The American Chamber of Commerce in Egypt held its monthly luncheon at the Four Seasons Nile Plaza on February 21 with keynote speaker Youssef Boutros-Ghali, minister of finance and social insurance, addressing the topic, “Financing Egypt.”

AmCham president Taher Helmy began by expressing the optimism of the private sector and a newfound trust and confidence between the government and the private sector, as exemplified by the new tax system. He explained that the cooperation resulting from this mutual trust would help to solve Egypt’s problems, and benefit all parties.

Taking the podium, Boutros-Ghali unveiled a new plan to deal with the problem of loans in small and medium-sized enterprises (SMEs). The Ministry of Finance & Social Insurance, in coordination with the Central Bank of Egypt (CBE) and the Ministry of Trade & Industry, has earmarked £E 1 billion to forgive the bad debts of SMEs, which are unable to grow due to the burden of debt. “Starting today, we are going to identify £E 1 billion worth of these non-performing loans with a maximum of £E 20 million per loan and lift the burden off of these enterprises,” he said.

Boutros-Ghali discussed the shift to a more private sector-driven economy as well as the potential for greater growth. He said the growth rate hit 6.1 percent in the second quarter of FY 2005-06. “This growth has come from the construction sector, which increased from 3 percent in the first quarter of the last fiscal year to 12 percent one year later. Industry was up 6 percent from just 2 percent in the same quarter a year ago.”

He expects growth to cross the 7-percent threshold with the help of the private sector. “It won’t be easy or straightforward, but there is nothing that will keep us from crossing that mark if we put our minds to it,” he said. “I believe that the only future for this country is a future driven by the private sector. Unless we wake up and decide to take that risk, we will never make that transformation."

“Credit to the private sector a year ago was 2 percent, in real terms adjusted for inflation, it was growing negatively. Today, private sector credit is growing at 6 percent. However, for credit to support economic growth it should be growing between 12 and 16 percent.”

Boutros-Ghali discussed the importance of developing the partnership between the private sector and the government. He noted that the government has taken steps to allow the private sector to play a greater role in the future of the country, including institutional reform. But now the sector must step up to the role.

“The tax law has been changed. The customs law has been changed. Both were a major hindrance to economic development in Egypt and were a major offset to profitable investment. Changing legislation is the easy part; changing administration is more complex. Changing administration is where the private sector can help. We won’t know where all the problems are unless you take the time to show us where they are... Let’s inaugurate this new partnership between the government and the private sector today. We have the opportunity today and we should make use of it."

Discussing economic policy, Boutros-Ghali stressed that the government is giving particular attention to low-income groups, particularly on the issue of subsidies. “We have the responsibility of making sure that [low-income groups] are not harmed during the transition to a higher growth rate environment,” he said. “We’re revisiting subsidies to make them more efficient. By redistributing the present level of subsidies we can double the amount to low-income groups without harming those who don’t actually need subsidies.”

Meanwhile, all Egyptians should be able to benefit from a proposal to reduce property taxes. Boutros-Ghali said a draft law was being prepared that would seek to reduce property taxes from the current 46 percent to 10 percent. It would also seek to establish a system for establishing fair property values.

Similarly, social security legislation will be amended. Boutros-Ghali explained that the current system is inefficient, financially unviable and favors higher incomes at the expense of lower ones. “We need to redraft this law so that every Egyptian beyond a certain age has a pension from the system, whether he participated or not, whether he worked or not. If he is 65 years or older he is entitled that. The same goes for low-income groups. They should not be supporting high-income groups like the system does now. The present system works against low income [groups].”

In conclusion, Boutros-Ghali explained that the government and private sector must reach a new understanding in their relationship. He said responsibility now rests on the government on one hand, and the private sector and civil society on the other. If either fails, the entire system will fail. “We have turned a new page in our relationship, but it is up to all of us to decide what will be written,” he concluded.

A panel discussion followed Boutros-Ghali’s presentation, with panelists Taher Helmy, AmCham board member and founder of EFG-Hermes Mohamed Taymour, adviser to the Arab Monetary Fund Hazem Biblawy, of the Egyptian Tax Society president Ahmed Shawki.

The session kicked off with Taymour discussing the issue of the high budget deficit and its relationship to reducing subsidies. Boutros-Ghali pointed out that the budget deficit is a very complicated issue because the country is recovering from a recession and there is still inefficient use of government resources by the public sector. However, he said steps were currently being taken by government to drive the economy and train the public sector to better utilize its resources and file expenditures against the budget, which should help improve the budget deficit.

Also heavy on the minds of attendees was the implementation of the new tax law, especially since the deadline for filing taxes is March 16. In response to the question, “should accountants be required to take responsibility for inaccuracies in clients’ tax statements?” Boutros-Ghali pointed out that the new tax system was designed to be user-friendly, especially since taxpayers were no longer required to file statements that included all their assets, those of their dependents and their employees’ birth certificates. Instead, a document by the one who calculated the taxes stating that these taxes were calculated in accordance with the law and are accurate. If an accountant calculated the taxes in accordance with the law, then there should be no concern in taking responsibility for the filed statement, he said.

Other issues raised included the amount of cash being generated by privatization, the effect of bird flu on the poultry industry and the negative effect of the halting of FTA negotiations with the US on the Egyptian economy.