquarters April 11, Minister of Planning and Administrative Reform Hala el-Saeed said that the fund seeks to achieve “sustainable economic development” and to manage state-owned assets “in accordance with the best standards and international rules and in cooperation with all the Arab and international funds as well as various financial institutions.”

Saeed added that the government “is working with a group of regional experts and partners from Arab countries to draw up the bylaws of the fund.”

According to Saeed, “Oil-rich countries that have a financial surplus were the first to create sovereign funds in the early 1950s. Other countries followed in their footsteps to capitalize on their unused assets or other assets that needed upgrading” to maximize benefits and revenues.

The fund will have a board and a general assembly comprising the Finance Ministry and Ministry of Planning and Administrative Reform, as well as a representative of the Ministry of International Cooperation and Investment, Saeed added.

Economist Ahmed Koura said that sovereign funds promote good governance and transparency, as they are subject to financial supervision laws that monitor the management and utilization of these assets rather than leaving the job to disparate bodies.

“It is a financial tool used by many governments to manage their assets and financial surpluses with a view toward maximizing their revenues through investments in different financial markets, be they inside the country or abroad,” Koura told Al-Monitor. He also said that the sovereign fund will enable the state to invest in the Egyptian market if private sector investments decline.

“The idea is more than excellent and will make great use of the state's assets, the majority of which are not being properly managed now,” Koura added.

Since 2016, the Egyptian government has been taking measures that include floating the Egyptian pound against the dollar and reducing food and fuel subsidies in order to stimulate economic growth and create job opportunities, which increased exports, lowered unemployment rates and reduced the budget deficit. The government kick-started the ambitious economic reform program after obtaining a loan of $12 billion from the International Monetary Fund in 2016.

These reforms have paid off, with the country’s budget deficit declining to 4.4% in the first half of the fiscal year 2017/2018 compared to 5% last year, according to the Egyptian Finance Ministry.

The country’s unemployment rate also edged down to 11.8% in 2017, compared to 12.5% the year before, according to the Central Agency for Public Mobilization and Statistics. Foreign reserves rose to $42.524 billion by the end of February, compared to $38.209 billion in January, the Central Bank of Egypt stated. Inflation also fell to its lowest level in more than a year in February, standing at 14.4%, compared to 17.1% a month earlier.

Bassant Fahmi, an economist and a member of the parliamentary economic affairs committee, said that the move has long been awaited, particularly since several countries all over the world, regardless of their different political and economic ideologies, invest their financial surpluses in international markets through these funds.

Fahmi also said that with the imminent relocation of government institutions to the new administrative capital, a lot of buildings will be left unused and abandoned. “Based on that, said fund would be extremely important to … make use of [these assets],” she told Al-Monitor.

Nevertheless, the veteran economist said that in order for this fund to succeed, assistance from experienced international consultants will be required.

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