RECENT MACRO-ECONOMIC PERFORMANCE OF THE EGYPTIAN ECONOMY

• Egypt is experiencing its strongest growth for the last two decades. Gross Domestic Product expanded by over 5% at an annual rate through fiscal year 2004/2005 compared with 4.1% in 2003/2004 and 3.1& in 2002/2003 . Despite robust growth, inflation has slowed markedly since a brief upward surge in 2004 that was due to a lagged response to the transition to a floating exchange rate in 2003 .
• The future of the Egyptian economy is bright because of growing business confidence and strong domestic and foreign investment. Comprehensive policy reforms are being implemented by the Government. A significant number of these reforms are fiscal and will serve to increase the transparency and predictability of economic policy. The mix of fiscal / monetary / structural reforms will also nurture healthy growth in the medium run.
• A new tax code, passed in June 2005, lowered personal and corporate taxes by 50%. This measure will increase disposable income. At the same time it will increase fiscal revenues by widening the taxable base and making tax collections more efficient. The elimination of exemptions and the simplification of the tax structure to three brackets will yield a transparent and predictable system.
• Aggressive efforts are under way to modernize tax administration with a view to increasing the efficiency of tax collection. The new administration will abide by the new spirit of the Law which relies on the principles of self-assessment, risk audits, and shifting the burden of proof to the Tax Authority. As a step in this direction, a large taxpayer center applying these principles was opened in Cairo in September 2005. The overall transformation of the rest of the tax administration along the same principles is planned to take place over the next two years.
• Customs administration is also being improved. A large importers' center was launched in October 2005 as part of ongoing efforts to increase trade facilitation. Tariffs have been reduced significantly with a view to increasing the competitiveness of Egypt's exports. Tax and trade reforms will in the short run be financed by privatization proceeds. Revenues from the sales of public and joint venture enterprises totaled USD 2.9 billion from July 2004 to date. This is more than double the total value of sales proceeds between 1999 and 2004, and close to 90% of the value of total proceeds between 1991 and 2004.
• As part of ongoing efforts to increase Egypt's participation in the global economy, a number of new trade agreements have been signed, notably the Qualified Industrial Zones (QIZ) agreement with the United States, and the Free Trade Agreement with Turkey.
• International competitiveness has been enhanced by a floating exchange rate. The establishment of a foreign interbank market and the elimination of foreign currency surrender requirements have served to stabilize the currency. After losing some 50% of its value between January 2003 and December 2004. The Egyptian Pound appreciated by 8& during 2005. On the other hand, foreign reserves held by the Central Bank of Egypt reached USD 22.4 billion in February 2006. Egypt's Balance of Payments also recorded a surplus of USD 1.8 billion compared to an overall deficit of USD 1.1 billion last year.
• Egypt's external debt level continues to be safe by international standards, while domestic debt remains under control.
• The Government of Egypt is strongly committed to fostering economic growth. Growth will make the Government's budget stronger and its external debt easier to manage. More important, it will reduce poverty and unemployment while raising standards of living for all Egyptians.