Interest rate policy in Egypt: its role in stabilization and adjustment

Mansoor Dailami and Hinh Dinh

No 655, Policy Research Working Paper Series from The World Bank

Abstract: An appropriate interest rate policy is considered essential to the success of stabilization and adjustment programs that Egypt might undertake. The broad objectives of such a policy would include deregulating credit and investment, raising the interest rate, and developing a"core"short-term debt market to serve as a reference point for market determination of interest rates. And as the government moves away from a regulated environment of controlled credit and regulated investment toward a more liberal system, interest rates will be the prices that guide investment decisions and ensure allocative efficiency. The authors describe some of the structural problems Egypt's economy has faced in the past decade and policy initiatives that the government has undertaken, and review the economy's financial sector. They analyze the role that interest rate policy could play in Egypt's stabilization and adjustment program, particularly how it would affect the outcomes of the important objectives of attracting workers'remittances, encouraging domestic residents to hold deposits in local currency, and increasing investment efficiency. The authors recommend that changes in the level and structure of interest rates be planned in several steps and carried out in conjunction with other adjustment measures, such as reducing the budget deficit, reforming public enterprises, and streamlining public investment.

Keywords: Economic Theory&Research; Banks&Banking Reform; Environmental Economics&Policies; Financial Intermediation; Financial Economics (search for similar items in EconPapers)
Date: 1991-04-30
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Citations: View citations in EconPapers (4)

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