Egypt's economic growth performance at the end of the nineties and the beginning of this century was unstable. The stabilization efforts of the early 1990s resulted in lower growth, averaging 3.8 percent during 1990-95 however; it increased to 5.5 percent during 1996-2000.
Gross Domestic Investment (GDI) increased to 19.8 percent of GDP by 2000, up from 16.6 percent in 1999/2000.

Privatization began intense during 1996-99-averaging some 24-29 transactions annually for an average value of 1 percent of GDP per annum (World Bank, 2001).

Since the beginning of this century concerns have emerged about the sustainability of the economic performance in Egypt, particularly with regard to the external situation and the competitiveness of the Egyptian economy and the internal situation with respect to productivity and growth.

The accelerated rate of growth of GDP per capita masks an unemployment rate that reached 9 percent in 2001 - 2002 in official estimates as well as a shortage in productive employment opportunities, a deficit in the trade balance amounting -9.1per cent of GDP in 2001 - 2002 and in the balance of payment (-3.9per cent in 1999/2000) and a deficit in the budget amounting at 5.2 per cent of GDP in 2001/2002. (Nassar, 2001& Ministry of Foreign Trade, Monthly Economic Digest , June 2003).

The current account balance as percent of GDP has also showed substantial deficits (3% of GDP) in 1998 after a surplus in 1997. The deficit increased to reach 9percent in 2001 - 2002. The real effective exchange rate caused serious problems because of appreciation in spite of several depreciations since January 2000. It was finally liberalized in January 2003

The impact of these unfavorable shocks was exacerbated by macroeconomic policy management. With the decline in tourism receipts in 1998, the authorities implemented expansionary fiscal and monetary policies. In the year 2000, due to the increase in the issuing of loans and the flight of money, the monetary policy adopted tight measures. This led to a shortage in domestic liquidity, particularly in the private sector, which was exacerbated by the accumulation of payment arrears by the government. Credits to the private sector amounted 42% of GDP in 1996.

Meanwhile after the success of the fiscal policy authorities in containing the budget deficit during 1995-98, the budget deficit in Egypt increased significantly in 1999 and 2000 (4.2 percent of GDP in 1999 and 3.6 percent in 2000). The sudden reversal in the fiscal stance was necessary to alleviate the depression in the economy. There has also been an increase in public investment in mega projects. However with the liquidity shortage the Government tried to tighten public investment spending as well as its spending on mega projects. All these measures led to a recessionary atmosphere affecting the ability to increase employment opportunities.

In spite of the important role of the foreign direct investment (FDI) with its spillover effects on productivity, technology transfer and market entry FDI still plays a modest role in Egypt. Egypt is also not a major recipient of foreign direct investment (FDI). During1996-2000, it averaged some US$1 billion annually (roughly 1 percent and 5 percent of GDP and GDI, respectively).

FDI in Egypt has not yet been a source of technology to upgrade Egypt's competitiveness and productivity. Net foreign direct investment was estimated at 0.9 per cent to GDP in Egypt in 1998 far below the level in the rapid growing economies of Asia and Latin America. (Hermes Investment Opportunities in Egypt,2000)..

Source: Ministry of Foreign Trade, Monthly Economic Digest, June 2003

Source: Ministry of Planning, National Plan, 1999