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Skip Navigation LinksPOGAR > Countries > Country Theme: Financial Transparency: Egypt
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Fiscal

The Egyptian Constitution establishes the framework for fiscal policy in the country. Per Article 23, the national economy is to be organized in compliance with a development plan that includes raising national income and standard of living, lowering unemployment, and lessening disparity between income groups. According to Article 86 and 115, the national budget must be submitted to the People’s Assembly two months prior to the close of the fiscal year. Each provision is approved separately. The plenary session must not close until the budget is approved. Moreover, as stipulated in article 38, taxes in the country must be based on social justice. The Ministry of Finance authorizes collection of sales tax.

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Public Audit

The Central Audit Agency, under the wing of the president’s office since the passage of Law No. 157 of 1998, has been actively engaged in the government's efforts to privatize the public sector and to work towards financial transparency. Although the Central Audit Agency was theoretically an independent body, originally established by Law 52 of 17 August 1942 and reporting to parliament, it cannot independently implement its reports or recommendations. The Central Audit Agency’s annual reports do, however, offer valuable information about patterns of government expenditure, although they are accessible only to select journalists and others who have access to parliamentary documents. The head of the agency is nominated by the president, confirmed by parliament and can only be relieved of his/her duties by the president. The agency can investigate unions and syndicates, the media, political parties, government agencies and any public enterprises, but it cannot supervise or investigate private sector companies unless they are at least 25% owned by the Egyptian Government.

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Public Procurement

The Law on Organizing Tenders and Bids (No. 89) of 1998 applies in general to all public tenders and procurement. Starting in 2003, the General Organization for the Governmental Services took charge of all the Public Procurement Tenders on behalf of five ministries, including those of Finance, Trade and Industry, and has been developing a national data base of suppliers so as to apply the new system to the other ministries as well.

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Banking

The banking sector consists of a central bank, large public sector banks, and many joint ventures and private sector commercial banks. The Central Bank of Egypt (Bank al-Markazy al-Misry), established in 1960, is an autonomous public legal entity. Among the bank’s responsibilities monitoring and controlling the other banks. The Central Bank, Banking System & Currency Law replaced the Bank’s previous founding documents on May 28, 2003 in response to a series of bad loans worth millions of dollars to prominent businessmen and officials. This new law imposes stricter capital requirements and a code of ethics, created in hopes of stemming the flow of money from the banking system. The Central Bank participated in February 2005 in negotiations between businessmen who carry non-performing bank loans and lending banks. Non-performing loans of Egypt's banking sector amount to $US 70 billion, including loans to public sector companies.

Law No. 80, Egypt’s first anti-money laundering legislation, was issued on May 22, 2002. The law dictated the creation of a special semi-independent unit within the Central Bank to combat and investigate money laundering. The unit is to investigate any suspicious activity in any financial institution and to share information with the prosecutor general’s office. All financial institutions are obligated by law to inform the agency of any suspicious behavior or financial transactions. As a result of this anti money laundering activity, the Financial Action Task Force, the international body leading the charge to safeguard the global financial system against money laundering and terrorist financing, announced the removal of Egypt from its list of Non-Cooperative Countries and Territories in February 2004. Parliament also passed a Unified Banking Law (No. 101 of 2004) giving the Central Bank greater oversight authority so as to cut down on imprudent lending. Critics point out, however, that the law does not give the central bank greater independence from the presidency.

A number of banking scandals have come to light since 2001, mostly involving bad loans to influential businessmen and officials. As of 2003, each of these cases has been prosecuted and heavy sentences have been handed down for those convicted. Loan defaults between 1999 and 2003 are estimated to have cost the banking system between US$ 8 and 10 billion, or 10% of GDP annually. The new laws forbid lending more than 30% of a bank’s equity base to one client, and require banks to maintain capital to back at least 10% of their risk-based assets. The new rules bring Egypt’s banking system in line with international standards, such as the 1997 Basel accord.

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Privatization

Egypt’s privatization program, initiated by law 203 of 1991 and relaunched in 2004, consists of sales to strategic investors, domestic stock exchange flotations, employee buyouts, and sales of constituent assets. All proceeds are channeled through the Ministry of Finance to pay off public debt. In June 2005 the IMF Executive Board “welcomed the increase in the transparency of economic policies in Egypt.”

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Stock Exchange

Egypt has the most active stock market in the Arab region. The Cairo and Alexandria Stock Exchange (CASE) listed 792 companies as of December 31, 2004 and uses an automated trading system. The stock exchange in Egypt is quasi-governmental supervised by a securities regulator. The market capitalization at the end of year 2003 was $27.1 billion, which was 32.8% of GDP. International communications systems have been installed improving networking within the Egyptian capital market. About 800 of the companies registered in CASE are not publicly traded and about 60% of listed companies are in the financial sector, offering investors a narrow range of undiversified opportunities. Electronic security systems to guarantee on-line surveillance are also in place, in addition to stringent membership rules. The Capital Market Authority is the market regulatory agency responsible for ensuring the development of a transparent and secure market for investors in Egypt.

Stock listings will now meet the requirements for the Capital Market Authority. A Settlement Guarantee Fund has been established to guarantee timely execution of transactions. Moreover, a company devoted to disseminating stock information has been put in place. An Alexandria investor’s club was established in 2000 to respond to the inquiries of capital holders. Advertising campaigns have been launched to introduce the general public to the CASE. Significant efforts have been put forth to develop human resources for the exchange, as well as more stock connectivity within the region. Egyptian Capital Market stock quotes are available on the Internet as well.

Egypt is implementing the recommendations of the World Bank and the IMF issued in their Report on the Observance of Standards and Codes (ROSC) assessment of March 2004. The goal is to bring corporate practices in line with those advocated for the advanced industrial nations of the Organization for Economic Cooperation and Development (OECD). The new norms are gradually being enforced. From 2002 to 2004 the Egyptian Capital Markets Authority de-listed over 300 companies, family-owned firms for the most part, for not being able to comply with OECD standards. The de-listed firms lose certain tax advantages. The ROSC assessment recommends the development of a Code of Corporate Governance in conjunction with the Cairo Alexandria Stock Exchange. It also recommends more legislation updating both the company and the accounting and auditing laws.

In an effort to attract foreign investors, the Sixth of October Trade Point was established. This organization provides data on trade, investment, the service sector, and business facilities.

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Financial Institutes

The presence of economically-oriented think tanks also contributes to financial transparency in Egypt. Addressing the needs of the firms listed on the Cairo and Alexandria Stock Exchange, the Authority established an Egyptian Institute of Directors in 2004 to translate and disseminate appropriate standards for the respect of shareholders’ rights, notably those of minority shareholders, for transparent financial disclosure, and for the accountability of boards of directors. The Egyptian Center for Economic Studies (ECES) was founded in 1992 under the auspices of Egypt’s private sector. It helps promote economic development in the country through helping policymakers and the business community in the processes of policy reform. This institute provides information on economic and regulatory issues in the country to promote sustainable economic growth. The Economic Research Forum, based in Cairo, concentrates its efforts on development in the Arab world, Turkey, and Iran. Its purpose is to increase both the quality and quantity of economic research in the region.

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International Transparency Standards

Egypt qualified on January 31, 2005 to participate in the Special Data Dissemination Standard of the IMF, which reflects international best practice in the area of economic and financial statistics.

Moody’s and Standard and Poor’s have issued bond ratings for the country.

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