Financing Sustainable Development in Egypt Report

Abstract

The development of Egypt’s banking system can be traced back to the mid-19th Century, when the growth of the cotton industry and the opening of the Suez Canal led to an inflow of foreign capital (Caselli, 1980). In response, a few local banks were established in Egypt, including the National Bank of Egypt, which was founded in 1898 with the assistance of the British. It was also a time when foreign banks emerged and grew in Egypt, whose business heavily depended on crop export finance, agricultural credit, and mortgage facilities for residential buildings with high interest rates (Caselli, 1980). Nevertheless, there were almost no instruments provided to small businesses, so the informal financial market, also known as the “non-organized” market with punitive interest rates, was their only option for access to funds.

The financial sector of Egypt was largely influenced by the transition from socialism (between 1959 and 1972) to capitalism since 1973. Between 1960 and 1990, the Egyptian financial economy was heavily repressed by frequent government intervention in the market mechanism. Particularly, the government formed the Central Bank of Egypt and drew a clear distinction between commercial banks and special institutions. It also set ceilings for nominal deposit and lending interest rates, enforced a high ratio of required reserves, and decided the allocation of credits to different projects (Mohieldin et al., 2019). However, in 1991, Egypt started an economic reform program, including financial liberalization policy, following the advocation of World Bank and IMF, which improved the efficiency and transparency of the financial sector. After these major turning points, the financial sector gradually stabilizes and enjoys a more solid foundation.

Keywords: Financial Development; Sustainable Development Goals; Egypt; Informal Sector, Private Sector

JEL Classification: G21; G22; G23