Doc.mam MICR()GRAPHICS

The WorkReport No: P- 6203 EGT

FOR OMCLAL Type: MOP

ZAl 6-e; 7 5-

Rept No. P-6203-EGT

MEMORANDUM AND RECOIMENDATION

OF THE

PRESIDENT OF THE

INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPIMET

AND OF THE INTERNATIONAL DEVELOPMENT ASSOCIATION

TO THE

EXCUTIVE DIRECTORS

ON A PROPOSED LOAN

IN AN AMOUNT EQUIVALENT TO US$54.0 MILLION

TO THE

PRINCIPAL BANK FOR DEVELOPMENT AND AGRICULTURAL CREDIT

WITH THE GUARANTEE OF

THE ARAB REPUBLIC OF EGYPT

£11) A PROPOSED CREDIT

IN AN AMOUNT EQUIVALENT TO SDR 48.7 MILLION

TO THE ARAB REPUBLIC OF EGYPT

FOR THE

AGRICULTURAL MODERNIZATION PROJECT

MARCH 3, 1994

This document bas a restricted distribution and may be used by recipants only in the performance oftheir official duties. Its contents may not othwise be disclosed without Wold Banl authorization.

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CURRENCY EOUIVALENTS(As of June 1993)

US$1.00 - 3.33 Egyptian Pound (LE)LE 1:00 - US$ 0.30

WEIGHTS AND MEASURES

E-yptian and/or Metric Unit E-aglish/US Unit

1 feddan (fed) 0.420 hectares, 1.037 acres

1 hectare (ha) - 2.470 acres

PRINCIPAL ABBREVIATIONS AND ACRONYMS USED

AERI - Agricultural Engineering Research InstituteARC e Agricultural Research CenterAPCP - Agricultural Production and Credit ProjectBDAC = Bank for Development and Agricultural CreditREAA Egyptian Environmental Affairs AgencyEIDU = Extension Information and Demonstration UnitERSAP 5 Economic Reform and Structural Adjustment ProgramFNRI a Food and Nutrition Research InstituteGARPAD a General Authority for Rehabilitation Projects and

Agricultrral DevelopmentGOB = Government of the Arab Republic of Egypt

HC - Holding CompanyICB International Competitive BiddingIDF - Institutional Development FundIPM Integrated Pest ManagementMALR Ministry of Agriculture and Land ReclamationMPWWR Ministry of Public Works and Water ResourcesKARP - National Agricultural Research ProjectO&M Operation and MaintenancePB - Participating BankPBDAC = Principal Bank for Development and Agricultural CreditPs Public EnterprisePMD - Project Management DepartmentPSA - Private Sector AssessmentPSD - Private Sector DevelopmentRRES - Regional Research and Extension StationSAL = Structural Adjustment LoanSAMP a Structural Adjustment Monitoring ProgramSDI 3 Subsidy Dependence IndexSFD - Social Fund for DevelopmentSFPP - Small Farmer Production ProjectSMS - Subject Matter SpecialistTTS = Technology Transfer SpecialistUNDP = United Nations Development ProgrammeUSAID = United States Agency for International DevelopmentVEW = Village Extension WorkerWRC = Water Research Center

FISCAL YEARJuly 1 - June 30

FOR OMCL USE ONLY

ARAB REPULIC OF EGYPT

AGRICUTURAL MODERNIZATION PROIEC

Table of Contents

Page No.

LOAN/CREDITANDPROJECTSOJCMAUYY ... ..................... 1

I. COUNTRY POLICIES AND BANK GROUP ASSISTANCE STRATEGY . . . . . . . . . 1

A. Introduction . . . . . . .. .. . . * . * . * * 1

B. Recent Economic and Social Performance . . . . . . . . . . . . . 2

The First Phase of Adjustment and Structural Reforms . . . . 2Macroeconomic and Structural Policy Framework . . . . . . . . 2Economic Performance . . . .. . .. . .. . .. . . ... 3Alleviating Poverty and Improving Social Conditions . . . . . 5

C. The External Environments Vulnerability to Shocks . . . . . . . . 6

D. Egypt's Development Objectives: Medium Term Perspectives,Development Agenda and Policies . . . . . . . . . . . . . . . 7Medium Term Prospects . .. .................. 7Egypt's Development Agenda . ................ 9

The Second Phase of Reforms . .s. . . . ........ 9.... 9Public Enterprise Reform and Private Sector Development,Including Privatization ..... .................. 10

Human Resources Development, Poverty Alleviation andImprovement of the Social Safety Net . . . . . . . . . . . 11

Improving Natural Resource Management and the Environment . . 12Benefits and Risks of the ERSAP . . . . . ... .. . .. 13

E. Bank Group Country Assistance Strategy . . . . . . . . . . . . . 1.Assistance for Economic Reform . . . . . . . . 14Assistance for Public Enterprise Reform and Private

Sector Development, Including Privatization . . . . . . . . 15Assistance for the Development of Human Resources, PovertyPAleviation and Improvement of the Social Safety Net . . . 17

Assistance for Improving Natural Resource Management andthe Environment . . . . . . . . . . . . . . . . . . . . . . 18

Aid Coordination and Cooperation with the IMF and UNDP . . . 20Lending Program . . . . . . . . . . . . # . . . . . . . . . 20Portfolio Implementation . . . . . . . . . . . . . .. 21

F. Agenda for Board Consideration .............. . 22

This document has a restricted distribution and may be used by recipients only in the performanceof their official duties. Its contents may not otherwise be disclosed without World Bank authorization.

Table of Contents (continued)

Page No.

II.AGRICULTU R URA LFIA . CE.....................23

A. Agriculture . . . . , . , . * ..0 * * * * * * * * * 23B. Financial Intermediation and Rural Finance . . . . . . . . . . . 24C. Past Activities and Lessons Learned . . . . . . . . . . . .. . 25

III. THE PROJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . 25

A. Linkage to the Country Assistance Strategy . . . . . . . . . . . 25B. Project Features . . . . . . . .. . . . . . * . . . . . . . . . 25

Project Objectives ..... ..... . . . . ... ...... 25Project Description and Implementation Arrangements . . . . . 26Agreements Reached ...... 27Project Benefits . ... .. .... 28Project Risks . . . . . . . . . 28Environmental Aspects 28Recommendations 28

List of Tables

Table l: Key Economic Indicators, 1983-93 . . . . . . . . . . . . . . 4Table 2s Key Economic Indicators: Baseline Projections . . . . . . . . 8

List of Schedules

Schedule A: Estimated Cost and Financing Plan . . . . . . . . . . . . . . 29Schedule B: Procurement Methods and Disbursements . . . . . . . . . . . . 30Schedule C: Timetable for Key Project Processing Events . . . . . . . . . 32Schedule Ds Status of Bank Group Operations in Egypt . . . . . . . . . . 33

List of Annexes

Annex I: Details of the Second Phase of the Government's EconomicReform and Structural Adjustment Program . . . . . . . . . 36

Annex II: Matrix of Policy Actions . . . . . . . . . . . . . . . . . . 39Al Selected Indicators of Portfolio Performance and Management . 50A2 Bank Fact Sheet . . . S . . . . . . . . . . . . . . . . . . . 51A3 Priority Poverty Indicators . . . . . . . . . . . . . . . . . 52A4 Key Economic Indi cators................. 54AS Key Exposure Ind dcatortos 56

Mads; IBRD Nos. 25280 and 25281

Responsibitity for preparation: Nessrs./Mm.s. K.S. Venkatraman, Task Manager (NN2AG); Ngozi Okonjo-Iweala, Chief(MN2AG); Ram K. Chopra, Director CMN2); Voyadzis, CAS (MN2CO); Caio Koch-Weser, Vice President (CNA); wnd PeerReviewers - Satop (AF4CO); Yaron CAGRAP); and Nyberg (EA2AG)

FOR OFFICIAL USE ONLYARAB REPUIBLIC OF EGYPT

AGRICULTURAL MODERNIZATION PROJECT

LOAN/CREDIT AND PROJECT SUMMARY

Borrower s For IBRD Loan: The Principal Bank for Development andAgricultural Credit (PBDAC). For IDA Credit: The ArabRepublic of Egypt.

Guarantor : The Arab Republic of Egypt

Implementing Agenc : Principal Bank for Development and Agricultural Credit (PBDAC)

Beneficiaries Farmers, agro-based enterprises, agro-processors, machinerydealers; PBDAC, other participating banks, and Ministry ofAgriculture and Land Reclamation (MALR).

Loan/Credit Amount : IBRD Loan : USS54.0 million equivalentIDA Credit: SDR 48.7 million (US$67.0 million equivalent).

Terms IBRD Loan: 20 years including 5 years of grace, standardvariable interest rate; IDA Credit: standard, with 35 yearsincluding 10 years of grace.

On-lendinft Terms : (i) The amount of US$100.0 million (US$54.0 million of IBRDloan and US$46.0 million equivalent out of the IDA credit) foron-lending would be made available to PBDAC as the $apex"institution on standard IBRD terms; a guarantee fee of 0.125per cent would be payable to the Government of the ArabRepublic of Egypt (GOE); while PBDAC would bear the foreignexchange risk, it would cover this risk under an existingfacility with the Ministry of Finance against payment of athree per cent fee which will be reviewed at mid-term andadjusted periodically thereafter to reflect market conditions.(ii) The amount of US$21.0 million earmarked for institutionaldevelopment would be provided on IDA terms to PBDAC and ongrant terms to MALR. (iii) PBDAC would on-lend funds toparticipating banks at cost (i.e., interest, plus foreignexchange risk premium, plus 0.5 per cent to cover costs ofapex banking functions). (iv) Sub-loans to borrowers would beat prevailing market rates of interest.

Financing Plan: Local Foreign Total------------(US$ Million)-----------

IBRD Loan - 54.0 54.0IDA Credit 7.4 59.6 67.0Government/PBDAC 89.0 - 89.0Investors 58.8 58.8

TOTAL 155.2 113.6 268.

Economic Rate of Return : Estimated at 38 per cent

Staff Anpraisal ReRort : No. 12513-EGT

Poverty Category : NA

Maps: IBRD Nos. 25280 and 25281

MEMORANDUM AND RECOMMENDATION OF THE PRESIDENT OFTHE INTERNATIONAL BANK FOR RECONSTRUCTION AND DEVELOPMENT AND

OF THE INTERNATIONAL DEVELOPMENT ASSOCIATIONTO THE EXECUTIVE DIRECTORS

ON A PROPOSED LOANTO THE PRINCIPAL BANK FOR DEVELOPMENT AND AGRICULTUAL CREDff

WITH THE GUARANTEE OFTHE ARAB REPUBLIC OF EGYPr

AND A PROPOSED CREDIT TO THE ARAB REPUBLIC OF EGYPTFYOR THE AGRICULTURAL MODERNIZATION PROJECT

1. I submit for your approval the following memorandum andrecommendation on a proposed loan of US$54.0 million to the Principal Bank forDevelopment and Agricultural Credit (PBDAC), with a guarantee of the ArabRepublic of Egypt, and a proposed development credit of SDR 48.7 million (US$67.0million equivalent) to the Arab Republic of Egypt, to help finance theAgricultural Modernization Project. The proposed loan would be on standard IBRDterms of variable interest rate with 20 years' maturity, including a grace periodof five years, and the proposed credit would be on standard IDA terms with amaturity of 35 years, including a grace period of 10 years.

I. COUNTRY POLICIES AND BANK GROUP ASSISTANCE SATEGY

A. Introduction

2. In October 1993, President Mubarak was re-dlected to a third six-yearterm. The elections were followed by a long-awaited Cabinet change. Thecomposition of the Cabinet, however, remained almost unchanged. The newGovernment has continued to play a critical role in the Middle East peace processand to implement the economic adjustment program that started some three yearsago. Stabilization has been successful. Growth, however, remains very weak. Thetask of bringing about sustainable development in Egypt remains formidable. Thepopulation of 55 million is increasing by more than a million a year. Fastgrowth is required in both employment and labor productivity. However, in recentyears CDP per capita has been falling and unemployment has been increasing.Without robust growth in the service and industrial sectors based on privateinvestment, Egypt will not be able to grow fast enough to create the necessaryjobs to keep unemployment from rising further.

3. The Bank, the Fund and the donors have continually urged theGovernment to seize upon the favorable financial situation the country iscurrently facing and forge ahead with the key areas of reform, particularly tradeand privatization. Otherwise, the Government may jeopardize the credibility ofits program, thereby further delaying the long-awaited supply-side response fromthe private sector. In the meantime, violence continues with attacks ongovernment officials and tourists by Islamic extremists and reprisals byGovernment taking place almost daily, making the Government reluctant to move toofast on the painful aspects of economic reform. The Government has recentlyannounced that it will start a "national dialogue" with the opposition, and hasintensified slum-upgrading in the poorest areas, such as Assiyut and Imbaba.

4. At the time of writing, a mission to conduct the first review of theStructural Adjustment Monitoring Program (SAMP) is in the field. It is expectedto return by mid-March 1994. This CAS is used as a vehicle to inform the Boardabout the second phase of the Government's Economic Reform and StructuralAdjustment Program (ERSAP).

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B. Recent Economic and Socal Performance

5. In the mid-1980s, the economy was severely affected by theprecipitous fall in oil prices, which caused a decline in the rate of growth ofreal output and a rise in both the inflation and unemployment rates. The secondhalf of the 19805 brought an unsustainable, hcivy external debt burden, risingfiscal and balance of payments deficits and a gradual erosion of the significantgains in the standard of living that had been made over the previous decade.Since 1991 the Egyptian Government has responded with a comprehensive ERSAP.

The First Phase of Adiustment and Structural Reforms

6. This phase of the program initiated the beginning of a shift from acentrally planned economy with a relatively small private sector to adecentralized, market-based and outward-oriented economy, in which the privatesector would play the leading role. This phase involved the removal of many ofthe existing distortions in the price system, as well as some of the keyimpediments to trade and investment. It was supported by an IMF Stand-ByArrangement (SBA), a World Bank Structural Adjustment Loan (SAL) and debt/debtservice relief (DDSR), including an agreement with Paris Club creditors.1 Theoverall progress made thus far has been significant.

Macroeconomic and Structural Policy Framework

7. A major, front-loaded fiscal adjustment has been at the center ofEgypt's economic reform program. The stabilization effort was anchored to asubstantial reduction of the fiscal deficit. As a proportion of GDP, the overallfiscal deficit was reduced from 20 to 4.7 percent in the period 1991-93 (Table1). At the same time the primary balance (excluding interest payments) movedfrom a 13 percent deficit to a 6 percent surplus.

8. The fiscal adjustment was accompanied by flnancial liberalization.At the start of the reform program, the Governments i) removed the nominalceilings on interest rates; ii) began phasing out the system of administrativecredit allocation; iii) began using Treasury Bills (TB) auctions to manageliquidity (indirectly providing a reference interest rate to the financialmarkets); and iv) dismantled foreign exchange controls and unified the foreignexchange system, thereby allowing unrestricted international capital mobility.This initially resulted in a 35 percent devaluation of the Egyptian pound againsttbj US dollar. The exchange rate, however, quickly stabilized. The process offinancial liberalization was supported by a series of other reforms in order tostrengthen the solvency and efficiency of the banking and securities markets,including the recapitalization of public banks.

1/ The DDSR granted by Parts Club creditors in May 1991 fs linked to the Goverrment's performance under INFarrangements. Relief is provided in three phases. The first phase, which provided a 15 percent reduction inthe present value of debt service falling due, was iplemented in July 1991. The second phase, aLso 15 percentof the present value of debt service, to have been implemented by December 31, 1992 took place in October 1993,after approval of the extended arrangement by the Fund's Board in Septufber 1993. The third phase, which wouldamount to a further reduction of 20 percent of the present value of debt service falling due, is scheduled bythe Paris Club to take place by July 1, 1994 and is conditional on performance under the IMF extendedarrangement.

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9. The Government has begun to gradually open up foreign trade. Tradeliberalization included three major components: i) substantial reduction ofnontariff barriers to imports, including most significantly the removal of manyimport bans and prior approvals; ii) reduction in tariff dispersions (with fewexemptions, all tariff rates were brought from the 0-to-160 percent range intothe 5-to-80 percent bracket, while tariff preferences were reduced); and iii)elimination of most export quotas and the upgrading of the drawback and temporaryadmissions system for export production).

10. Recognizing the need to expand the economic boundaries of Egypt'sprivate sector, the Government initiated a gradual restructuring of the publicenterprise (PE) sector. More than 70 percent of manufactures productionoriginates from the PEs, typically exercising state monopoly positions.Efficiency of capital and labor must be raised considerably to make this sectorinternationally competitive. The PR sector, which employs some 8 percent of thelabor force and turns out an estimated 10 percent of the country's GDP, wasreorganized into 17 diversified, financially autonomous holding companies (HCe).These HCs were then cut off from the fiscal budget, both in terms of investmentfinancing and public credit guarantees. The objective is to subject the PEs tofree market conditions, and privatize a large number of them. Furthermore, theauthorities have begun dismantling regulatory obstacles to business entry andoperation. However, the restructuring, liquidation and sale of PEs to theprivate sector has had a slow start.

Economic Performance

11. As in most other countries that undergo structural adjustment, realCDP growth has slowed down from an average of 2.5 - 3 percent p.a. in FY89-FY91before ERSAP to 0.4 percent p.a. in FY92-FY93 (Table 1), with only agricultureand construction show signs of recovery. Both demand and supply factors havecontributed to this output performance. On the demand side these includes i) thefiscal adjustment; ii) the sharp increase in real interest rates from highlynegative rates to positive rates in the range of 5 to 8 percent p.a.; iii) thesharp contraction in the demand for Egypt's exports by the countries of theformer Soviet Union, Eastern Europe and Iraq. Several factors have hamperedoutput supply: i) the general uncertainty that accompanies structural reformprograms; ii) the internal financial and structural adjustment of PBE andeconomic authorities (in particular as a result of the discontinuation ofautomatic credit guarantees by the central government), as well as the slowerthan anticipated pace in the implementation of the PE reforms and privatization;and iii) reduction in input subsidies (e.g., energy, transport, fertilizer).

12. The substantial reduction in the fiscal deficit, the slower rate ofmonetary expansion, and the stable nominal exchange rate (against the US dollar)have all contributed to a sharp decline in the rate of inflation. The rate ofincrease in the consumer price index (CPI) fell from about 21 percent in the 12months prior to July 1991 to about 10 percent through October 1993. Moreover,this lower inflation rate was achieved in spite of substantial priceliberalization.

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Table 1: KEY ECONOMIC INDICATORS, 1983-93(percent)

1983 1985 1987 1989 1990 1991 1992 1993a/

GDP Growth Rate 7.7 6.6 2.5 3.0 2.5 2.3 0.3 0.5Exports Volume Growth Rate b/ 12.5 2.2 -11.0 -2.0 3.4 13.3 0.4 -1.1Manufacturing Exports c/ 3.2 -3.4 9.6 10.8 4.9 27.9 -2.0 -21.2

Imports Volume Growth Rate d/ 6.9 4.8 -20.2 0.3 8.5 0.3 -4.9 4.1Private Consumption Growth Rate(per capita) 1.5 3.3 -2.1 0.5 0.0 -3.6 -1.7 1.4

Inflation Rate e/ 8.0 9.0 15.1 16.7 17.3 22.3 19.4 10.7

Total DOD/GOP 103.3 103.4 129.1 149.8 144.3 119.1 107.3 97.4Total Debt Services/XGS f/ 17.3 23.0 28.2 24.3 46.0 39.5 17.9 16.5Total DOD/XGS 281.6 328.3 482.8 428.8 398.5 269.5 234.8 243.3

Overall Fiscal Deficit/GDP g/ -19.6 -21.6 -19.3 -18.1 -16.5 -20.0 -5.0 -4.7Current Account/GOP h/ -5.4 -9.3 -5.2 -9.3 -10.5 -7.4 3.5 -1.0

Gross Fixed Capital Formation/GOP 28.7 26.7 18.0 23.3 21.9 20.4 18.2 17.0

_ _~_ _ _ -_--.-- *=

Note: Egyptian fiscal year (July 1-June 30).8/ Preliminary estimates by Bank staff f/ 1983-91 accrual basis; 1992/93,b/ Exports of goods and non-factor services. cash basisc/ Excludes textiles. a/ Excludes public enterprisesd/ Imports of goods and non-factor servicas. h/ Excludes official transfers.e/ GDP deflator

13. Following the introduction of the ERSAP, Egypt managed to achieve asurplus on the current account of the balance of payments, excluding officialtransfers, in FY92 for the first time in more than two decades. The key factorsbehind this improvement are: demand management through fiscal adjustment andmonetary discipline; reduced foreign interest payments (mainly due to the DDSRgranted by bilateral and the Paris Club creditors) which has fallen from aroundUS$3 billion a year to US$1.5 billion a year; and a strong rise in tourismrevenue and workers' remittances, which increased from an average of about US$900million and US$3.5 billion a year to about US$1.5 billion and US$5 billion ayear, respectively. As a result of the DDSR granted to Egypt following the Gulfwar, total external debt declined from US$51 billion in 1990 to about US$38.5billion in mid-1993. The scheduled debt service-to-exports ratio also fell from46 percent to about 16.5 percent, improving the country's creditworthinessfurther.

14. Despite the progress achieved in adjustment and in redressingdomestic and external macroeconomic imbalance, unemployment remains a majorproblem. Egypt has a high level of open unemployment (2.2 million, or 14 percentof the labor force). The pattern of unemployment is distinctive, with 75 percentof the unemployed being new entrants to the labor force, of whom more than 90percent hold intermediate (65 percent) or higher (25 percent) educationaldegrees. In this category female unemployment predominates. The remaining 25percent of the unemployed have already been in the labor force: they are lesseducated, less skilled and predominantly male (90 percent). With externalmigration subsiding, labor force growth is expected to approximate the rate ofpopulation growth, adding between 5 to 6 million new entrants in the 1990s.Continued pressure will come from the ongoing reduction in Government recruitmentof new entrants (which fell from 110,000 in 1985 to 30,000 in 1991). Labor

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market imbalances will remain for at least the next several years until thesecond phase of ERSAP is fully implemented and a supply response takes place.

15. Key Macroeconomic Issues. Achieving stability in Egypt has raiseda number of policy issues that, if not addressed, could have importantimplications for the sustainability of macroeconomic policies. The Governmenthas been somewhat over-ambitious in terms of monetary objectives. The exchangerate has been kept stable against the US dollar, but at the same time moneysupply expansion has been targeted, and foreign reserves boosted. Capital inflowsand the rapid accumulation of foreign reserves by the Central Bank of Egypt (CBE)have exerted a strong upward pressure on domestic money creation. In order tokeep the latter in check, the authorities engaged in widespread sterilization ofcapital inflows and absorbed liquidity through TS auctions in excess of theGovernment's borrowing requirements. This process preserved a substantial spreadbetween domestic and foreign interest rates, which together with a stableexchange rate against the US dollar has further induced capital inflows.Accordingly, the stock of TB debt has grown, as a proportion of GDP, from 4percent in June 1991 to about 25 percent in December 1993, all of it short-term.This domestic debt accumulatlon presents a fiscal challenge: the servicing ofthe TB debt, as a proportion to GDP, is estimated to have reached 2 percent inFY93, and is expected to reach 3 percent in FY94. Outstanding General Governmentdomestic debt increased from LE69 billion in June 1991 to LE107 billion in June1993 (or from about 70 percent of GDP to 82 percent). The previous foreign debtservice problem is being converted into a domestic debt service problem.

16. Given the still high inflation rate, the stability of the exchangerate against the US dollar has also led to a real effective appreciatlon of thelocal currency by about 25 percent over the last two and a half years since theinitial 35 percent nominal depreciation of the L.E. This development is ofconcern because of the loss of competitiveness in the tradable goods sector.

17. The prlvate sector has not yet responded to the reforms; lessons ofexperience from other reforming developing countries indicate that a relativelylong lag for the private sector to respond to reforms is not unusual.Nevertheless, in addition to questions of macroeconomic policy sustainabilityreferred to above, there are several specific reasons why there has been a delayIn Egypt. Constraints on private sector production, investment and trade havebeen widespread until recently. These are to be further reduced during thesecond phase of the reforms (ERSAP-I1). Furthermore, the financial positions ofdomestic private firms have weakened because of the economic slowdown and highreal interest rates; high after tax yields on liquid TBs have diverted capitalaway from private investment; and, more importantly, private investors haveremained wary of the possibility of reversals in reform measures, particularlyduring the initial stages of the reform program. Indeed, a deepening of thereforms, as envisioned in the second phase of the 0overnment's program, willsubstantially enhance the credibility of the program itself and strengthen thechances for a stronger response by the private sector.

Alleviating Poverty and Improving Social Conditions

18. Economic growth and the social welfare system in place for the last40 years (until recently characterized by a large number of universal subsidyprograms) produced gains in basic social indicators and a reduction in the

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incidence of poverty from about 40 percent of the population at the beginning ofthe period to the present level of about 30 percent, who are living on monthlyper capita incomes of less than US$20. However, the number of poor has keptincreasing--from about 12.3 million in 1980 to about 17 million in 1990. Thedecline in real incomes over the last four years is likely to have increased thenumber of families living in or close to poverty. Apa.-;. from the poor, there isan estimated additional 50 percent of the population (about 26 million people)with an average annual per capita income at or below US$250. This group hasexperienced a significant erosion in real incomes of about 10 percent p.a. since1980.

19. Women and children feature disproportionately among the poor.Together with the elderly, the sick and the disabled, they constitute the greatproportion of the so-called "ultra poor" (living on less than US$120 per year percapita). This group constitutes approximately 2.4 million people (4 percent ofthe population) and depends on inadequate direct income transfers for a largeportion of its income. The existing social programs and transfer mechanisms donot constitute an adequate safety net to protect the most vulnerable from theeffects of adjustment. Existing annual benefit levels for the poor unable towork provide less than one month expenditures (levels of a3sistance range fromUS$4 to US$70 per year per capita depending on the program). In 1993, theyreached about S million people and cost about 0.2 percent of GDP which is low byinternational standards.

20. The social and economic costs of present trends of population growthand school enrollments will strain severely the Government's capacity to providesocial services in the future. Although the rate of population growth hasdeclined to about 2 percent a year, Egypt's population is still expected to growfrom about 54 million in 1992 to about 65 million by the year 2000. In the nextsix years only, primary enrollments are projected to increase at an annual rateof 2.3 percent (from 6.7 million in 1992 to 7.5 million in 1997).

C. The External Environment: Vulnerability to Shocks

21. The ongoing reforms and the accompanying rapid buildup ofinternational reserves have, for the first time in the last 40 years, providedEgypt with an ability to absorb sizable temporary external shocks. Thisnotwithstanding, the economy remains vulnerable to shocks and continues to beexcessively dependent on external financial support. The main sources of currentaccount BOP earnings are workers' remittances, Suez Canal dues, tourism receiptsand oil exports. These are sensitive to regional economic and politicaldevelopments, and some of them are positively correlated with each other (e.g.,petroleum prices and level of workers, remittances from the region). Tourismrevenues and workers' remittances are particularly volatile and vulnerable toshocks. Together they account for more than half of the total foreign exchangeearnings. A combination of adverse developments could lead to a significantdeterioration of Egypt's balance of payments. In addition, a significant portionof the recent buildup of international reserves is due to a one-time inflow ofprivate capital, much of which could quickly be reversed.

22. A number of issues concerning the impact of the external environmenton Egypt's trade sector should be considered. As a net importer of agriculturalproducts, Egypt will face an adverse terms of trade shock as a result of the

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partial elimination of food export subsidies by countries in the Uruguay Round.Although local producers of food will become more competitive, their gain couldbe more than offset by the loss incurred by consumers from higher prices onimported agricultural products. Currently, Egyptian textile and clothing exportsare subject to import limitations in major markets such as the European Union(EU) and the US under the Multi-Fibre Arrangement (MFA). Egypt would be abeneficiary of the elimination of MFA i>otas, both directly as exports ofclothing become unconstrained and indirectly as the demand for Egyptian cottonexpands. However, this is an area where insufficient domestic supply-sidepolicies could have a greater detrimental impact than the import restrictionsmaintained in export markets.

23. Insofar as Egypt does not enjoy the same degree of preferentialaccess to the EU as other Mediterranean, as well as East European coantries, itwill be more difficult for Egyptian firms to penetrate the EU markets.Multilateral liberalization is therefore especially important for Egypt as itwill reduce the tariff preferences implied by the various trade agreementsbetween the EU and other countries.

D. Egypt's DevLdopment Objectives: Medium Tenn Persecties. DevelopmentAgenda and Polcies

_edium Term Prosgects

24. Egypt's medium term economic prospects are highly fragile, dependingupon external economic developments, domestic economic policy performance, andexternal financial support. Political imperatives, as articulated by theGovernment, as well as economic objectives, suggest that inroads need to be madein reducing the pressure of unemployment. Reducing unemployment and creating newjob opportunities require, first and foremost, the restoration of economicgrowth. Since the public sector is no longer capable of sparking that growth,largely for fiscal reasons, the private sector will need to bApand. TheGovernment recognizes that this implies in turn substantial increases in privatesector investment and a corresponding improvement in investment efficiency.

25. Based on the assumption that the Government will continue theimplementation of the second phase of its reform program, indicative economicprojections (Table 2) illustrate an optimistic though feasible and consistentscenario. These baseline projections are also predicated upon assumptionsconcerning: (i) the international economic environment (i.e. petroleum and otherexport prices, access to export markets, interest rates, etc.) and (ii)international financial support (i.e., continuation of the Paris Club DDSR, donorand creditor support, including that from the Bank/IDA). Growth in real outputis projected to increase to about 2.0 percent in FY94 and 3.3 percent in FY95,while inflation would decline to 9.5 percent p.a. in FY94 and 6.1 percent inFY95. (Table 2) Over the medium term, real output growth is projected to riseto between 4.5 and 5 percent a year, with the ratio of gross domestic investmentto GDP ratio rising from about 18 percent in recent years to above 20 percent,primarily due to increases in private investment. The overall BOP surplus,estimated at about US$3.9 billion in FY93, is currently projected to fall to US$2billion in FY94 and FY95, reflecting the recovery of imports and projectedreductions in short-term capital inflows. These figures are contingent on netODA flows of about USS 2 billion p.a.

Table 2: KEY ECONOMIC INDICATORS: BASELINE PROJECTIONS(in percent)

1994 1995 1996 1997-2001l___________ a/

GDP Growth Rate 2.0 3.3 4.3 5.3Exports Volume Growth Rate b/ 0.7 2.0 2.4 4.8

Manufacturing Exports c/ 14.2 9.8 10.2 11.1Imports Volume Growth Rate d/ 3.8 5.1 4.3 4.5Private Consumption Growth Rate (per capita) 0.8 1.6 1.5 2.6Inflation Rate e/ 9.5 6.1 5.5 4.1

Total DOD/GDP 93.5 93.1 88.1 73.9Total Debt Services/XGS f/ 15.2 13.6 14.1 12.9Total DOD/XGS 239.7 226.7 215.6 181.0

Overall Fiscal Deficit/GDP g/ -2.6 -1.5 -0.7 0.0Current Account/GDP -1.7 -1.2 -1.7 -2.9

Gross Fixed Capital Formation/GDP 17.2 18.5 19.9 22.9

Note: Egyptian fiscaL year (July 1- June 30).a/ Five-year (1997 to 2001) average.b/ Exports of goods and non-factor services. (XGS)c/ Excludes textiles.d/ Imports of goods and non-factor services.e/ GOP deflator.f/ Cash basis.g/ Excludes pubLic enterprises.

26. External Debt and Creditworthiness. As a result of ERSAP and theDDSR, Egypt's credit-worthiness has improved significantly. Egypt's externaldebt to GDP ratio is projected to continue its downward trend, which began in1991, and decline from 97.4 percent of GDP in FY93 to 66 percent by the end ofthe decade as the level of debt rises only moderately from US$38.5 billion toUS$40 billion. (Table 2) The ratio of debt service to exports of goods andservices is projected to decline from 17 percent in FY93 to 14 percent over themedium term.

27. The Bank's exposure in Egypt is not large. The Bank and IDA shareof total long term external debt outstanding and disbursed (DOD) was 6.0 percentin FY93; debt service payments to the Bank and IDA accounted for 12.4 percent ofEgypt's external long-term debt service payments. However, because of the recentdebt forgiveness and the Paris Club DDSR, the Bank's share will rise in the nextfew years, peaking at around 15 percent in FY95. (Annex AS) The preferredcreditor ratio of debt service to public debt service will decline from 33percent in FY92 to 25 percent by the end of the decade. The ratio of the Bank'sdebt service to exports is projected to decline from 1.9 to 1.1 percent by theend of the decade.

9-

Eiyvpt's Develogment Agenda

28 E gypt'" hort-term development agenda derives f0i_ the A d

to &ccelerttde r a uneployet. t muuT

i. ..mitres ces and t.e.... ...... - .e;, - . . . e ... .....t..s o C: . .t... -...'..'. f:.. e : :: indicated i t

econd Phase o Reform .

improvement o .naura aesources manaeetadteevrne

The Second Phase of Reforms

29. About eight months ago, the Government embarked on the second phaseof its reform program, deepening the reforms begun in 1991. The timing,sequencing and magnitude of these measures are indicated in Annexes I and II.This phase of the Government' s program is being supported by a Three-YearExtended Arrangement by the IMP2, a World Bank Structural Adjustment MonitoringProgram (SAMP), the continuation of DDSR granted by Paris Club creditors, andadditional donor support.

30. In addition to supporting an adequate macroeconomic framework, thesequence of structural policy actions in the current phase is to: (i) continuethe liberalization of the trade regime, starting with the removal of nearly allremaining NTBs and a further reduction of tariff rates, particularly on capitalgoods; (ii) complete the liberalization of prices in industry and agriculture,raising energy prices to cover their opportunity costs and decontrolling housingrents; (iii) continue reforming PBs; (iv) continue reforms in banking and thesecurities markets and begin reforms in the insurance sector and the socialinsurance and pension systems; (v) broaden regulatory reforms; and (vi) intensifythe privatization of PEs and extend the privatization effort to financialintermed'aries.

31. In terms of f1scal policy, the program calls for a further reductionin the fiscal deficit from about 4.7 percent of GDP in FY93 to 2.6 percent inFY94 with further, progressive declines to about 0.5 percent by FY96. Thispolicy is expected to ease financial pressures and further lower nominal and realinterest rates, thus increasing private investment and slowing down the pace ofshort-term capital inflows. The Government's tax reform program is aimed atlowering its dependence on the taxation of international trade while increasing

I/ The Arrangement, which ias approved by the INF Executive Board on Septeseer 20, 1993, is in an amountequivatent to SDR 400 miltion, or 59 percent of the quota. In view of the country's strong balance of paypentsposition, the Goverrmnt of Egypt considers the Arrangement as a precautionary one and may not need to draw uponit. For the same reason, the SAWP is a monitoring program and does not liwolve lending support for it by theBank. This is consistent with Uorld Bank policies.

- 10 -

its reliance on broad-based domestic taxes and Improving the transparency of thetax system. The Government plans to introduce a full retail level value-addedtax. On the expenditure side, the Government has requested IMF technicalassistance to study systems and procedures covering budgeting, expenditurecontrol and financial management. The Government's planned investment givespriority to basic education, preventive health care, vocational training andskill development, infrastructure complementary to private investment and theprevention of enviror.mental degradation.

32. Monetary and exchange rate policles, supported by the fiscal stance,would aim at further reducing inflationary pressure and at supporting economicstability and sustainatle adjustment. At the same time, monetary policies areintended to ensure that ample credit is available for private sector investment.In order to achieve these objectives, the Government has set the rate of growthof liquidity at 12 percent in FY94 (down from 16.5 percent in FY93). The CBEwill continue to influence money market conditions through indirect monetarycontrol instruments. The Government expects that these targets will becompatible with a slowdown in capital inflows, a reduction in sterilization, afall in interest rates and exchange stability.

Public Enterprise Reform and Private Sector Development. lncludinm Privatization

33. The Government's focus of PE reform in the medium-term is to maintainfinancial discipline and to regularly monitor key performance indicators (profitand return targets). The objective is to ensure that profits from healthy PEeare maximized and that the restructuring of loss-making (but viable) PB., as wellas the liquidation of non-viable PEs, is done according to agreed objectives andcriteria.

34. As seen in the preceding section, the first phase of ERSAP hassuccessfully removed important constraints to Private Sector Development (PSD).There are still several important constraints to PSD in Egypt, many of which areexpected to be dealt with during the second phase of IRSAP. These includefurther price and trade liberalization, regulatory, banking and security marketreforms. However, the cornerstone of the Government's private sector developmenteffort lies in the privatization of public enterprises.

35. The Government has taken action to strengthen its institutionalcapacity. It has most recently appointed a Minister to take charge of PEs, andis planning a comprehensive program of additional prIvatIzatIon on the basis ofagreed upon performance criteria. The targets that were to be reached andactions to be taken by December 31, 1993, are indicated in Annex II. By June 30,1994, the Government is expected to bring to the point of sale (POS) all of theremaining assets of the FY93-94 privatization program (i.e. an additional US$2.1billion equivalent) and complete the sale of a further US$0.9 billion equivalent.Cumulatively, therefore, the Government, by June 30, 1994, is expected to bringto the POS assets equivalent to US$3.2 billion and sell US$1.6 billion. As ofSeptember 30, 1993 the Government has brought to POS the equivalent of US$840million (26 percent of target) and actually sold assets of US$460 million (29percent of target).

36. As of December 31, 1993, the Government reports that it has completed8 sales out of the 22 companies and assets with a value of US$200 million, and

- 11 -

that it has also sold similar additional assets and equity with a value of US$330million. The Government has also informed the Bank that it has brought to thePOS assets equivalent to US$811 million from it. FY93-94 privatization program.3

According to the Government's targets, by the end of 1995, RC assetsof US$11.2 billion (51 percent of total HC assets) are expected tohave been brought to the POS and, US$9.4 billion (43 percent of totalHC aisets) are expected to have been sold. Meeting the agreedtargets will require significant Government effort and a good marketresponse.

Human Resources Development. Poverty Alleviation and Improvement of the SocialSafetZ Net

37. The Government plans to build on the series of reforms carried outsince 1987, which have put many of the needed building blocks in place. It hasnow made human resources development a top national priority, is giving it acentral role in the second phase of the economic reform program and has announcedthat it will establish a core team within the Cabinet to prepare a Natlonal HumanResources Strategy.

The bjetivs o the Government's reforms in) this area ar. to.<portprivate se:torled growth in fan open economy, to overhaul the

tools ith wich poerty an be redoe ad orais the leeI o=ua eelpeti = > egyt o aievethseojetie by the year,

0 it stself three broad goals for social sectordevlopent uiver.sal. baschuman services. in ducation and health .

~ Lstrong fam ... om education sytem

v theoperato of the labor marketo and to a stengthenthesocZial safety net. -I ;

-.v .. .= un. v.. Q:i u . -n. - .

38. These goals will be through improvements in the effectiveness ofresource use (including greater cost recovery), equity of access to humanservices, improved quality, mobilizing additional resources from the privatesector, and getting significant improvements to the planning and implementationcapacity of the service delivery ministries and agencies at both the national andlocal levels.

39. The education system is not supplying the labor market with peoplewho have a good basic education and developed cognitive skills (half of the laborforce is illiterate). To complement the required macroeconomic response, thestructural imbalance between the skills being provided by the educational systemand demanded by the labor market must also be corrected by additional reform ofthe education sector and by discontinuing the policy of guaranteeing employmentto graduates. A new element during this period may be an increase in labor

/ The Bank's review mission, which is currently in the field, milt examine whether the above-mentionedcompleted sales, as well as assets brought to the POS, fully meet the agreed definitions of bringing to thePOS and completing sales. Furthermore, the Bank mission will also examine whether the additional assets andequfty, Indicated as having been sold by the Government, are similar to the original list of 22 companiesand assets agreed with the Goverrnent. Finally, the mission will ascertain whether the Goverruent'sprivntization program continues to emphasize the bringing to the POS and sale of whole companies, or anentire bloc of shares if the Goverroent owns less than 100 percent of the coomany.

- 12 -

movement within the PEs and from the public to the private sector under the PEreform and privatization programs.

40. Improvements in social indicators require public expenditurereallocations in favor of primary level services, notably in under-served ruralareas, and more effective expenditures overall if quality is to improve. In1991/92 education and health were 16 percent of the Government's recurrent budgetand increases had essentially done no more than keep pace with population growth.The Third Five Year Plan increases investments in education and health from 5.5percent under the previous plan to 13.2 percent.

41. To minimize the negative impact of the reform measures on the poorersegments of the working population, the Social Fund for Development (SFD) wasestablished in March 1991 as a semi-autonomous Government agency. The US$600million fund supports a set of core programs, comprising numerous small sub-projects that (a) in the short term, address the immediate and pressing needs ofselected target population groups (e.g., displaced public enterprise workers,households headed by females, and unskilled and semi-skilled unemployed workers),and (b) in the medium term, strengthen the Government's capacity to design andmonitor poverty alleviation and social safety net programs. The core programsinclude: (i) the provision of essential municipal services; (ii) improvements topublic transport for the poor; (iii) community development activities; (iv)enterprise development activities; (v) labor mobility enhancement; and (vi)institutional development activities. An estimated 6 million people havebenefited directly from SFD subprojects. In addition, the program has createdabout 100,000 permanent and 23,000 temporary job opportunities. These numberspoint to the considerable impact the SFD project is now having in Egypt both interms of social development and employment creation. Women have benefitedsignificantly from disbursements to date either as direct or indirectbeneficiaries. The one program that is delayed is Labor Mobillty, whose progressis tightly linked to the PE reform and privatization program. The Government hasalso strengthened its two existing employment-generating and income-supportprograms (Productive Families Program of the Ministry of Social Affairs, and theNational Handicraft Program of the Ministry of Local Government).

42. As it removes the remaining universal consumer subsidies over thenext two years, the Government intends to strengthen the social safety net forthe poor not able to work. In each of the last three years, the Government hasraised benefit levels under two of its existing cash transfer programs. However,existing benefits have continued to decline in real terms and remain inadequate.In spite of this, there are long waiting lists of eligible beneficiaries. Inresponse, the Government is now rationalizing the existing small assistanceschemes and is planning to introduce a new assistance program targeted to thepoor as part of a comprehensive reform of its social safety net.

Improving Natural Resource Management and the Environment

43. The Government is aware of the serious nature of the environmentalproblems and its adverse effects on the sustainability of its economicdevelopment efforts. Water and soil pollution are reducing agriculturalproduction, and air and water pollution are major sources of health problems inurban areas. In addition, the Government is fully cognizant of the degradationof the country's cultural heritage and coastal zones and the increasing dangersthat their developments pose for significant losses of foreign exchange earningsfrom tourism. Accordingly, the Government has taken several steps to haltfurther degradation of the environment and eventually reverse the current trends.The initial efforts made by the Government were mostly uncoordinated measures toreduce pollution and encourage better management of the natural resources through

- 13 -

creating incentives for natural resource conservations the increase infertilizer and pesticide prices to eliminate subsidies was partly designed toreduce water and land pollution. The upward adjustments in petroleum productsand electricity prices were designed to encourage conservation and reducepollution. Recognizing that a comprehensive and coordinated action plan wasneeded to address effectively the environmental and natural resource managementproblems, the Government with the participation of the Bank and the donorcommunity has prepared the Environmental Action Plan (EAP). Also based on themajor recommendations of the EAP it enacted a Comprehensive Environmental Law.

44. The EAP formulated an action oriented program emphasizing the needfor strengthening the institutional framework both at the central governmentlevel and at Governorates. It recommends that extensive technical assistance andtraining programs be launched to build an adequate capacity within the EgyptianEnvironmental Affairs Agency (EEAA). In addition the ZAP and the new law requirebuilding institutional capabilities both at the line ministries and theGovernorates. The Government has already embarked upon a program funded byvarious donor countries to strengthen its institutional framework to improve itsnatural resource management and to combat environmental degradation.

45. in addition, the RAP'calls for policy'reforms to'create a milieu wihint .which market forces generate appropriate .ncentives for efflcientutilization of natural -resources and for: the. protect' in of "thiienvironment. .The RAP. concludes:. that iubtantial progresn is ssenalin the areai of in.titutionia strengthening and poicy reforms along theli'ne*s s:uggestedabove `i'f.the inveestments designd to sleanilup' tenvironment an'd discourae further nmneiroeta) degradation are tosucceed.'and be sustainab,le "in the- long-run In"terma 'of' theectoralpriorities the iAP' recommends that wat-erand. waste waterb sectorproblems of soil, land.and air pollution be given the initpal emhasi..

Benefits and Risks of the ERSAP

46. On the assumption that the second phase of ERSAP would beimplemented, it will consolidate the gains made under the first phase, furtherimprove the incentive system, significantly raise the scope of private sectorparticipation, increase the efficiency of the public sector, and, thus, increasethe overall productivity growth. More importantly, the proposed policy measureswould result in higher, and sustainable, growth rates and contribute toemployment creation.

47. However, there are a number of real downside risks to the program.First, with the ongoing recession and unemployment on the rise, popular supportfor economic reform is declining. Strong opposition to the reforms from domesticindustry has developed among powerful interest groups fearing foreigncompetition. Reversals in reform measures could initiate a significant outflowof capital. Second, there has been an increase in the number of terrorist acts.The most recent threat against foreign tourists was made by Islamic militantslast February. The economic effects have been severe: a 42 percent decline intourism revenue, costing Egypt some US$900 million in 1993. Third, the externalenvironment could change suddenly, if oil prices were to decline further anddonor support was reduced as a result of reversals in reform policies. Thesefactors may further diminish the Government's room for maneuver. Donors'continued strong financial and technical support of the program are thereforecritical to the Government's success.

- 14 -

E. Bank Group Country Assistance traegy

48. The Bank's assistance strategy for Egypt has evolved over the laettwo years, in response to the Government's request for increased advice andtechnical support in the design and implementation of its medium-term economicadjustment program. The assistance strategy responds to the four objectives ofthe development agenda outlined in the preceding section. It has been discussedwith, and agreed by the authorities at regular intervals. The most recentdiscussions took place in December 1993, and were combined with a detailed reviewof the Bank's portfolio under implementation. These discussions confirmed thatthe Bank should continue to play a leading role in supporting the second phaseof the Government's structural adjustment program, and in aid coordination. Inview of the country's BOP situation and support from other donors at highlyconcessional terms, the assistance strategy is to be implemented over the nexttwo to three years with reduced levels of lending from the IBRD. The discussionswith the authorities have also indicated that the Bank should concentrate itsassistance at helping the Government induce a rapid development of the country'sprivate sector, develop the country's human resources and reduce poverty, andprotect the country's natural resources and the environment. The proposedassistance strategy is elaborated in the following paragraphs and presentedschematically in the matrix on page 18.

Assistance for Economic Reform

49. The task of bringing about sustainable growth and reducingunemployment remains formidable. For example, even in an optimistic scenario,for Egypt to have in the year 2000 half of its current level of unemployment, itsprivate sector would have to create 5 million new jobs; that is about 8 timesthe number of jobs that the "established" private sector created during the 1976-1986 period, a decade of relative fast growth. Having said that, the Governmentis right that the only option available to it is to move ahead with thestructural reforms while it maintains macroeconomic stability. A furtherimprovement of export competitiveness is, however, necessary.

50. The policy dialogue and technical assistance to help the Governmentcarry out its economic reform program has been the centerpiece of the Bank'scountry assistance strategy to Egypt. In support of the first phase of theGovernment's reform program, the Bank extended a SAL in May, 1991. The secondtranche was made available in March 1993, but was later cancelled at Government'srequest in view of Egypt's favorable BOP position. Also at Government's request,the Bank, jointly with the IMF, assisted the authorities to design and begin theimplementation of the second phase of the reform program (ERSAP-II). Theprincipal targets and policy measures to be adopted are summarized in Annex I andII. Because of Egypt's strong BOP position, the Government did not request quickdisbursing financial assistance for ERSAP-Il. As was explained to the Board onSeptember 14, 1993, Bank assistance will consist of helping the Governmentmonitor the implementation of the program through regular reviews andsignificantly, the Bank would be prepared to consider extending quick-disbursingBOP assistance to support the implementation of the program, if needed.

51. The Bank's assistance to the Government's reform effort will continueto entail a major economic and sector work (ESW) program. Further ESW is underway and planned to cover deregulation of utilities, rent decontrol, the reform

- 15 -

of the social safety net, the sugar subsector, and possibly civil service reformin support of UNDP-managed technical assistance. In addition, preparation of aCountry Economic Memorandum is scheduled to start late in 1994. It would focuson Egypt in the year 2000, and would be prepared jointly by the Bank and theGovernment. Finally, the Government has recently requested assistance from theBank to determine the impact of the peace process in the Middle East on Egypt'seconomy.

52. Institutions and the civil service must be strengthened for thereforms to succeed. A 1992 IDA credit helped finance the technical assistanceneeded for the Government's privatization, public enterprise and banking sectorreforms. An approved Institutional Development Fund (IDF) grant is assisting theMinistry of Economy and Foreign Trade in developing a system of safeguards, anti-dumping and countervailing measures. IDF requests are also being processed tostrengthen the production of national income accounts, and review regulations ofinsurance companies and private pension funds. Agreement on the modality andtimetable of Bank support to Government efforts to reform the civil service isexpected to be reached by end FY94. This support would complement efforts byother donors, such as UNDP, CIDA and ODA. Finally, the Bank will continue towork closely with the Government teams instituted under ERSAP I to monitor thereform program, such as the High Ministerial Economic Reform Committee and theTechnical Secretariat.

Assistance for Public Enterprise Reform and Private Sector Developmont.Including Privatization

53. The Government's Public Enterprise reform program is ambitious as itintends to restructure a sector that has dominated the economy for decades as anengine of growth and employment creation. The gradual establishment of a levelplaying field has not been without difficulties. The unemployment situation andsocial unrest have limited the Government's room for maneuver. Liquidation andrestructuring of PEs will therefore move at a slower pace than originallyplanned. The Bank has very regularly provided technical support -- throughsupervision missions of SAL I and during preparation of the SAMP -- to theconcerned authorities, including the Public Enterprise Office (PRO) which is theoperational arm of the P.R. Minister. The Bank Board has also approved in FY92a Technical Assistance project to support the P.R., privatization and bankingreforms; not much, however, was disbursed so far.

54. The need for a rapid development of the private sector is very muchingrained in the political leadership of the country. The Government has alsoto deal, however, with a private sector, a great part of which has developed apublic sector mentality after decades of protection and subsidies. In itsefforts to achieve sustainable, private sector-led growth, Egypt will face thefollowing PSD constraints and challenges that need to be addressed and met:

Policy Predictability. Although during times of major structural reformsome policy uncertainty is natural, the average Egyptian business personreceives very partial information on forthcoming policy changes and is,thus, putting off new investments until "the rules of the game* becomeclear. Two sustainability-related aspects of the current macroeconomicstabilization effort (both rooted in the continuing fiscal deficits)further discourage private sector confidences the rapid accumulation of

- 16 -

domestic public debt and the increasing loss of external competitiveness.The Legal and Regulatory System. Restrictive labor laws remain a keydisincentive to private sector growth, specially for potential marketentrants, as do rules on securitization and on intellectual propertyrights protection (mostly because of outdated legislation and weakenforcement). There is no anti-trust law; consumer protection laws areeffectively weak; and, most importantly, trade laws still constitute amajor barrier to international competition. Entry regulations are stillvery restrictive and cumbersome, local-level regulations concerning healthand safety standards, technical procedures, labor deployment andadministrative set-ups stifle efficient corporate operations.

Finance. Egypt's banking system does not provide long-term credit to theprivate sector; credit to micro and small enterprises; credit to certainsectors (e.g., housing); or consumer credit. Also, an array of legal,regulatory and institutional barriers limit the role of the securitiesmarket as a significant source of finance for the local private sector.Derivative markets (futures and options) are virtually nonexistent.Bureaucracy. The bureaucratic practices of the public institutionsresponsible for policy administration and enforcement impose major coststo business operations in Egypt. The system is perceived to haveimportant technical and process inefficiencies; that view applies tovirtually all public organizations dealing with private business. PrlvateMicro and Small Enterprise Development. Roughly three quarters of theemployment mass that can be expected to expand over the rest of the decade(i.e., private nonagricultural) is located in private firms with a maximumof 9 employees. For that class of firms to grow, three main constraintswould have to be dealt with; the lack of formal credit, the lack of(local and foreign) market access and the lack of physical space.

S5. The Bank, during the preparation and supervision of SAL I, as wellas during the preparation of the ERSAP, has and will continue to providetechnical support to the Government in the areas of private sector developmentand privatization. Also, financing was made available through the TechnicalAssistance project mentioned in paragraph 53 to support the PEO in theprivatization process of PEs. Many of the above constraints and challenges areto be addressed during the second phase of the Government's ERSAP. Theseconstraints to the development of the private sector are analyzed in detail inthe first phase of a Private Sector Assessment (PSA) that has been prepared bythe Bank in collaboration with the private sector. The outcome of the PSA reviewwill be discussed in a tripartite Private Sector Development Seminar in May, 1994with representation from the Government, the private sector and the Bank. Theoutcome of the Seminar will be an action-oriented plan; it is also expected toresult in the identification of possible operations to be supported by the Bank.

- 17 -

e83JM ::. '.-*MET OF TH 5HZGI

Assltanc fo theDeveopmnt o H"mndRsources 10 assistanc shouialo *nh

Yea Pln i exectd t moe tan ou needn rstent in eoducatlon andhelt

avilable resources wld hzvave setogro attexU sa Batek thevi poular'tiohabud erentaelo )forent,es of theJ2 deade. :olThis of unlikaely an t80 t

Govenmen wil ned t addessmeasresto~ impove ¢osezt/PrIati# nessor Thesincudeposibl retritiog o acerst nd increasing~ ussr fees an thesecndryan trtar euctin -vl" ephsWt:'g1 the ms 2tennc and bete

- 18 -

use of existing facilities, enlarging the role of the private sector and NOOs,and attempting innovative solutions (e.g. community funding for supplements toteachers and medical personnel salaries, fee remission or grants for poorstudents, greater involvement of employers in vocational and technical training)to some of the root causes of low quality, lack of relevance, and lack of access.

57. The Bank will continue to pursue a two-track strategy in support ofhuman resource development and poverty alleviatlon identified in the PovertyAssessment report. The first track is to support the Government's efforts tostrengthen its social safety net - a key element of the adjustment program. Thiswas identified as an urgent priority by the Bank's 1991 Poverty Assessment Report"Egypt: Alleviating Poverty during Structural Adjustment", which outlined the keyelements of a poverty strategy. The first step, the establishment of a donor-financed Social Fund with IDA participation, is now complete and the Fund isoperating successfully. The second step, to reform and rationalize the set ofexisting programs for the non-working poor, and to introduce a new targetedprogram for the poor, as the first program under a revised social welfarestrategy, is well underway. Specifically the Government is introducing reformsto its existing programs identified in cooperation with donors and the Bank, thefocus of which is to introduce significant management changes. The Bank hasprovided technical assistance with the design of the new targeted program for thepoor, and the completed proposal is now under discussion within the Government.The Bank is also engaging in a dialogue with the Government on the future shapeof its social welfare system, including the future of the Social Fund.

58. The second track of the Bank's human resource development strategyis to support the Government's longer term reform effort in the social sectorsas set out in paragraph 37. The Bank provided significant technical assistanceon the issue of resource reallocation in the report entitled Egypt: Public SectorInvestment Review (1992). The Government has largely adopted the recommendationsfor increases in the absolute amounts and in the proportions of investment fundsgoing to education and health under the 1993-97 Plve-Year Plan, and within thesesectors towards primary education and preventive health care. The Bank isproviding technical assistance for the first Living Standards MeasurementsSurveys (1994-96), and is managing a study on how to build the capacity of Noosunder economic reform. The Bank, jointly with several other cofinanciers, isfinancing with IDA credits two projects (basic education and schistosomiasis),which support two key aspects of the Government's strategy as it pertains toeducation and health. The Bank is discussing possible projects in population andfamily health, and education to support other key elements of the Government'sstrategy. Nost recently the Government has asked the Bank's help in designingIts comprehensive human resources strategy, which is to be prepared by a corehuman resources team in the Cabinet. There are numerous donors providingassistance in the social sectors. A Human Resources Donors Group has beenestablished recently in Egypt to liaise with the Government and to ensure betterdonor coordination.

Assistance for improving Natural Resource Mana8ement and the Environment

59. As stated in the preceeding section, the Government's EAP is soundand the recent passage of the Environmental Law is a major step in the rightdirection. However, there is a need to further coordinate the efforts of variousdonor countries to formulate a focused implementation program. This is expected

- 19 -

to take place in light of the decisions of the recent Consultative Group meetingto improve donor coordination. In addition, there are still a number of areas inwhich policy reforms are needed to create appropriate incentive systems. Inparticular, water charges and water rights issues need to be addressedeffectively and immediately. Similarly, taxes on gasoline and diesel should beadjusted to include social and economic costs involved in their use to encourageusers to conserve - i.e. better tuned-up motor vehicles increasing mileage andreducing air pollution.

60. The Bank's strategy in assisting Egypt to overcome the seriousenvironmental problems that it is facing and to lmprove Its natural resourcemanagement consists of the following broad categories of actions. The firstconsists of project lending activities that are designed to deal with sectoralenvironmental issues. For example; the Bank has been assisting Egypt to overcomewaterlogging and soil salination through a series of projects for field drainage.Other donori have either cofinanced these schemes or carried out separateinvestments for drainage and soil improvement. Besides assisting Egypt in theformulation of the EAP and sector strategies in agriculture, the Bank hasaddressed issues of urban management, and waste water and solid waste disposalin its project and sector work in Egypt, The Bank is also providing support forthe Matruh Resource Management Project which specifically addresses issues ofnatural resource management in the Northwest Coastal area. The AgriculturalModernization Project aims, inter alia, to promote efficiency in on-farm waterusage and incorporate environmental screening of investments in mechanization andagro-industries.

61. The Bank has also been utilizing the METAP facilities to assist Egyptto build adequate institutional capabilities and to initiate studies for projectpreparation. For example, proposals have been formulated for METAP funding inthe area of water and sewage treatment in the Nile Delta, Coastal Conservation,Solid Waste Sector and improving public/private sector participation for theprotection of the environment.

62. In line with the recently adopted Agricultural Strategy for the19909, the Bank has maintained an active dialogue with the Egyptian authoritiesto facilitate formation of water user groups, introduce cost sharing arrangementsfor water usage, promote local participation in determining investmentpriorities, divest public involvement in trade and provision of services in favorof the private sector, and adopt necessary institutional reforms in the variousagencies engaged in the agricultural sector. The Government has indicated itscommitment to carry out these actions and the Agricultural Modernization Projectincludes several of these elements.

63. In addition, the Bank is maintaining its presence in the area ofenvironment to play a catalytic role in coordinating donor activities and donor-funded projects/technical assistance programs. The Bank also agreed with theGovernment that, if so requested, it would provide IDA funding for a coreenvironmental project.

- 20 -

Aid Coordination and Cooperation with the IMN and UNDP

64. The Bank's proposed strategy also aims at mobilizing the donorcommunity, to continue providing financial support to the Government's reformprogram. Aid coordinatlon is pursued at three levels: i) local coordination ofthe donors in Cairo, undertaken by the Resident Mission; ii) the continuation ofthe Consultative Group (CG) process and iii) contacts at senior management levelswith key donors and the Government. The last CG meeting was held in Paris onJanuary 25-26, 1994. At the four separate technical meetings focusing on privatesector development and privatization, social sectors, agriculture and environmentthat were organized, participants emphasized the need for the Government to moveswiftly with its reform program and to strengthen project implementation andabsorptive capacity. It was suggested, subject to Government confirmation, thatan interim meeting could take place in Cairo ln-between CGs, possibly in December1994. Follow-up formal CG meetings could then be scheduled in eighteen monthcycles with the next CG in June, 1995. Since the format of the January 1994 CGwas appreciated by the Government and donors, it was agreed that a similar formatwould be used in future.

65. As in the case of SAL I, there has been close cooperation with theIMF on the preparation of the structural policy actions and the macroeconomicframework of the three-year extended arrangement. Joint Bank-IMF missions havetaken place during preparation and evaluation of ERSAP II. The Bank has providedthe IMF with comprehensive analyses of the financial sector, the regulatoryframework, the tax system, and the public investment program, which have beenused as background work in the preparation of the matrix of policy actions (AnnexII). Similarly, cooperation with UWDP has proven to be very fruitful. UNDP, inagreement with the Government, has allocated a large share of its funds tostrengthening institutions that are implementing Bank-supported projects, suchas the Social Fund, the Public Enterprise Office, and the Tourism DevelopmentAuthority.

Lending Profram

66. Because of its low per capita income, Egypt continues to qualify fora blend of IBRD and IDA resources. Most IDA resources are earmarked for projectsin the social sectors, the environment, agriculture and technical assistance.Because of the tight fiscal situation (which has led to a decline in publicinvestments and has limited counterpart funding), but also because of theavailability of highly concessional assistance from other sources the Governmentand the Bank agreed to reduce the lending program over the next two to threeyears. In addition to IDA resources of SDR 58 million per annum allocated duringFY94/96, it is expected that annual borrowing from the IBRD will be less than$100 million. The possible lending program is still being discussed with theGovernment to ensure that projects to be financed by the Bank are the result ofclose consultation and are of the highest priority for the country. At thesuggestion of the Bank, a specific process was agreed upon aimed at reducinglate-in-the-process droppages of projects on which considerable Bank resourceshad been spent. Agreement on projects in private sector development, humanresources, environment, and agriculture, will result in a lending program whosestructure will be substantially different from that of the recent past withregard to the areas of concentration. As initiated in FY93 (see paragraph 67),this would imply that the previous focus on power, industry and infrastructure

- 21 -

will be substantially reduced. Possible operations that are being discussedinclude a core environmental project, irrigation improvement, inlands waterwaysand education. The Bank, still a lender of last resort, could increase itslending should a deterioration of Egypt's external economic environment threatenthe implementation of the Government's adjustment program. On the other hand,Bank Group lending could be further curtailed if there were slippages in economicperformance and a deterioration in portfolio implementation.

67. As of December 31, 1993, the Bank Group approved 60 loans and 37credits to Egypt. Total commitments amounted to $4.3 billion, net ofcancellations, of which US$3.3 billion were disbursed. Of the Bank Group'scommitments, about 48 percent supported projects in power and industry; 22percent in agriculture; 13 percent in infrastructure; 10 percent in humanresources development; and about 6 percent in structural adjustment. In FY93,the Bank Group approved three projects for education, private sector tourism, andresource management in the Matruh area. Eight of the currently ongoing projectswere approved prior to June 1987 and are expected to close by June 30, 1994.Ongoing Bank/IDA supported projects have mobilized about US$1.9 billion incofinancing, equivalent to more than 100 percent of the Bank's contribution.

68. IFC Investments as of December 31, 1993 include US$57 million inequity and US$75 million in loans. Investments for PY94 and FY95 will focus onprojects that support privatization and public enterprise restructuring.Tourism, the petroleum sector, including in particular natural gas, andinfrastructure projects, particularly communications and power generation,represent good opportunities for the medium term. IFC's strategy for capitalmarkets development in Egypt will continue to focus on providing technicalassistance to the Government on financial market issues, helping to develop moremarket-oriented financial systems, and channelling resources for the emergingprivate sector. This support for the private sector includes the establishmentof collective investment vehicles (e.g. foreign or domestic investment funds),the promotion of venture capital institutions and the provision of lines ofcredit to appropriate financial institutions for on-lending to small and medium-sized enterprises.

69. In the securities markets area, IFC proposes to help establishspecialized intermediaries for investment banking, mutual fund management andbrokerage activities. In the insurance sector, IFC plans to enlist theparticipation of a reputable international insurance group to provide thenecessary technical inputs for the formation of a private sector insurancecompany. IFC also proposes to help establish a leasing company once the leasinglegislation is enacted. Egypt is a member of MIGA but so far, there have beenno MIGA guarantee agreements in Egypt.

Portfolio ImDlementation

70. A Country Portfolio Performance Review (CPPR) was held in Cairo inDecember 1993 as part of the Strategy Discussions. The CPPR was preceded bySector Portfolio Performance Reviews (SPPRs) for agriculture and human resources.A Country Portfolio Implementation Plan (CPIP) was prepared as background for theCPPR, and Government counterparts participated in the preparations for the CPPR.The CPPR dealt with project specific outstanding issues, and with cross-sectorgeneric issues. The CPPR reached agreements with the Government on several

- 22 -

fronts including the closure of overage projects, the utilization of IDA fundsunder the TA project of PE Reform, Privatization and Banking Reform, thefinancial covenants of the power projects and on procurement issues. This CPPRprocess is now an annual event, which is fully supported by Government.

71. Over the past two years, increasing attention has been paid by theGovernment and the Bank to project implementatlon and portfolio clean-up.Supervision resources sharply increased as did the share of supervision resourceslocated in the Resident Mission in Cairo which indicates greater responsibilitiesbeing transferred to the Resident Mission (Annex Al). However, there has alsobeen a significant increase in the share of problem projects. Factors externalto the projects themselves bear significant responsibility for the increase inproblem projects. Most noticeably this is the case in the agriculture, industryand energy sectors, where charges in policies in line with ERSAP have affectedperformance under projects originally designed to operate in a differentenvironment. On the positive side, disbursements on all projects underimplementation, as a percent of opening undisbursed balances, increased from 11.7percent in FY92 to 17.4 percent in FY93. The same disbursement figure, excludingSAL I, also increased from about 9 percent in FY92 to 13 percent in FY93. Theoverall rating of the portfolio has also slightly improved. A disbursementworkshop that took place in FY93 is expected to further improve projectimplementation. Workshops on procurement, accounting and auditing were organizedthis fiscal year. Timely submission of audit reports, a major problem in thepast, is another improvement in the last year. In FY93, two projects wereclosed, and US$26.5 million, committed for projects that the Government thoughtno longer deserved priority, were cancelled. An important concern continues tobe the delayed effectiveness of Bank loans and IDA credits, which requireratification by Parliament. Ways to expedite the approval process are beingexplored with the authorities. Except in the power sector, the implementingagencies and the Government are in general compliance with the covenantsstipulated in the loan agreements. With regard to the two on-going powerprojects, the Egyptian Electricity Authority (EEA) has been in compliance withthe audit covenants, but is in default with the financial covenants for FY92 andFY93, and is unlikely to be in compliance for FY94. Related technical issues,such as the pricing of natural gas, are being discussed with the authorities.Should these issues not be resolved during FY94, Bank management may have todecide to suspend disbursements for these two projects.

F. Aenda for Board Consideration

72. The Government is implementing its reform program at a pace itconsiders appropriate in view of the country's political and social constraints.Despite awareness of the political risks in the short term, the Government isalso aware of the risks to the economy over the medium term if it does notcontinue implementing the reform program. A loss of credibility in the reformprogram could lead to capital flight, a sharp depreciation of the currency anda significant decline in an already low level of private investment; Egypt couldalso lose a portion of the financial assistance it is currently receiving fromthe donor community. Given opposition to the reforms among powerful interestgroups, and the sharp increase in the level of violence by extremist groups, itis expected that the Government will move judiciously to ensure continued popularsupport for the reform program, taking into account social and politicalstability. However, delays in the implementation of the reform program,

- 23 -

particularly in the privatization of public enterprises and further priceliberalization, may well occur. This would negatively impact on the medium termprospects described in paragraphs 24-25, both in terms of growth and employmentgeneration. Given the downside risks involved (paragraph 47), the Bank'scontinued strong technical and, if necessary, financial support to the programare critical for the Government's success.

73. Although Bank lending to Egypt at this time is likely to be modestin relation to the size of t.ie Egyptian economy, the Bank should continue to playa critical role through providing direct technical assistance and significanteconomic and sector work, with the areas of emphasis continuing to be decided inclose consultation with the Government.

i.**. ..T.h*: < 'i'v... .X ..

...t he eeon~m4c z?,f ..o...

H. AGRIUTR AN RUAL IAC

A. AWculh

74. Agriculture is an important sector, employing about 35 per cent ofthe labor force. Only about three per cent of the total land area is arable andaverage holdings are about 0.8 ha. In these circumstances, agriculturalintensifieation and fficient use of the country s limited water resources assumcentral importance for growth in the sector.

75. The agricultural sector has led policy reforms in Egypt since themid-80s. Lifting of crop area allocations for various crops, removal of controlson pricing and marketing of inputs and outputs, elimLnation of input subsidies,and adoption of market-based lending rates have led to impressive productivitygains. Liberalization of cotton marketing is underway and the cotton commodityexchange, which was closed in the 1960s,, in expected to re-open to market thecurrent crop. Recent reform in the land tenure law allows for land rents to beraised three-fold during a five-year transitional period after which they wouldbecome market determined and owners would be able to protect their ownershiprights over land. These initiatives, when consolidated through adoption ofimproved technologies and strengthened institutions, would go far in raisingagricultural productivity and rural incomes.

- 24 -

76. The recently completed report *Arab Republic of Egypt: AnAgricultural Strategy for the 1990s" (Report No. 11083-ECT) noted that access toimproved technology and promotion of agro-related enterprises are key to addingvalue to rural output, increasing rural income and reducing rural-urbanmigration. Provision of medium- and long-term investment finance by the bankingsystem, access to markets, and provision of technology support to investors byprivate and public institutions play a critical role in this regard.

B. Financdal Intermediation and Rural Fna4nce

77. Egypt's rural financial system is characterized bys (a) the virtualabsence of commercial banks in meeting small farmer credit needs; (b) an informalcredit system, which provides short-term credit in small amounts; and (c) anetwork of rural banks under the Principal Bank for Development and AgriculturalCredit (PBDAC) which provide seasonal credit as well as term finance forinvestment. Commercial bank services are concentrated in urban areas and lendingto the agricultural sector has been only 3.2 per cent of their total credit inrecent years. There are no apparent legal barriers to entry in rural banking.The prevailing "market failure" and the reluctance of commercial banks to providerural credit are largely because of lack of information on rural lendingopportunities, lack of expertise in this area, and the perceived higher riskinvolved in rural lending.

78. There is clearly a need to pursue the objective of introducingcompetition in financial markets, through encouraging more active commercial bankparticipation in rural financial intermediation. The key actions which need tobe taken to promote commercial banks' activities in rural areas are to makeavailable information on rural financial markets, provide profiles of ruralinvestment opportunities, and train staff in rural banking and project appraisal.The PBDAC has begun to pilot some of these initiatives and thereby demonstrateto the commercial banks that rural banking can be financially viable.

79. PBDAC, which will implement the project, has been the principalsource of credit to the rural private sector. An overwhelming majority ofPBDAC's clients are some three million small farmers; in a portfolio of about LE4 billion, only an estimated 11,000 loans exceed LE 20,000. PBDAC operates underLaw No. 117 and is answerable to the Central Bank of Egypt (CBE) on matters ofthe banking law and is supervised by it; it is also answerable to the ministryof Agriculture, which defines sector priorities and policies. PBDAC is among themore successful rural financial institutions in developing countries; it realizedan average interest yield of around 17 percent from its loan portfolio duringFY92. About 45 per cent of PBDAC's lending resources needed is derived throughdeposit mobilization, 35 per cent through short-term commercial bank borrowings,and the remainder from external borrowings, grants and equity. Lending rates aremarket-determined. To date, loan collection by PBDAC has remained high,averaging over 90 per cent. It continues to operate on a profitable basis; FY92operations generated net income before taxes of about LE 95 million and its pre-tax return on equity in 1992 was estimated at 14.5 per cent.

80. The emphasis placed on private sector development and promotion ofcompetition poses both a challenge and an opportunity for PBDAC to adapt itselfto the changing market environmerAt. Over the past few years, PBDAC, which hada monopoly in distribution of feAtilizers and feed materials, has divested these

- 25 -

activities to private traders. With the support of the USAID, it is implementinga bold program of institutional reform which is wide-ranging and pioneering innature. PBDAC plans to diversify its portfolio and increase non-agriculturallending in rural areas, particularly in the form of medium- and long-term creditfor agro-processing. With a view to controlling staff costs and to re-deploysurplus staff, PBDAC has planned early retirement of some 6,850 employees overa three-year period up to FY96; in addition some 2,350 staff would retire in thenormal course. To date, some 1,450 have been given voluntary early retirementat a cost of LE 29 million, which was financed out of PBDAC's FY92 profits. TheBank's review of the business plan and financial projections of P8DAC for theperiod FY93-97 indicates that with timely implementation of the business plan,including the redeployment of staff as targeted, the PBDAC would remain a viableand effective rural financial intermediary.

C. Past Activities and Lessons Learned

81. About 22 per cent of current Bank Group lending to Egypt has beendevoted to the agricultural sector; seven projects, representing a total lendingof US$362.5 million, are under execution. A large part of these resources arefor irrigation and drainage development. Lessons learned from past activitiesare as follows: (i) projects should have limited objectives, be simple in design,and involve a single project implementing agency; and (ii) the implementingagency should "own" the project, avoid "start up" delays, and develop competencyin project implementation capacity, particularly in procurement. Past experiencealso suggests that availability of counterpart funds and delegation of authorityare important. These aspects have been kept in view in designing the project.There is a high level of commitment to the project and the PBDAC will ensureavailability of counterpart funding for project purposes.

x01 THE PROJECT

A. i]nkage to the Count Assistance Strategy

82. The Agricultural Modernization Project is in conformity with theBank's country assistance strategy. It is designed to support private sectordevelopment in the rural areas as well as increase agricultural and rural incomesby improving access to investment capital and technology for small- and medium-scale rural operations. Rural banking plays a critical role in this respect.The project also aims to promote efficiency and competition in the rural creditmarket and is a part of reforms in Egypt's financial sector. PBDAC's efforts torestructure and streamline its organization under the project represents a piloteffort at administrative reform and improved public sector management both ofwhich are important to the Bank's strategy in Egypt.

B. Proeet Featum

83. roject Objectives. The project's objectives are to: (i) increaseagricultural productivity by promoting appropriate technological packages at thefarm level; (ii) increase rural income by creating off-farm job opportunities,including processing and marketing activities, contractual and custom hireservices, and agro-based enterprises; (iii) streamline PBDAC'" organization andstrengthen staff capabilities to enhance its performance as an effective rural

- 26 -

financial institution; (iv) facilitate participation of commercial banks insupporting rural investments; and (v) improve capabilities of the extension andtechnology transfer agents ard bring about effective coordination among thevarious agencies engaged in the provision of credit, technology transfer, andmarketing services.

84. ProjecDescriptionand nplanentationArnugements. The project would providefinancing and advisory services to farmers and rural entrepreneurs; seek todevelop competition in the rural financial market; and launch pilot efforts inadministrative reform and institutional development. By opening up access toloan funds through an "apex" lending arrangement, the project would seek tointroduce competition in the provision of rural financial services and expand thecurrently small base of medium- and long-term lending for agriculturalinvestmen:. Technical assistance and training would be extended to participatingbanks to build up appraisal capability; the project would assist PBDAC to developa database on rural financing and investment activities, create profiles of ruralprojects and rural clients, and collect and disseminate market information. Tofacilitate effective technology dissemination, three existing regional researchand extension stations and 33 extension information and demonstration units wouldbe strengthened under the project on a pilot basis. These centers would harnessrelevant expertise from not only Government sources, but also academia, theprivate sector, and the farming community. The units would play an active rolein demonstrating application of improved technology and practices and indisseminating market information.

85. The project would finances (a) on-farm technology improvement whichincludes, inter alia, installation of modern on-farm irrigation systems,agricultural equipment and spare parts, and farm inputs; (b) provision of privatecustom hire services for land levelling and tillage, seeding, crop husbandry, andharvesting and storage, and processing and marketing of farm outputs; off-farmservices, such as processing and marketing of farm outputs, provision ofequipment and services for agro-based enterprises; and (c) institutionaldevelopment to: (i) train and upgrade PBDAC's as well as the participating banks'capacity to identify and promote rural investments; and (ii) disseminate improvedfarming technology through field demonstration and training, and encourageinvestments in improved production and processing technology.

86. Bank Group lending of US$121.0 million to the project would be in theform of a Bank loan of US$54.0 million equivalent to PBDAC, with the guaranteeof the Arab Republic of Egypt, and an IDA credit of SDR 48.7 million (US$67.0million equivalent) to the Arab Republic of Egypt to be made available to PBDACand to MALR. The Bank loan of US$54.0 million and an amount equivalent toUS$46.0 million out of the IDA credit would be utilized by PBDAC for on-lendingand the remaining US$21.0 million equivalent would be utilized for institutionaldevelopment. PBDAC would receive the Bank loan and US$46.0 million equivalentof the IDA credit on IBRD terms. The Government of the Arab Republic of Egyptwould charge a guarantee fee of 0.125 per cent. PBDAC would bear the foreignexchange risk; to cover its risk, PBDAC would pay a fee to the Ministry ofFinance. This fee is currently determined to be three per cent of each maturity.The Ministry of Finance will review this rate at mid-term and adjust itperiodically during the maturity period of the loan, so as to reflect marketconditions. PBDAC would act as an "apex" institution, lending the Bank loan andthe portion of IDA credit earmarked for on-lending purposes through its own

- 27 -

network as well as through other participating banks. The banks participatingin the project would operate a "cash window" and/or a "credit window" -- i.e.,either sell the proceeds of the Bank loan to importers and utilize thecounterpart local currency resources in on-lending to farmers or investors; or,alternatively, provide term loans on the basis of sub-project appraisal.Interest rate' in Egypt are now market-determined and there is relatively easycapital movement; consequently, interest rates on local currency loans includean implicit premium that reflects market expectations with regard to exchangerate changes. Part of the IDA credit to be utilized for institutionaldevelopment would support staff retraining, studies to promote bankingcapabilities, and development of technology transfer services through three"pilot" regional research and extension stations of MALR. The project would beimplemented by a Project Management Department (PMD) in PBDAC. Staff, equipmentand training support would be provided to the PMD. The technology transfercomponent will be implemented by MALR. The PMD would be responsible, inter alla,to carry out the functions of PBDAC as the apex bank and establish necessaryreporting and monitoring arrangements. It will be responsible also to organizethe studies and training programs under the project.

87. PBDAC has prepared and submitted to the Bank a business plan whichis aimed at operationalizing the strategy for: (i) increased deposit mobilizationand strengthening of its resource base; (ii) reduction in staffing and otheradministrative costs; and (iii) strengthening capabilities in lending and loanrecovery activities, and in financial policy-making and management. Besidesoutlining the program for reducing excess staff, the plan provides the benchmarksfor monitoring performance in making rural banking more efficient. This planprovides the needed reassurance to the Bank on the PBDAC's ownership of theproject objectives and design. Implementation of the Business Plan is alreadyunderway. To maintain the momentum in implementing the needed studies and earlylaunching of the project, provision has been made for retroactive financing ofup to US$1.0 million (about 1.5 per cent of the Credit amount) for eligibleexpenditures incurred after February 1, 1994.

a8. Agreements Reached. Agreements have been reached that PBDAC would: (a)appoint, by October 1994, a development banking expert, a loan administrationrecovery specialist, and an environmental specialist for 24 months each; (ii)provide the Bank with a plan and target for deposit mobilization annually; (iii)furnish to the Bank, by October 1994, and each year thereafter, a report on loanrecovery and ageing of arrears; and (iv) reduce operating expenses and maintainsuch expenses at a level which would not exceed 60 per cent of PBDAC's netinterest income by June 1997; (v) develop environmental guidelines and train thestaff in applying the guidelines; and (vi) carry out, together with the Bank, amid-term review of the project by December 1997. There would be standardcovenants regarding audit of PBDAC's accounts, as well as the project account andspecial accounts.

89. The PBDAC has: (i) nominated the Project Director, ProjectCoordinator and two Deputy Directors of the Project Management Department; (ii)established a Project Steering Committee and an Implementation AdvisoryCommittee; and (iii) established an Environmental Office. In addition to thecross effectiveness condition between the loan and credit agreements, a conditionof effectiveness would be the execution of the financing agreement between theGOB and PBDAC for passing on the proceeds of the IDA credit.

- 28 -

90. Project Benerits. The project would increase rural household incomesthrough increased farm production, farm-related business activities, and off-farmemployment generated through custom-hire services and agro-processing. At theinstitutional level, the project would streamline and upgrade the activities ofPBDAC and foster competition in the rural financial sector through training P8DACemployees and those of PBs in rural project appraisal, etc. The economic rateof return of the project is estimated at 38 per cent.

91. Project Risks. The project faces three sigr1ificant risks: First,slackening or reversal of macroeconomic reform is a risk which would discourageinvestors. While the current slackness in investment growth seems to beattributable to economic recession and weak demand, effective implementation ofthe private sector development and public sector reform aspects of ERSAP wouldbe of critical importance for the project's success. Second, delays inimplementation of the redeployment program may occur due to inadequacy ofresources for PBDAC to make severance payments for its redundant staff. Theproject provides for retraining so that the displaced employees could beredeployed to other activities, such as trading and other professions in theservice sector. Third, participation of commercial banks in onlending to therural economy which is one of the project's objectives, may develop slowly.Provision of technical assistance and training under the project should helpreduce this risk.

92. Environmentd Aspecs. The project has been classified as OB". Byfinancing improved agricultural practices which would result in reducedconsumption of water, fertilizers and pesticides, the project would yieldenvironmental benefits. To avoid use of funds for sub-projects that might haveadverse environmental impacts, the project would provide for adoption of properguidelines, training of relevant staff in the lending institutions as well as theresearch and extension staff, and for environmental screening of projects. TheEnvironmental Adviser of PBDAC, who would be assisted by an internationallyrecruited specialist, would oversee the environmental soundness of theinvestments made under the project. The representative of the EgyptianEnvironmental Affairs Agency (BEAA) who would serve on the project ImplementationAdvisory Committee would help to ensure that activities under the project areconsistent with the environmental laws and strategy of the country.

93. Reconmendations. I am satisfied that the proposed loan anddevelopment credit would comply with the Articles of Agreement of the Bank andof the Association and recommend that the Executive Directors approve theproposed loan and development credit.

Lewis T. PrestonPresident

Attachments

Washington, D.C.March 3, 1994

- 29 -

SCHEDUIM

ARAB REPUBLIC OF EG

AGRICULTURAL MODERNIZATION PROJECT

ESTIMATED COST AND FINANCNG P-LAN

PROJECT COST SUMARY('000)

Local Foreign Total Local Foreign Total VForeign VTotalExchange Bse"

Costs

A. FARN INVESTMENTS 162284.6 177985.8 340270.4 48704.9 53417.1 102122.0 52.3 42.0

B. AGRO-BASED 169800.0 113200.0 283000.0 50960.4 33973.6 84934.0 40.0 34.9ENTERPRISES

C. INSTITUTIONAL DEV.

1. Rural Banking 118185.5 25927.0 144112.5 32597.8 M81.2 40379.0 19.3 16.6

2. Transfer of 36871.1 16137.5 53008.6 11065.8 4843.2 15909.0 30.4 6.5AgriculturalTechnology - ---------- - -__--

Sub-Total 155056.6 42064.5 197121.1 _ 43663.6 12624.4 56288.0 22.4 _ 23.1

Total BASELINE COSTS 487141.2 333250.3 820391.5 143328.9 100015.1 243344.0 41.1 100.0

Contingencies

Physical 1011.4 544.6 1556.0 303.5 163.4 467.0 35.0 0.2

Price 132632.1 126945.1 259577.2 _ 11541.3 13444.0 2498.3 5 3.8 _ 10.2

rotal PROJECT COSTS 620784.7 460740.1 1081524.8 155173.7 113622.5 268796.3 42.3 110.4

lFINANCING PLAN

Local Foreign Total Percent of Total---------- (US$ million)-------- ----------------

Bank GroupIBRD - 54.0 54.0 20IDA 7.4 59.6 67.0 25

Government/PEDAC 89.0 - 89.0 33

Investors 58.8 -5.8 22

Total 155.2 113.6 268.8 100.0

- 30 -

CHEDUIEL BPage 1 of 2

ARAB REPUBLIC OF EGYPTAGRICULTURAL MODERNIZATION PRORCT

PROCUREMENT ME-T1ROD AND DISB-RENWM

PROCUREMENT METHOD

Procurement Ele,t I ,LC Oth N.B.P. Total

1. Goods

1.1 Machinery, Equipment, and Goods - 210.1 - 210.1(100.0) (100.0)

1.2 Vehicles, Laborny and Office Equipment 5.1 1.2 - - 6.2(4.0) (3.0) (4.3)

2. Works

2.1 Civil Works - 5.3 - - 5.3(2.1) (2.1)

3. Consultancies

3.1 Specialized Services - - 1.8w - 1.8(1.8) (1.8)

3.2 Studies - - o.7 - 0.7

(0.7) (0.7)3.3 Taining g 9g 99

(9-9) (9-9)

4. Miscellaneous

4.1 Demonstration - 4.4 - 4.4(2.2) (2.2)

4.2 nstitutional Restrucuring - - 26.2 26.2

6. Opefation and Maintenance - - 4.1 4.1

TOTAL 5.0 6.5 226.9 30.3 268.7(4.0) (2.4) (114.6) (121.0)

Note: Figures in parentheses are the respective amounts financed by the Bank loan and I)A credit. Amounts includecontingencies. NBF: Not Bank/lDA Financed.

a/ Procuremnt by private sector under procedures that work efficiently.kI Services should be procured in accordance with Uorld Bank guideLines: Use of Consultants by world Bank Borrowers

and by the World Bank as an Executing Agency (Washington, D.C., August 1981).Services of demonstrations would be procured under Bank/IDA guidelines.

- 31 -

SCHRULEI BPage 2 of 2

DISBURSEMENT PLAN

Amount Atlocated Percentage of Expenditures to beCATEGORY (US$ Million Financed

Equivalent)

Loan CreditAtigoat10 Atiocatfon

(1) Nachinery. 54.0 46.0 100% of foreign expenditures, 100%equipment and of local expenditures (ex-factorygoods cost) or 602 of local expenditures

for other items procured locally.

(2) Vehicles, laboratory 3.9 100% of foreign expenditures, 1002& office equipment of local expenditures (ex-factoryand training cost) or 702 of local expendituresmaterials for other ites procured locally.

(3) Civil works 1.9 402 of xpenditures

(4) bemonstration 1.9 SX of expenditures

C5) Expert servfces, 11.2 100% of expedituresstudies & training

(6) Unallocated - 2.1

TOTAL 54.0 67.0

The project is expected to be completed by June 30, 2001, and it is anticipated thatthe Bank loan and IDA credit will be fully disbursed by that date. The Closing Datewould, therefore, be June 30, 2001. The estimated schedule of disbursement issummarized below.

3STMATED DISBBEM SC=) OF INI LOA A IDA MM

----- IBRD/IDA Fiscal Year ---------

1994 1995 1996 1997 1998 1999 2000 2001

… ___,,,,,_,_..___--…(US$ million)----------------

IBRD Annual 0.0 3.9 4.5 6.6 8.8 9.7 10.1 10.4

IBRD Cumulative 0.0 3.9 8.4 15.0 23.8 33.5 43.6 54.0

IDA Annual 0.0 9.4 9.4 9.8 10.3 9.1 9.2 9.8

IDA Cumulative 0.0 9.4 18.8 28.6 38.9 48.0 57.2 67.0

Total Cumulative 0.0 13.3 27.2 43.6 62.7 81.5 100.8 121.0

- 32 -

SCHEDIULE

ARAB REPUBLIC OF EGYP

AGRCLTUA MODERNZATON PRO.ECT

TIMWETABLE QF-KEY PRO.IEC PROCE3SSING EVNENT

(a) Time Taken to Prepare: Nine months

(b) Prepared By: FAO/CP, Egyptian authorities

(c) Preappraisal Missions October 1992

(d) Appraisal Mission Departure: June 1993

(e) Negotiationst February 7-11, 1994

(f) Board Presentation: March 24, 1994

(g) Planned Date of Effectiveness: September 30, 1994

(h) List of Relevant PCRe and PPARs:

Nile Delta Drainage I (Cr. 181)Upper Egypt Drainage I (Cr. 393)Fruits and Vegetables (Ln. 1276)Upper Egypt Drainage II (Ln. 1235 and Cr. 637)Nile Delta Drainage II (Ln. 1439 and Cr. 719)Agricultural Development (Cr. 830)First Agro-Industries (Cr. 988)New Land Development (Cr. 1083)Fish Farming Development (Cr. 1111)Irrigation Pumping Station Rehab. (Ln. 2270)Second Agro-Industries (Ln. 2243)Technical Assistance (Cr. 1162)

(i) Responsibilities for Preparation:

Task Manager K. S. VenkatramanDivision Chief Ngozi Okonjo-IwealaDepartment Director Ram K. ChopraRegional Vice President Caio Koch-Weser

- 33 -

SCHEDULE DPage 1 of 2

THE STATUS OF BANK GROUP OPERATIONS IN EGYPT

A. Statement of Bank Loans and IDA Credits

(As of December 30. 1993)

Amount in USS million(less cancellations)

Loan or fiscal Undis- Closing

Credit No. Year Borrowsr Purpose Bank IDA bursed Date

.. ........ ...... ..... ..

Credits

30 Credits(s) closed 885.48

C11560-EGT 1981 EGYPT, ARAB REPUBLIC OF BEHEIRA PROVINCIAL W 56.60 2.99 12/31/93(R)

C22760-EGT 1991 EGYPT, ARAB REPUBLIC OF EMERGENCY SOCIAL FUN 140.00 127.77 06/30/97

c23130-EGT 1992 EGYPT, ARAB REPUBLIC Of NATIONAL DRAINAGE 75.00 76.92 12/31/99

C24020-EGT 1992 EGYPT, ARAB REPUBLIC OF TA PRIVATIZATION 9.00 8.62 06/30/98

C24030-EGT 1992 EGYPT, ARAB REPUBLIC OF SCHISTOSOMIASIS CONT 26.84 27.07 06/30/99

f C24760-£GT 1993 EGYPT, ARAB REPUBLIC OF BASIC EDUCATION PROJ 55.50 55.24 12/31/02

* C25040-EGT 1993 EGYPT, ARAB REPUBLIC OF MATRUH RESOURCE MANA 22.00 21.96 12/31/01

TOTAL nuiber Credits 7 384.94 320.57

Loans.......

1961

45 Loans(s) closed 1,966.10

L24580-EGT 1984 EGYPT, ARAB REPUBLIC OF SMI II 95.00 14.08 06/30/94(R)

L24590-EGT 1984 EGYPT, ARAB REPUBLIC OF EXPORT PROMOTION 52.27 15.12 06/30/94(R)

L24600-EGT 1984 EGYPT, ARAB REPUBLIC OF CONSTR. IND. 28.79 5.93 06/30/94(R)

L25610-EGT 1985 EGYPT, ARAB REPUBLIC OF AGRIC.DEVT. II 80.00 3.33 03/31/94(R)

L25620-EGT 1985 EGYPT, ARAB REPUBLIC OF DRAINAGE V 63.00 4.27 03/31/94(R)

L25940-EGT 1985 EGYPT, ARAB REPUBLIC OF VOC.TRNG.ELECTRICITY 19.30 5.82 06/30/94(R)

L27320-EGT 1986 EGYPT, ARAB REPUBLIC OF CHANNEL MAINT. 28.00 9.77 06/30/94

L32710-EGT 1989 EGYPT, ARAB REPUBLIC OF AGRICULTURE STORAGf 18.50 14.96 12/31/95

L31030-EGT 1989 EGYPT, ARAB REPUBLIC OF POWER IV 165.00 116.57 12/31/95

L31370-EGT 1990 EGYPT, ARAB REPUBLIC OF ENGINEERING & TECHNI 30.50 30.16 06/30/96

L31980-EGT 1990 EGYPT, ARAB REPUBLIC OF IRRIG./PUMPING 31.00 25.83 12/31/97

L33540-EGT 1991 EGYPT, ARAB REPUBLIC OF GAS INVESTMENT PROJE 84.00 41.25 12/31/97

L34170-EGT 1992 EGYPT, ARAB REPUBLIC OF NATIONAL DRAINAGE 45.00 45.00 12/31/99

L34410-EGT 1992 EGYPT, ARAB REPUBLIC OF KUREIMAT POWER PROJE 220.00 210.93 06/30/99

* L36050-EGT 1993 EGYPT, ARAB REPUBLIC OF PVt SEC tCWRISM INF 130.00 130.00

TOTAL nutber Loans - 15 1,090.37 673.03

TOTAL** 3,056.46 1,270.42

of which repaid 1,248.02 60.34......... ............. .. ..

TOTAL held by Bank & IDA 1,808.44 1,210.08

Amount sold 7.48of which repaid 7.48

TOTAL undisbursed 993.60

Notes:.....................

* Not yet effective** Not yet signed*** Total Approved, Repayments, ard Outstanding balance represent both active and inactive Loans and Credits.

(R) indicates formatly revised Closing Date.(S) indicates SAL/SECAL Loans and Credits.

The Net Approved and Bank Repayments are historicat value, all others are market value.

The Signing, Effective, and Closing dates are based upon the Loan Department off ical data and are not taken

from the Task Btdget file.

- 34 -

SCHEDULE DPage 2 of 2

B. Statement of 1FC Investments(As of November 30. 1993T

aris, bt aavet bn t)de Obt faceTypo of P Iu1is C9SQ tud ui 6ci1 g 12331

1976 Arab Carmics .4. .1982 C9nY CrnIc 1.2 6.5 7.7 0.6 0.4

1978 Mile Clothing Textiles 0.2 0.4 0.6 *

1978 Delut S;,ar Comny Food/Fpod Procesing 3.5 20.0 23.5 2.5 2.31983

1979 ismilia Nisr Poultry Food/Food1982 Ca-nY Processing 2.3 12.1 14.4 1.6 1.6

1980 tasolla fish forming Food/Food1981 Ccnpey Processing 1.0 4.0 5.01983

1980 Suez Cmnt Cmn Cawe/Costruction(Guattamie Project) Materials * 30.0 30.0

1982 Crocodile TouristProject Company Tourism O.T 4.4 5.1 1.4 1.4

1983 Atlxandria National Iron & SteelIron & Steel Cafpmny (A1iSOK) 7.2 9f.2 102.4 4.6 * 4.6

1-°1 ANSOK Swap I Iron I Steol * 34.60 34.6 15.7 '15.7192 ANSOK Swap It Iran & Stel* 24.70 24.7 24.7 24.7

1985 Misr Financial CapItal Markets 0.5 1.5 2.0 0.1 0.1Investrnts Co.

1986 Aluminum Sulphate hoami als SPetrocheafoats 0.6 * 0.6 0.6 * 0.6

1986 Meleih 01l D<e.lopnt Oi Oevetopment1987 & ExplortonI Exploration 41.7 - 41.7 30.8 * 30.81992

1988 Uechtel Egype Unglneertng Consulting 0.1 * 0.1 0.1 0.1

1988 Phoenix Resources Oil Development .Co*pany of Egypt 20.0 20.0 0.4 0.4-

1991 At tardI Pulp Paper L basrd * 6.2 6.2 5.7 5.7

1991 Victoria UnIted Hotal Tourism 0.5 5.3 5.8

1991 Egyptian TourismInvestment Compmny Capital Markets 2.3 * 2.3 1.9 * 1.9

1992 Pioneer EgYpt Food/Food Processing 1.2 * 1.2 1.1 * 1.1

1992 Serene 3.ach totel' Tourism 1.2 7.3 8.7 1.2 7.5 847

1992 Misr CompressorManufacturing Ccmrn Manufacturing 3.0 13.8 16.8 3.0 13.8 16.8

1993 Carbon Btack - Egot Chemicals 1.3 7.0 8.5 1.5 7.0 6.3

1993 iorus' Capital Markets 0.0 0.0 0.0 - 0.01993 tnternational Egyptian invt' Capital Markets 6.0 * 6.0 6.0 * 6.01993 Commercial Int'l Sank Capitat Markets 16.5 16.3 15.6 * 15.61994 Ctub Ras Saoe Tourism 2.4 7.3 9.r 2.4 7.5 9.91994 Abu Scan14 Deloeptaaa Tourism 1.0 * 1.0 1.0 * 1.0

Totat X 395.3 75.8 8 23 158.1of which undisbursed 23:7 1t:8 rZT

e incltuding Participantsof which $14.76 miltion undisbursedof which 139,925 undisbur5edof which S9,210 undisburstdof which $6 mitlion in loan and S0.9 million in equity undisbursed

* of which 7.84 mit lion si toan lw 11, in equity w-4sbursed*of uhich loa smounc is wdisbursedt of which ecuitv amouts are Undisburseod

I,

to,I

- 36 -

ANNEX IPage 1 of 3

DETAILS OF THE SECOND PHASE OF THE GOVERNMENT'S ECONOMIC REFORMAND STRUCTURAL ADJUSTMENT PROGRAM'

1. Macroeconomic Framework. The Government's program calls for a furtherreduction in the fiscal deficit from about 4 percent of GDP in 1992/93 to 2.6percent of GDP in 1993/94 and 1 percent of GDP by 1995/96. Monetary policy wouldaim at further reducing inflationary pressure. Economic growth is expected toaccelerate to about 2.5 percent in 1993/94 and 3.5 percent in 1994/95; theinflation rate is expected to decline to about 9 percent p.a. in 1993/94 and thento 6 percent p.a. in 1994/95. The overall balance of payments surplus, estimatedat about US$3.9 billion in 1992/93, would fall to US$2 billion in 1993/94 andUS$1 billion in 1994/95, reflecting the recovery of imports and projectedreductions in short-term capital inflows.

2. Tax reforms will lower the dependence on international trade whileincreasing revenues from domestic taxes, with improved transparency in the taxsystem. The Government will introduce a full retail-level value-added tax, whichwill be in place by July 1995. The Government will enhance the base and economicefficiency of the global income tax. The renewal of tax holidays wasdiscontinued in wuly 1993, and the Government, with technical assistance from theIMF, will review the corporate income tax and investment incentives, and improvebudgeting, expenditure control and financial management.

3. Public Investment Reform. The Government's planned investment levels andtheir sectoral allocations for 1993/94 and 1994/95 (LE 10.5 billion and LE 10.8billion, respectively, or about 7.5 percent of GDP) are consistent with both themacroeconomic framework and the main objectives of the public investment reformprogram. The investments are being prioritized toward basic education,preventive health care and infrastructure and are complementary to privateinvestment and the prevention of environmental degradation.-

4. Social Safety Net. Along with the streamlining of all major consumersubsidies, such as food and energy subsidies, there will be a reform of theexisting social assistance programs and the development of new programs targeteito the poor. These will include measures to help unemployed and displacedworkers and will be consistent with the Government's fiscal targets.

5. Trade and Price Liberalization. The Government has removed almost allnontariff barriers (NTBs). It intends to reduce the range of import tariffs from5-80 percent to 5-50 percent while tariff preferences and exceptions to themaximum tariff would also be significantly reduced. Tariffs on nearly allcapital goods would be reduced to 5-10 percent by the end of the program.Finally, the remaining few restrictions on exports would be abolished.

I/ For details please see Annex II - Matrix of Policy Actions.

- 37 -

ANNEX IPage 2 of 3

6. The Government plans to free the prices of the remaining three industrialproduct groups still subject to price controls by end-December 1993. In theenergy sector, by end-June 1995, the Government intends to adjust the weightedaverage domestic prices of petroleum products to their internationally tradedeauivalents; and electricity prices will cover the long run marginal cost.

7. The Government intends to present draft legislation to Parliament aimed atcompletely deregulating the cotton subsector by December 1993. All remainingsubsidies for fertilizers and pesticides were eliminated in the 1993/94 budget.By July 1995, the sugar subsector will be liberalized with the removal ofprocurement provisions and the remaining subsidies to sugar mills. There willbe a gradual removal of rent controls in the housing sector.

8. Regulatory and Public Enterprise Reforms and Privatization. A centralelement of the program will be the removal of bureaucratic obstacles, which arenow impeding the entry of private entrepreneurs. The remaining negative list isbeing reduced to the minimum required for security, health and environmentalconsiderations. For changes in the location of a plant, simple registration willreplace licensing. Decrees issued by Governorates for investment approvals andrelated procedures will be abolished by end-December 1993. The legal requirementsfor the formation of companies and provisions governing the change of plantlocations and exit will all be liberalized.

9. To improve the efficiency of public enterprises (PEs), the Government willagree with the holding companies (HC) on an annual basis on profit and returntargets. Moreover, there will be annual restructuring/exit programs fornonviable PEs. The Government has established specific targets, and is committedto follow a specific timetable for privatization. According to these targets,by the end of 1995, HC assets of LE 37.2 billion (51 percent of total HC assets)would have been brought to the point of sale (POS), and assuming proper marketconditions, LE 31.3 billion (43 percent of total RC assets) woula have been sold.These are ambitious targets in view of progress achieved until March 1993; sincethen, however, the pace of privatization has accelerated although, perhapsbecause of the recent elections and change in Government, the pace seems to haveslowed down once again.

10. Financial Sector Reforms. The envisaged changes in the functioning of theeconomy presuppose the active support of the country's financial institutions.To this end, the Egyptian authorities intend to replace regulations that servedto control the business activities of financial institutions with a regime basedon international standards of prudential regulation, emphasizing such things ascapital requirements and exposure limits. Regulations that discriminate againstprivate banks or insurance companies will be removed. Bank fees and charges willbe liberalized. The privatization of banks and insurance companies will alsobegin; in the first instance, all joint-venture banks and insurance companies aretargeted to be privatized through the sale of publicly held shares; in addition,a major public sector bank and a public sector insurance company are targeted tobe privatized, with a second publicly owned insurance company brought to thepoint of sale by the end of the program.

- 38 -

ANNEX IPage 3 of 3

11. To facilitate growth in the issuance and trading of both government andcorporate securities, reforms of the securities market will complement thechanged legal framework. Liberalization measures should improve access for bothtraders and clients, while prudential guidelines will ensure fairness,transparency and the prevention of fraud.

12. The Government is also engaged in reforming the country's social securityand private pension systems. The aim of the reform is to ensure the properfunding of the system. By investing the reserves through financialintermediaries, the returns on assets will be both safeguarded and increased, andby improving the linkages between benefits and contributions, the labor marketdistortions will be reduced.

M: \egt\cas\annexl

- 39 - ANNEX II

= K0~ Page 1of I

1tH

_ 4 1 1 l t

|l~ Iit10~__ di ___

I _ _ _ - _

IBRIAI0 OBJECTIVESfARVEA OF r tOulCY AnTIONS TO IE TAKEN IK)LtCY ACTIONS TO 0E TAKEN IAOICY ACTIONS TO IL TAKEN PtOIJCY ACTIONS TO BE TAKlN r1OICY ACTIONS TO BEINTERVENTION BY ENI)JULY 1993 BY END-ECADBER IS3 BY ENI-JUNE 19S4 BY ENI)-DVCEC%t8ER I994 TAKFN BY END-JUNE 1995

Periode a4jmtment of spKci_i Reuiew the stamp cm foraclsesfeisitcharges eves~r 1IS cons1tenry witb nwr rxformedmonths for ldbttn,. so Indexation. xa and ha hnset the retefo d

b. Expenditure Policy Rteuest tSIMF mishn an budgeting. Increase resurees for opertion ad Agre n program of sdorm no Coni e iknpenlsing areed I ontiue anpdemmta*ggreedexpodiatre control, aNdW lnanclal aatoae deros setors ntiie budgeting. exspntomre control. and reoras an budgtary. exspoditure xvtorms ns budgltay. epaedturemantoeent. Mission to study os erall budgtd tartets. raac maagemt. etibegn contral, and roca management. central. and r6cea manam t.systems an procedurs imnpketatn i reas not related

_____ _____ _____ _____ ___ _ _____ _____ _____ _____ __ __ _____ _____ _____ ___ to budget cyck.

C. PUk Sector loveslment Ensre thai pubic setor investment Prio,IU public Ivestent loward Assess tmplt tWtioo of the agreed Ae impletshttion of the agreed Asss imptanp sation otihe ageedunder tbe tveeYear r1a is coanis- basc educatin. preetive bealb program, Progrm, prrm.tent with the recomadats of care, reeah, Inwrastrctretbe Ba and wit te macro- complanotary to privatsecononic framework. Slte aN invessot, poveedy alkevItion, andsectrel axao of 1993194 an prevtion of eaviromental

994195 Inet ent broay in lIe degradation. IURD to montor.vith ISRD recomuendatio .

d. Ciltt Saerke Rtfort it Freea non-tecbhatl peronwe Agree ot terms of rtterence and Cilt senke re ntfs study Agree on ptan for reform, and txein llDadt the scope ond continehiring by Government. funding for a study financed compitetd. implrnentatino. imotlnuenatie of ti ser t e

thrugh Institutional Dleveopment aefuras. 0flu7d gram.t

P. Sacial Safety Net Subsidy reform program itioted Com3plte IBRD labor restractrueg Impkement tbe new targeted Contnue isnplemttion of labor Contiuue inpietneatiun.limiting comtodity coverage to studyl agree on a ptl of action for program. restohgtin7g anud targete dflctnicitypopular bread. Intitate refunn of impleumtation. Agree on a and coummodity subsides.existing cash traosfer and usas progr to tagt subsidizedloan programs. Agree oa tems of electrkity ad commodities, to bereterene for tBR) study for ftinad "ithia the estblised frcaltargtIg co_nser sad electricty targetsubid sad lbor restnaurtgassociated with retormt progtm.and begin study. ApINtcumterprt tem.

P. Data Enhancements Il Agreed to (i) intensify etfforts to lBin reuar pbtish: dready Contiute implemtnting agreed Continue Implteenting agrree Continue buplerseting apeedtmprove stoistical base, iacldit available industral production program. prugram. phogram.

Industria prductio Ind. lbor bidex, eoploysuen mptlopnentmasked data, and prke ldicators; Idicaton, and wage sttistks.(Ii) Improve balance of paymentsstatstikc wth tebichad assitancero the Fud.

jI This element of the program will be supported by HIND operations outside of the proposed Structural Austmoent Mlonitoring Program.

0 1

0-

BROAD OBJECTIVES/ARFAOF 0 1 )l.tCY ACTIONSTOBETAKEN I'OtJCY ACTtONSTO BETAKFN 1 O.lCY ACTIONSTO UE TAKEN I POLICYATNtONSTO nE TAKEN MAOICY ATIONS TO BEtNTER VtNllON BY EN-JUI.Y 1993 BY ENS-DECEMBER 3993 BY 1END-JUNE IP4 tlY F.ND -ECFBER I994 TAKlEN BY ENI-JUNE t99

it Govenaiant to request technkal Cmplete IBRD tchaa osItance Begin regular pubtisbig of ationalssitae fow atloal Iome miaI 1 beain imp astg lacme= account.aeouts tode by anD? gct. omadaimne

It. Real Setor Refonms

A. Tredr tlPky

a. Impacts Ahmoniw pabbely trade The _sm m taiff rate ,sb redud The maxiesh tauif rate reduked Autboities to review poliqy. wliberajlsatloo/tsgf reduction from N0 paeet to 70 peret. AU from 70 percet t 60 pwUnw. All .bjctiof reducing t minsuprograms. to IsKude. later .3,, other tagiff brcket betw other tardff bacets btewee 40 and taff to below SO pecet by ad-

twilt redafctio, MD introductiou ot 70 pterd sod 30 percet reduced 30 percat redu by 10 peerat t)ece.ber 1996.new notarf barier and so tarff by I0 pentage pnIats. eg.. poat. ,.g., tAsift roles ofrate increes except wbm oecary 70 prcnt redued to 60 peret. 60 pstret reduted to SO perent. Tariff eteor to be boplematedto remedy disteostlo in tArff 6 0 perceat to So pcnt,. so prenrt SO peart to 40 perct,w. and P ecmbr 199Sstrncttwu d iatbt ptrjdwe to t 40 percent. ,d 40 peent to 40 penrat to 30 pent. Rnaes of The mexas anff rates reduced

VIVtV drits ad obligations undr 30 paent. Rates at 30 peet and 30 percent ad beow eot affted. trom 0 peat to 50 perent. AUthe GATT. Preurlousy banned bdow ent afttetd. other tarf bracebt btweahaped htems will be allocated 50 end 30 pereant eudue bytariff rates wItho tb agretd tariff 10 pctag poits. Rates ad orstruture. tblow 30 pectie ot dreffted.

No tariff rates n Imports to be No tariff rates e hnapots to be No tariff rates ea Imports to be No taeiff rates an imtpocts to he No taidff rates on iaprts to beincreased, 4MCeRt 'Abtn necessay to increased. except Abe oeceSSay to increased. C%arpt 'Aben ouessasy to bncrea. ecliept ibre, ncessary to icreaed, ept sAbn rucessawy tortmedy ditortinuin tariff bstncturr remedy distortion ha tariff structure remedy diklotious in itslf structure ganly deiarti,ns in tagiff snwrtue re medy diJstoin in tariff.i sstlAst prjudki to f1pt's and without preNjuice to I!pPCs and udthet prejudke to J'gvytt aritbout pnju'ice to E)pie's snrctue and w_hou preudire toeights and obigatios under the rghts aod oblgations under the sights an obligatins under the ighs and obligtios nuder tbe EgyVt, sigbti and oblipgaiCATT. Preionsly banned imported GA1T. rreslowly b _anne Imported CAMT. resiously baned imported GAIT. Precualy banne iunowrtd nudr the GAIT. trmivenyitems till be a tocated taziff rates hnes itil be aloatd taif crafte ts tm vial he allncated taff tes items stil be allocated tariff rates ba luspoetd itek s i be*Aitbin the agred tarif strcture. uithin tbe agred tarWi stntre. with the agred tdiff stnrnture. sitbin the agreed tariff structure. aloctd triff rate "within the

reed tariff strcturw.

* Agree on list of capital goods with lmpement progron reducing tariffs tY red mber l"StIBRI) during evaluatio smisuioh on remaning r fItn goods. Colee pogr reducien tariffs- Reduce tariffs on swbst ofcapitol on remaining tapital goods.good to S or to percent.- Agr ee o program ,rogrlselyredcing tariffs on th reanincapital Soods to 3 er I0 Percent.w vh ry few e .ceptin. I

/ This del t tho pogra wi be supported by IRD peratin outside ofthbepropsed Strcua Adjintwmat leloaitring tPogram.

lb tt'I-)

1.-o -

BROAD OIUECVlV ASIAttEA OF | POJCY ACTIONS TO tE TAKEN POLICY ACTIONS TO BE TAKFN POLICY ACTIONS TO PE TAKEN t'OIJCY ACTIONS TO 0F TAKEN | lOgiCY AMTIONS TO BEIN1thVENT;OH f BY KN)-JUI.Y 19S3 BY END-l AFAMIDER 199I BY END-JUNE 199t BY END-DDCEhUER t1994 1 TAKEN ttY END-JtuNK 99S

Aee. progra to e"miate Riminae ezcepti to madam Implesmet agree pAsn. Inpan-it ag4 rhe.emceptiuna to maxima. gaff tetift for Cipgttes ead .tmobile,

elS$ for aloho. of mar the 1600c ed reptwith domesk axcse ta.Agree. mct.. plan to reduwetarifos a _uto bne of 130016000 to maI au tsntf daingfirt rtiew mi.__o.

Ellale tariff prefeees, qw hlnate tsriff preferecs for gf ut taeff p n.cefs foWdoe govered by interoatinal tomism. exept for arlelohtk t.trati, ed aep testporsey en berages.healt end to iea.

Elimiate at mporpt ban *xtepts ent en paiuay to be remove.texti gament mad their by- Bu Oatestibs mod garments to be

produet end peary to 4.7 perewt revewed in l context of theafproducto coverag. 11 m.dteral re areemet and

after wmutiarall rade agntiAtiunwith tew GATT.

E_mat am paib r approvals. _

Agre en a plan ef ation for IpW-Wnt og-d apiw pa oimproraig safeguards. at. stion for sategpard amti.dumlaa.dump6n. coutervan dut, and counaliNg dtias ed standrdagree eOa program toiemnine quality cnntoel merhaltste teowceat of quaity cntrotstands ed fees. apling eulyto botb Impoted and dometik y.prouce goo diinn evalatio

.~~~~~~~~~~~~~~~~~~~~afm a._

Agee n draft changet in tam rset draft lw alwin foreaflwi$ tfeis train Copan ttraig compai to operate enIo oPate en equa ooti with eqal footn ithb dometi Camp

domestic companies. aniae to PardI Dmm ti eaR approval. ________________...

It E ptiom are Itms I aent enatnl scty. envleenet. ltb, and nato patrimoy.

*

MD

BROAD OBJECTI'VESIAREA OF POLICY ACTIONS TO OF TAKENI PI)t.CY ACTtONS TO BE TAKEN .POlICY ACTIONS TO t1E TAKFN I IOIICY AtTtONS TO tlE TAKt ff tItJCY ACMONS TO BEINTRVENtIOtN ISY FND.JUI.Y 391 BY END-DE l'tER t93 DY END JUNE 199 BY ENb-DtEt'iSICII 19J TAKEN BY * lUNL 19t

* Aboi checks by GAO and COF *reset drafl bw AusUing ait Review cusom procedures and0 eqoljantot impoe. r"aking retrktos on private streamine as approprte.- ibeoramUsimport restricted by sect cotto lmpots ad exportltlfJtry of ?etitary roducdi. with San y ceirtcatlo ftr- Ah&b bj icO of"the Impot by Egt.tndtial oitohrng Authoritover Imp"". * Introduce titlamo ted Sy-ste of. Elinim. torelp -rtap C atkssn.budgetig ad ma discriminationagainst private seor (e.g. het.cotton),and mums,e hriertlegiUortMxS nbvtesdted participation,la Coverument procuremn so anequad tooting with doasestk

No new n-ltAiLf bf arers to be No ae v-if tsW borders to be No te no-mnif harriers to be No uew no-tarif hrets to be No new uo-lttiff banir to beintroduced. or etpasion of existng if troduced, or exponion of existing introducet, oreipammon of atusting introduced. r expanuisn of exsing introducd, or expansion of e.iaAingNTKS writhout prejudke tox Egyptts NTIB without pr4udxice to Foj pis' NTlIs vithout prejudke solrt4m1s Nl'bTs wthot prejndlce to FripFe NAt. without pnredke to #'gyseucighss under the OAT. shts under the GATT. ights under thte tATT. eights under the GtATT. vights under the GATT.

b. Exaeorts limUnte quoe ON tanned bides. Present draft law rtmovlng barers Eliminate ban o ran bUe epxorts. Ml10nle ban on srap metattto foeige In train companiets to expcrts.

r_ _ aamt adl seek approval.

B._Prke LlheaIlstioan:

a. Indutry Elibimate palce conrolf on theremaining products underGrop V. 11

b. Fr5y Petroleum producfts an gas: retain Review gas prkit polcy based o Pretroaeum produces and gas: retain - Petrdoten producu end ga:SAI. I scxb le and ornmul as a recommendation of ogog study. SAt. I shebduk an formaula as a retain SAL I shedule and fomulflor. Ifcnra of 10 plasers ln flor. as al oor.prices ot kerosn, diesel oil, and Developa progrm to Intorporategas-oil, current WoNW marhet prices. distri-

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~otZionmn . antbuasatton (asfeeded tor fscel reas) by Jun

FJectricty: retts SAI. I shedue as .lectricity: rtain SAt. I scbetdule sa floor. a o.

it Coods produced under monopoly condtions or baeihng from subsdt id Inputs.

I-stt..

o ,-,31

BROAl) OSJECTIYESWAREtA OF rOI.ICY ACTIONS TO BE TAKEN I OL.ICY ACTIONS TO BE TAKEN t'OL.ICY ACTIONS TO NE TAKEN FOUICY ACTIONS TO nE TAKEN rOaJCY ACTtONS TO BE

INTERVENTION Y END-JUtY a93 BY ENOL'ECbtBER I99 Bly tND-JUNE 1M99 SY ENISDF'CEMER 1994I TAKEN BY FNt jUNE 199

C. Agricuature Elidmiate all rmainig bdget input Complhee deregulato cotoa Allow opnaio of cott reatatnsubsidie for fertll . and pricilg. produaton. 111' . and (by Sptember 9I).pesticides. Coar.n limnation of gting.t maitaIIng r r tatioefwd subsidis. li,t.

Intuiat study on deregolion of Complete sugar study. agree an Coosarte dergutlaZtio of esgorsugr sector. action rim. ad begin Sector.

_ _ _ _ _ _ _ __ __npleuessin of agreed mmaures.

d. nh"liuss - ?rese draft lkw to orlinam,snt Afer rauaissmenta.u approval. tr'eut law decontrlling rts for Continaue to deregulate buldisdecontrolling rents on new nd impleenat law decatrolig rets buildings Inding bousing to including bousing uner agrfedvaaest ud sts and buildhits. on naw and satomt tutis and Pariamen. After Partiaastsary tinsetable as stated i law.- ttiat* study of raet contrno lws, buildigs. appromva. bei decontrol.regubations. ad al housnlg - Cosplete a study on rta controwsubidies. includi ialst laws, regultatios, ad ouingsubsid. subsidies; stl a tiettable for

________ _______ ____ ls plse natdio ot.

C. Reguatory Rtetmas: Abolisht tt domestic conent Abolsh 'enery intensive indutstriesMatet FaImy. Operation reqiement. frea tb atve invesament gost.o" Exit

re;pe draft of "Unirad Lawt for Present unified t-aw to Implementt 'Uiied Lw"w after Reew oisup1tnsentation.all compa^nis includinAg ba pkyrut P'arliamnt. Parliantotary oppowval.tlenst, mere. ad "rtrttio

provisis. Requi onlyregration for locatio cbages. _ _

Aboib GsCovetnort detre Replace curet complicatedestabliing investmtt approval procedure for companyprocedures. prior estabut. ad sstaiiluent h ithsample

iV likensing actishties. reittioe.

11 Joint 1tRD)IC.ovenmnent study on Consp.t4e 1lltU40o4.0rume"t study stasbih independeat utititiesestablishment of an independt ou establishmtat of an idepenent regul;ator co ission.tities regulatory feamewwk to be utiites regulatory feauek and

.niiasted. begin lupteoaetation.

b ThIs etem of the progrm wti be spporeted by ISI) eprtUtDA outi of the poposed Stsctua Adjuat ls.Nitoecin Program.

old 15

lb4

o 0

- 45- A~Xi

-~~~~~~~~~~~~~~~~~~Pg 7 of !1

E-J-

BROAD OfJETIVESARf:A OF I OLICY ACTIONS TO BE TAKFN IPfOLICY ACTlONS TO OE TAKEN POLICY ACTIONS TO BE TAKEN tOLICY ACTIONS TO BO TAKEN I LOlICY ACTIONS TO tEINTERVENTION BY FND-JULY 3993 BY FND-I)ECEMBIER 193 MBY ENl)JtlNE 199J bY ENI)DtiCEMBER 199JM TAKEN BY END-JUNE 1995

b. Pnvatisstion It Issue mmdstes o Wet en of Targt: compiete aks of the TarYets: brng to poit of sae Target: cogette sale of adBitional Target: comeite st e of thwinvtation to hit ronsu"Its "a 22 autst compase brought to th r seaWg 75 percent (I.E 6.2 30 peent (tl.E? htleel of tte rfieloing 10 perewt .E 2.7rttwssd laegnts' to enbance point of ,,l. throt btsrch 1993. billie.l) sd conuplrt* 4sle of 1993194 rivtdatito trograry. ;ltioo) of the 1993194 roaudzonoplinontatiso catpacity. or of ssmitr asets for asn eqivalent *dditional 30 pertet (I.E 2.1 protrs in meeting the jAnne mute Irfotror. rosrss *0 mesian the

amount. Tartts: hting to the tidion) of sstetVcopMuiss"D of be satnfsctory to the HI1B. te!rej must be satisfactory to thwpaint of sale ZS pecent (LE 2.3 3194 Privatization tPrgrae . waccrding to agreed sasuation 1BItit) secrBift to agredbillion) nWd ceosplete tiSn of lrograts in meeting the prti idSte critetis. it evlttoc tert. 110 p"rent II.E 0.9 bhtiol of the be satisfactory to te IltiRD.baok value of the Compasnis according to tgnost evaluatintninctwed it the I993194 rdvotisadon critetia. _1Program. Prograt ia metking theLrgtdl mtt bt satitsfatry to the

IBlV, according to sgrttdevauatIo CftI I- _

Alttmee o t 1419S5 rdvatiatlo Targets: bring to te paint of sAl Targets: bring to paint of sale thenrtgrtnt nblkb shoul ichude ant 50 pcnt (tE S.5 billioa) of te remaining SO peet 5.5

additional IS peent (LE 10.95 boo veaue of the tbr ts/companies btrn) tsd ceoplete sta ofbilliol) of the book value of agl and complet sale of 20 peras additionl 40 peart (LE 4.4pbli teterpete. (LE 2.2 olon) incied in the bil. of the t994195 itdati t

1994195 rvlisadtoo rrog . Prgrsm. Plstrs In meeting the 0'rgrat to meetig the tarzeis mug t must be etshfactory to the

be sadsactry to the IbRD. IBUD, secording to agredaccording to otgred eVluaton ealasto ceittre-. Itcrieria. _l

Agree on t9519d Pdvatdao Torg being to the Point of saeProgram, coatainn At latst s 50 pecet 0L 73 bMioe) andadditinl le petet (LE 14 compeete al of 20 pramt

lion) of the ttdal hbok valit o 2E9blio of the book value ofpublic enterprises. cumpanlaasstsboftha 1995i9d

fra tlsato Pnreom. hrgre inmeet Me et m ust hesatis oy to te 18RDI acordig

_ to agreed auatio cri. 2

tI Valus ar bsd on stlattd boo taIts at historittal rest, tet Jtsm 34 1991.ZI All wrefects tote prores I. te peadsato prgram iuill he relted solti) to m_easu tate by the Coeruot sod other putblcitlo tent itict ats agree te with the IBKD. It is u _esto thattthfe Corusentn does ottgaa

actul Wsl of ty Puta ast y t k uarnees tatM 1t nil mplkmt *_mso rs agre th te O aslk sie te conclusioe of sales. Progresi anmeeig Om targts in th pevatlsa&o Program tAiN he masured accordigteo inocriteia to he agree between tbe Goveruat ad tMe Ba during the mtiet of the rA iomitored pros.

00* Ii

5-i

a-

tRO)D OBJECTIVESJAREA OF P rOLICY ACTIONS TO BE TAKEN IOLICY ACTIONS TO BE TAKEN POtlCY ACTIONS TO BE TAKEN I roJCY ACTIONS TO BE TAKFN r) IACY ACTItONS TO St

INTERVENTION BY END.JULY 1993 bY END-DECENIBFR 1993 lBY ENO-JUNE t994 BY END-DOCEMBER t994 TAKF'N BY EN1-JUNE WS

IN1. !i !a liSf l 0L£ftt f9I30 1 _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ ___

A. B sing Smeft tteofmn Agtm an a panS of action to se Tareas: brifg to pnt of s"i Targets: bring to point of tae T*t"s: bmng to point of salGovernenst stbrns in joit-venure 40 percent and complet sh4 of S3 per cet and csosmete sl, of an rv.ahing 34 pfeet td temsletebAuk du ng evaluation miuion. 20 p.tten o Cof esaut %ham in additional 40 psmum of tGov""umset sale of r ,Mi 46 percen of theSegiu itopkrsesting obpntd plan of tbanks. lsgres id sbares is joint-ssturre baukA. Governvots sham of jsitaction to Sel sharrs i. joint-vu,tsue meting the is" mm be trogre t iw ieetbe the " muet veture baks. Prepes useeting

bas. saisfactor to the It1t3). according be satistociory to the IBRD. the M st be satsctory toto agreed taasmna Critenria. ij according to agret evdl latio tlhe IBRD. accding to "agd_____________________________ _a-ISa-rCA. ,O evalontn cu ed .. 11

Agre o sdectIon f major Tr:a tSing to die pa otpublc sectr bank for petlatiossa . oe mor pub satera hk tand

compee sal by twombor 199S.rtogress in meeting &th lafi mus

be sthifacay to te IUADW.accosdin*g to areed evantafcrteet. Is

Reduce forebig cnevcy arse esitew %ith Fund th feoribi1ity od Monitor prgrns for reduction of Monitor rcon dertareqwnemt fOt Is percent to reducing o t Aenrting the rener rt stesa. r . -10 pesrea. reserv reqe.raeska iaLing into

.comm the bwrde of sktrllangnam balancef dpspauen inflos._________

*ntrodue rpaba agreemtt aea amem to control shoct-ken

. Reave diret cotrok on bnk Intduce a prWm to redute the to red progm for o Rd-Dhet 99:

lening to pubMic seor tompana a exawore te a single uto¢soer reion Ofter oeall bonk AN hosM to cbmt* with

- ubsb artd brancingt cueina to 30 pecnt of the biwkt c tal eap*%ur to a single c*etue. 30 prent aelpoee Notk.

_amuing eqsa masket access to an 4eulard by the nIeA Comouittee.intant privat ad pbl banks. Agree scbedule tor catsp e.

- Remov e eemlnig Cooing an Lberan bapMs fOka and chare resse to palim law reoingIateres rat (or defman depoi. by seting minim at arm ad aasmas ad minisnm lnmt on

* erit nft bok cutme to lreely masels. at ad owotstnea cages.Chatw boa wit_at posiso of lve.cre nto bank or settfing aS bdalace. _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

It AU references to the progress in th pevatxatu pror wa he reatd sty to me es taken by t Comwt A oer pui st entitls arsed to hth 151M. is unde dstn tt the Covasu t doesdnet guarantee

actua sate o y pb atVyet iW t_ gy an tkee sb bat it u h mat amtwes as agred wkit tbe ank se at the concuio of sas. PIltogrs in oedtisi thetar is ibe privatisation program w he _meaurd accosSue to vnatian

esrIlee1 to he agee btweth Covrnut adtheSa Arn thereie of th nd moltd progr.

RItuA) OsJECTIVESIAKFA OF IOLICY ALTUMIS TO DE TAKEN I'OlUCY ACTIONS TO 8E TAKEN t POLICY ACTtONS TO SE TAKEN t'OlICY ALCTONS T) IE TAKEN I POLICY ACTIONS TO) BEINTERVENTION BY ENIUJULY 1M93 BY ENMO-DECENIMER 1993 BY END-JUNE 199J4 BY FNfl-DCEliER 19 [ TAKFN BY END-JUNE 1995

hfaish by e4-S% m* 193 snpilenam by Jauay 19 foigp

cunoc raposr Matt0 perent ofcaita dasWied by.h Beak Coosmtee for singecwrreny sad 20 poewea for 6.4*gross eppowe by cas-SpemberiM3.

fba data s so tow up ptuk Agree.a program to aeslab credilsector bmas ami asliicadma to be gitg bteu.recavd by t1R) before Ebeevaluation, mis on.__ _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _

B. Secuities Idalkat Refom: -Fure an imlr emistin sad - Age" anc pragram for Improvt g l Fnconre private swcor reatio of Coesdte &nplenemadon offutwr stack esctangswae suljet to Sb. l*a baomu aimed at a Cedral swcunue dvpeioe. preram tao ;prate ie 1at

uifosm seures rery asrimp compeus. (i.... accsc to enekrmanmit.requlremeats. security traing Wnd liel g Estballsla anmr,tw prutertime - Enlease capacity to fra!gf

broke com sioos. fus trdig. fund. sturites r"eyatso.l11.1) to ie tbe capial Rod em ansrc secuvity - AAMkib cOMPan t0foret6alaow d esecuibe r _guitlou rtansactio. tesia hmpneathti of prograt to duc Mre sstem .

- Adopt procedures sod fomat to improsa Se legal enai4ranut. * Fhane atock cactaneld- CDie-pkmt leal requIreents, regLation.

Fmkwt interestue celliegs oo Agre on em ar pla to IMpteMent 6nstit6lo refOrms incorporaebands. streghe dw CKtA nd te stork ChIA ad stock exchge. udWy

achneges. nd "erore, computer ii.teaSecurities trading. _ _--_ _ _ _ _ __--

C. Isurance SeCtor Rform: Submi to relitamt a ae Seek fl'arsmatar) appro%al forInswatc Law bae o mew enaree as. Uponiaterati a prudrtil s ndards. trmusaty approval. iue

excende r bNto.

Beg to stren titeEgtIan Complete strmini of atIRA.Insrane Supervisory Authwky'sEISA) sdovecy mon 6i

Age to ame tde Ifsrc laew to DraB samedment to the lw and Submi to rettament lw asallow foretg edgy. and sdd sed ito tRtib fr Ireset. degmAco lomrce prtemu. andprped for emedigt law mld feri- a" sr.f" deror_e te premiums towe Coun of Mloers fer

0

BROAD) OBJECTIVESIAREA OF ffll.tCY ACTIONS TO 0E TAKEN 1`OLICY ACTIONS TO BE TAKEN POLICY ACTIONS TO BF TAKEN POLICY ACTIONS TO BE TAKXIN rOISICY A'TIONS TO BE

INTP4VENMIoN BY ENIBJUI.Y 1993 BY ENDO-)ECENMBER 1993 BY ENI)JUN 1994 B Y END-DECEIMER 199J TAKlEN BY MD-JIJNE I9

Agre osa P tM of atio to Target: completetale of Jot- Tarets: completesale of.Ompritathe publik epmae N0 to ,-t- coapeate - bndag to tbe paik comp by tbwmber I9.jas-teetsr compaalm. pobnt of sa ke piblk company. and beig te the pint et .]..

t-grs 1i meeti tbe t m_t a e" eed putk compasy by Jlbe s fecIor. to th 3RD. 19S5. graist ee a_g theaccording to ard "eeatiu tmnwd ma be satsfatory to tbecekena. It t18t13. according to agred

eehisst6a roIltD a. it

D. Soda" ince amd Reygw regataio of tbe pgivate mplhement sped progrms for Co_tinue ifmesfio of agreed Colitnt imptementin of speedeoreim Reona PeMo5ptSs pt01b $yte to refonmig socalnsranc ad progrsns. prnlsts.

Inprove lete t nm es and to pdivate peoa syst .streagtb paea C eatogaloo ins-ter otnaa pneiadethstandArs.

Agr wb IBRuD8 m a refom of tbe OBis aoagdeatation of*ered Contimplemntation of agreedsoial bnanc pensoa sys, tlat program, rogna.woild coatse to be asud oa fllyfinde principles "andwudltda detaed prtgam of

I _ _ _ _ _ _ _ .__ _ _ _ _ _ _ I p m e t t a . _ _ _ _ _ _ _ _ _ _ _ _ _ _ __ _ _ _t__ _

V* AU ree_ to the pregVr il Ote pratiad progre swa he rted toly to meaue take by ovenumelt md other pubic swio tities As agreed to *ih the 3830. It is andbetoadtt thermome don ma garanteeactual sale ot my p_bck asst yet h guartees tht t ill implamist mesu agreed w_th the Bak almed at the ronclesi of alat%. reogrs is meetg the targets ;a thpnattla o program il be measred accor&n to evaaninentws to be agre bewen the Govaet ad the Dank dBring te rIew of tO Bas molored pog

tob1n

0-

5.-5- tH

- 50 -

Pape 1 of 1

Selected Indicators of Portfolio Performrnce and Nanagemnt

Portfolio Performance

No. of Projects under Implum ntation 25 27 26Ave. Implemntation Period (years) n.e. 6.1 5.0

X Projects Rated "3" or "4"Development Objectives 8.0 11.0 15.0Overall Status 12.0 11.0 23.0Cancelled during FY 0 0 0

Average RatingsDevelopment Objectives 1.7 1.8 1.7Overall Status 2.0 2.0 1.9

Disbursement Ratio (2) 12.4 11.7 17.4Oisbursermnt Lag (X) n.a. 38.7 24.9Nuiorandim Item: X Completed Projects Rated

Unsatisfactory 21.0

Portfolio Management

Supervision Resources (total sas) 288 384 506Average Supervision sws/project 11.5 14.2 19.5

Supervision Resources by Location (in X)X Headquarters n.a. 99.0 95.0X Resident Nission n.a. 1.0 5.0

Supervision Resources by Rating Category (sws/project)Projects rated "1" or "2" 11.2 11.5 13.6Projects rated "3" or "4" 9.6 36.6 25.1

emorandwi item: date of last/next CPPR: DOecber 1993/0camber 1994

VW

-51 - ANNEX A2Page 1 of 1

BANK FACT SHEETEGYPT BANK LENDING PROGRAM

8y Sector and Lending Instrunent(1 of Total Commitments/Disbursements)

Past Current Planned "

-Y9 FY93 FY94t 2gt fj 2 FY96 12IBRD and IDA

Commitments (USSm) 524.0 375.8 207.5 147.8

Sector (%)

Agriculture 32.0 10.0 100.0Industry and FinanceEnergy and Power 59.0 16.0Public Sector ManagementInfrastructure & Urban Dev.Human Resources 27.0 7.0 27.0Envi rorunentMining & Other ExtractiveMultisector 2.0 63.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Lending Instrument (S)

Adjustment Loans 57.0Specific Inv. Loans & Others 43.0

Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0

Disbursements (USSm) 105.0 141.0 231.9 242.6 306.7 295.2 274.5

Interest (USSm) 151.0 125.0 125.0 132.0 127.1 121.5 116.8

IFC

Interest

Approvals (USSm) 48.9 64.4 31.0 10.9

Sector (S)

Agri-business 2.0Cap. Markets 5.0 73.0Chem-Fertilizer 27.0InfrastructureManufacturing 83.0 64.0Oil-mining 20.0Tourism 12.0 14.0 100.0Total 100.0 100.0 100.0 100.0

Investment Instrument (S)

Loans 94.0 71.0 23.0 69.0Equity 6.0 29.0 77.0 31.0Quasi-equity

Total 100.0 100.0 100.0 100.0

MIGA Guarantees 0.0 0.0 0.0 0.0MIGA Comuitments 0.0 0.0 0.0 0.0

1/ For 1BRD. IDA and IFC not determined at this time: will be agreed in April. 1994 during discussionswith the Government.

52 ANNEX A3

Arab Republic of Egypt: Priority Poverty Indicators Page 1 of 2

MigYt 2amdE.iamti 44NA.n12s30# JS-20 a-, -W hiha

zuk of YOM pwa giafnt A fta La%- hMMaAndtcor A ago (e A p"co_ come roup

POVERTYUpperpvtyi lowc a . - _ _ - _

Hadco dc %op* - _ _ _Lower povetyam local cr. _ H XzX da %ofpot - - - _

GNPp pSpit 170 320 610 1,940 310 1,610

SRORT TERM ZICOMU INDICATORUIIUlwbadu ge loo =W. - - -_ _Unlskiled _wal w_a_Ruzal t.'ru o*(_ _d _ _ _

C4=opwdatindcx 1987-100 12 19 2C0 0Lower6a- --

Food n _ 210 _ -

UrboAn 179 R*a. _- 181 _ ..

SOCUL INDICWTORSPubUdihxeoabiA gdWstsou %*fODP _ - 5 _

Pimay %sool Spop* 75 71 98 97 113 100Male ^ 90 . 85 lo5 105 122 106Female 60 57 90 89 106 98

Mlortalityblf moetaMty tbs. ive biftl 172 139 59 60 70 40tindw $ wmcaltLy 8 79 98 53

Madae& 9%AV wp _ 93 87- 73 70DPT 0 _ _ 90 as 81 74

Chl m&*zizlo(under-S) U- - 13 Life c__U__TO 49 53 61 64 63 67FP MAIN tL LOS LOS 1.04 L04 0.95 L08

Tow*ife sw ate bkmpw a 6.8 5.4 4.2 53 3.7 3.5Maternal wortaltyraft 100,000 Uwbt - -_ _ -

PopulWato growth raft lIfant mortalty rate Priary enrollment(pemca) (thOm ewfive ) bfix

6+' 250 120

5 200 1 _/1100

4 80

3 60

1002 40

I 2

0 0zWd6os mid70s mm WMSs .17. wecMo m1470s mmad weids U

Ara ublhodEaMt-LOW ocom.

-53 ANNEX A3-~ 5 ~ ,Page 2 of 2

Arab Republic of Egypt: Resources And Expenditures

CTakef , vw _ u .sat. dNM L"' banIndiCAor M110h1UH INWi RESOURCESPopuladon (mru1991) thou 29,389 3,289 53,602 244523 327,5 773,80Age dependency ratdo o 0.91 0.79 0.76 0.87 O.66 0.71Urbani * % of po 40.7 43.5 47.0 S45 40.1 53.9Population grovth rta wuwi% 2.7 2O 2.2 32 1.9 1.7Urtan 4.0 2 2.9 45 $.2 3.1

1.abor torct 15-64 ) 8 10 15 67 1.44* 302Aboruoture -%otlab fr r3 49 - - -Indurmy Is is 18 3- __Female 7 a 10 15 33 32Fernalc per 100 SesUlrban mmU - -

Rural

NATURAL RESOURCESArea tS"ms4X km,401 1,'101 1,:1 11.015 38,828 23,990Dewity =Op Al. m 29.0 36.0 $1.0 21.0 7?.0 31DAgriculWralb Ind m dam 2.7 22 2.6 29.8 47.4 41.8Changeinagrici d % T04 Q2 O. Q 0.0Agricultu-landuderirrgtiont 6 100.0¢ 1000 28g 13.7 1>AForStS and woodtand 0 0 391 9.197 5,396Deforestaion (net) 90.0 0.0 0.0I.NCOMEHousehold iwomeShare oftop 20% ofboulholds %of income 43 49 * . . _Share ofbotom 40% ofbou.Mdl 19 15 - _ .Shareofbotom20%ofbobda & 7 5 . _ _

EXPENDINDMEFood %ofoDP . - 3339Staples * _ 6.8 -

Me:4 r* mi, d1*4 * 13.5lat ituprt>d tot&eiotmu 2,112 4,214 8,580 31,762 36,008 44,418Food aid in emrres _610 1.210 2,228 6,649 4,047Foodproducdonpeespits 197941-100 103 106 114 119 122 101pelzer T k&Us 126.0 177.0 351.0 136.0 475 94.2Share ofagrk ulGDGP %-id-DP 25.4 21.1 16.7 13.0 28.7 _Housing %ofCDP 6.2 - _ _Avehuselboldts psiozepaimoaa .- i

UrbanFiXed bwinmthousVal %QfGDP _ 10.5 2.7 _ _Fuel and power %QGD? - 1.7 _ - _Er.rgycoiptio pcrcapfta kg bUo.suiv. 313 294 59 1,137 350 1,249Houscholds with etelerdiiyUrbia %*fbousdm - - - - -Rural

Transport and con l %afGDP _ _ 2 _ _Fixedivaeant tuansport e _ 8.u2 43_

Totl road legth lus 45,00S

lNVESTXrNT IN VMAN CANPZAL

Access to halth care %ofp. - _ Populationuprpcian p 2,0 .866 W116 1.668 Population per eau * 2.03 2,315 489 _ _Population pr bopital bed 491 536 635 1.04* 509Access to safe wa' % afpp. _ 90.0 814 70.6 _Urban M _ _95.0 96.4 79.3 Rural 86.0 663 62.8 _

Oral rthydtf1routhepy u( -5) %ofeums a - 83 38 32EducationGross enUrlment ratioSeconday %of3hool.apop. 26 43 82 60 44 56Female a 1 31. 71. 51 37

Pupilateachr raio: primary pupls pC teA 39 35 25 26 39 25Puoiltherratio: secnday * 23 34 22 21 20PupilsreachingAaAe4 %ofoobost _ 95 . 90 - -Rcpeatermtu: pdmy %oftotn li .. 7 3 11 -

flhitera y %ofpop (aP 15+) .. 62 52 45 39 _Feuale %ofni (aP 15+) - - 66 $a 32 _

Newspaper circulation perthoLpop. 27 25 79 36 _Source: World Bank Wansesnional Emmncs Depaamt, ApI 1993

Egvt -- Key teonomlc Indicators

... .. ..... .. .. .. ..... .,.. ._. .. .. .. ,.. .. .. .,.,,,,,,,...,.. ... ,,.. .. ... .. .. .. ... .. .. ... .. .. ..... .. .. .. ... .. .. ..

.................. A. Ictualt .................... EatlSted ----------Projected ----------1988 1989 1990 1991 m t1993 1994 199S 1996

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~_............................................ ..................... ................................................................................. .......... .............. .....

iATIONAL ACCOU"TSGross Domestic Product (as X GDP at Factor Cost)

Agriculture a/ 19.3X 18.61 18.3X 18.11 18.1X ..Itnstry a 30.0% 29.61 29.5X 29.71 29.81 ..Services a1 50.71 51.81 52.1X 52.11 52.0X ..

Cross Domestic Product (as X GOP at Harket Prices)Constnpt Ion 91.81 94.31 95.21 93.01 93.31 96.0x 96.51 96.41 95.31Gross Investmet 24.21 23.3X 21.9x 20.4x 18.2% tr.0o 17.22 10.5s 19.91Private Investment 8.7X 10.5X 9.11 8.71 7.8n 6.8R 7.21 8.6a 10.1lGoversweent Investment 11 15.51 12.7X 12.81 11.81 10.41 10.2x 10.01 9.91 9.01

Exports GUfS 23.7x 21.4X 24.0X 30.41 26.8x 24.1t 23.1x 23.91 23.8Zl#q3orts GaIFS 39.7X 38.9X 41.1X 43.81 38.31 37.01 36.81 38.71 39.01

Cross ational Stt vinos 4.tx 3.7X 5.41 12.4x 22.41 16.11 15.51 17,1t 18.01Gross DOcmestic Savings 8.21 5.71 4.81 7.01 6.71 4.01 3.5x 3.61 4.7X

Hemorandu. t emsGross Domestic Product (siltlon USS at current prtIces) 30978 33858 35400 32790 35563 3946S 41890 42M24 45662Gross Domestic Product Per CopIta (USS) 619 661 675 612 649 704 731 731 763

PImILWc FNAuCE (as X of caP at Current Horket Prcoes)Current revenues 18.61 18.7X t8.71 18.51 24.71 24.2X 25.31 Z4.8X 24.7XCurrent expenditures 29.01 28.31 28.41 29.71 30.61 31.7x 31.52 28.71 21.3XOveratt Surptus (+) or deficit (-) 21 -24.51 -18.11 -16.5X -20.01 -5.OX -4.71 -2.6X -1.5X -0.7XCapitat expenditure 31 24.81 17.61 14.01 21.01 9.2X 7.8X 6.91 7.1t 7.3Xforeign financIng 4.61 3.51 2.61 13.91 1.51

REAL AIUUAL GROUTU RATES (X)Gross Donestic Product 3.91 3.01 2.51 2.31 0.31 0.51 2.01 3.31 4.31Gross Domestic Income 2.51 1.1X 2.8X 4.81 -0.6X 0.21 1.9X 3.51 4.4X

REAL AHNUAAL PER CAPITA CROWTl RATES (M)Gross Domestic Product 1.5X 0.6X 0.21 0.01 -1.9X -1.7X -0.31 1.01 2.01Total consurptlon 0.1X 0.41 0.11 -0.11 -2.2X 0.91 0.31 1.01 1.01Private Consuiptlon 0.4x 7.5X 0.01 -0.11 -1.JX 1.4X 0.81 1.61 1.5X

HONETARY INOICATORSM2/GDP 64.4X 60.2% 60.71 55.11 72.6X 76.0X 76.31 76.31 75.9XGrowth of HZ (X) 11.1X 12.41 21.41 13.4X 57.9X 16.51 12.01 9.51 9.51Private Sector Llquldity Growth (M) 11.5X 18.31 19.71 28.5 15.4X 16.5X 12.01 9.51 9.52

(Continuted). - Z

0 .gt'h

*DYPt '- Key EconaMIc Indicators(Cont mied)

..... ._ --- Actust *w------ Etbstlmted ---------- ProJected --------

* 1988 1969. 1990: 1991 1992 1993 ¶994 lm-5: 1996... ................................................... ................................................. ............................. _ _ _ . ------------ _____,-------...... ,

BALAXCE Of PAMErs Uss Niftion)(iports (goods nd nos) n2s m8 7912 9320 9522 9510 96 1022m 10850

of WitIch: HerchumdIs f.o.b. 3274 2914 314S 3807 3636 3458 3671 3815 4097Imports (goods ad nole) 11690 12469 13709 13907 13633 14611 15397 16592 1709

Of eshIch: Mrchandise .o.b. 9841 10294 11441 11425 10040 10495 11023 11861 ' 12694Res urce Balance -4465 -5231 -5796 -4587 -4111 -S101 -5712 -4369. -6959Ncg current transfers 3406 3556 3766 3783 567 5040 5042 5243* 5453Curront ccount batanee t1 -1237 -3151 -3730 -2438 1257 .390 .729 -496 .75SPivete direo t Invest(ent 124 124 136 141 359 482 526 626 673341. toan (net) 1986 1481 1183i 209 163 130 521 535 23?

ofrivatl 1323 912 936 t 171 -12 246 676 712 511Privata 568 536 297 171 345 43 -10 -43 -152

Other capital dInct, errors and 041ssions) -1235 646 2374 4213 1675 2488 709 3SS 200Changes In reserves -394 152 -256 -5994 -4843 -4040 -2261 -2208 -1431 1

Jnternatlonel reserves 2261 2057 2267 8257 13098 138 19399 21607 23068 U'

H.eorn I tdu mmordn" ttew ~~~~~~~~~~~~~~~~~~41713 23.1 23.91 23.8Exports as X of COP 23.71 21.41 24.01 30.4K 26.8X 24KX 23.K 23.9 23.0%iRperts as X of GOP 39.7X 36.9X 41.11 43.8X 30.31 37.0 36.81 36.7X 39.01Resource Balance as X of GDP *16.01 -17.51 ^17.1X -13.4X -11.6o -12.9X -134X -14.91 -15.21-

REAL AoNUAL 4301N1 VATES (198t PRICES)Perchandise exporte 38.01 '12.0 -4.41 20.31 -2.41 -3.51 6.31 1.51 1.01Primary 46.01 18a.91 -16.41 32.2X -4.2X 7.0x 3.01 -4.3X -6.31MHanufctures 2S.31 O.S 17.11 7.8% -0.41 t15.01 10.81 8.61 9.1X

Merchandise imports 14.41 -2.1K 9.81 40.81 14.7X 1.41 3.61 5.21 4.01

1988 1989 19,90 1991 1992PRICE INDICES (19"7utOO)

Export price Index 104.8 105.9 119.5 122.8 117.7 .. .. ..

teport pfice index 108.1 115.6 117.0 117.7 121.2 .. .. .erea of trade Index - 96.9 91.6 102.1 104.3 97.1Real Exchange Rate ., 107.8 95.5 106.2 100.8 94.9 .. ..Consumer Price Index (Z growth rate) 21.91 28.51 7.21 25.81 9.31 .. .. ..Reat Interest rates . 3.51 3.5S -6.61 -4.31 -0.51 .. .. .. .GOP Deflator (1 growth rate) 16.01 16.71 17.3 22.3X 19.41 .. .. .. .

.... Y............... ......................... ......

of Estioated at-factor cost. .........Il includes Iruestment of piltie enterprises..21 As of FY9Z, exctuding pub*tr enterprlses.31 FY91 Includes rMcOpitell;otlon of pllilc bonks for fy91. .

January 27, 1994 0* * W~~~~~~~~~~~~~~~~~~

Ecyt -- toy Exposure Indlcatora

............................................................................... ........................................ ............................................................................................... ,.,..,__, ,, __,___

--------- ---------- Actualt ...... ....... Estl_ted ----------Projected -.-----.-1988 1989 1990 199 1992 . 1993 1994 1995 1996

................ .................................. __._. ............ __.-.--..............--_.. ^............ .................. ........ _____................_.__..............

Tetat Debt Outatanlno ard Otabureed (TOO) (USSW) a/ 46973 5 so 1081 39051 3814? 38451 39165 39887 40222

get Disbursements (WSWm) a/ 1849 2052 1383 423 42S 340 730 603 334

Total Debt Service (TOS) a/ 1986 2871 5891 m6 2909 2614 2493 2397 2631

Debt and Debt Service Indlcators (M)IOJ/XCS b/ 405.9° 428.62 398.51 269.5S 234.81 243.3X 239.71 226.71 215.6Xl1DO/GDP 151.61 149.81 144.3X 119.11 107.3X 97.4X 93.5x 93.1 . 88.1XTDS/XGS b/ 17.2% 24.31 34.9X 24.31 17.9X 16.5S 15.2X t3.6X 14.1Concesslonat/TDO 32.91 31.71 32.31 38.71 38.41 38.5X 38.9X 39.7S 40.3X

i3R0/IFC Exposure Indicators (1)18RD DS/Public DS 18.01 11.71 6.01 7.11 12.21 13.81 14.61 15.51 13.2?Preferred Creditor J Public DS (inct. IMF) 25.11 16.51 9.12 18.01 33.2X 22.21 24.3X 30.01 29.2XI1R8 DS I Exports of GSR 2.31 2.2X 2.31 2.31 1.9X 1.9X 1.9X 1.71 1."1ISKO Portfolio Share (in PPO eKxc. IMf) 3.7X 3.21 3.41 3.82 4.0X 4.1t 4.2X 4.2? 4.21

IFC (US$m)townsEquity and quasi-eqlty c/

HICA Cuarantees (USSm) O 0 0 0 0 0 0 0: 0

........... ................................ ........................... ......................... ....................... .................................................... .......... ............... ............. ............ ... ... ................

a/ Cash basis. Includes pubtlic and pubtlicty guaranteed debt, private non-guaranteed debt,use of IMF credits and short-term capital.

b/ XCS a exports of goods and services.c/ inctudes quasl-equity typea of both toan and equity Instrutents.

c:\JavaedelXegvptXfal tcasj.idlJanuary 27, 1994

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MAPS

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652 .11 NYA >ARAB REPUBLIC OF EGYPT

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_l M1TA*O 6 Shorkiya7 Merouiya

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M,Ai S SRAEL STATIONSM A RS A M AT R U H B ^mi

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.. ; , < / \ { J 0 R D A N REGIONAL RESEARCH AND EXTENSION CENTERS:-ee,@0.u w ;J' ', _ * Sue: \ { 12 SELECTED FOR PROJECT

QATTARA

s EPRESSION azA SINA OTHER CENTERSsW -- A-S- - SUEZ SINAI PENN S UA

Sineh ------ EL FAYOU

NI ,U .: S A U D I EXTENSION INFORMATION UNITS TO BEE L M I N YA ESTABUSHED UNDER PROJECTE L MI NSYA

m WESTERN A R A B I A SAHA RESEARCH STATION NUBRYA RESEARCH STATION

El WyAG =~~~~~~~~~~~~~~~~~~~~~~~~~~~~tme Deqe Woof Nuhee.El MInveB Eltt~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~ tI~~~~~lBo.4O.

N- V El Mlnya * E biy SIDS RESEARCH STATIONX NrwVdlwy D^bion Dicdd Sb~~~Neo

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r Xi , , rmm * / .; Physicol Feolures~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~Ni'olFetue

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/ o -- /XX 4 5* aItAn ,9 X . / \! o~~~~~~~~~~~~~~~~~.b To"se ond vilbogfOeDA Seree., Kr DE C S D-oh OmDO - G Tovo c Boundaries

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