CENTRAL BANK OF EGYPT

ECONOMIC REVIEW

Vol. 50 No. 3

2009/2010

Research, Development and Publishing Sector

The Economic Review is issued by the Research, Development and Publishing Sector at the Central Bank of Egypt (CBE) on a quarterly basis. It aims to make available to a broad readership of specialists and non-specialists a wide range of information on the performance of the Egyptian economy during the reporting period. The CBE posts the Review on its website: www.cbe.org.eg.

Contents

Page

Main Monetary and Financial Indicators Leading Article: Demand for Broad Money (M2) in Egypt: Stability Testing and Monetary Policy Implications 1

1- Macroeconomic Performance

1/1 - Gross Domestic Product (GDP)………………………… 37 1/2 - Employment and Unemployment………………………. 43 1/3 - Inflation…………………………………………………. 45 1/4 - Tourism…………………………………………………. 50

2- Monetary and Banking Developments

2/1 - Monetary Policy and Monetary Aggregates……………. 54 2/1/1 - Monetary Policy………………………………………… 54 2/1/2 - Reserve Money…………………………………………. 55 2/1/3 - Banknote Issue………………………………………….. 58 2/1/4 - Domestic Liquidity (M2) and Counterpart Assets……… 59 2/1/5 - Payment Systems and Information Technology (IT)…… 64 2/1/6 - RTGS and SWIFT Local Services……………………… 65 2/2 - Banking and Credit Developments……………………... 67 2/2/1 - Banking Reform………………………………………… 67 2/2/2 - Banking Supervision Sector……………………………. 70 2/2/3 - Overview of Banks' Aggregate Financial Position……... 74 2/2/4 - Interbank Transactions in Egypt………………………... 76 2/2/5 - Deposits…………………………………………………. 77 2/2/6 - Lending Activity………………………………………... 79

3- Stock Market

3/1 - Shares Market…………………………………………... 84 3/1/1 - Primary (New Issue) Market……………………………. 84 3/1/2 - Secondary (Trading) Market……………………………. 85 3/2 - Bonds Market…………………………………………… 86 3/2/1 - Primary (New Issue) Market……………………………. 86 3/2/2 - Secondary (Trading) Market……………………………. 87 3/3 - Mutual Funds…………………………………………… 87

4 - Public Finance and Domestic Public Debt

4/1 - Consolidated Fiscal Operations of the General Government………………………………………………..

88

4/2 - Domestic Public Debt…………………………………….. 95 4/2/1 - Debt of the Government (Net)……………………………. 95 4/2/2 - Debt of Public Economic Authorities……………………... 98 4/2/3 - Debt of the National Investment Bank (Net)……………… 98 4/2/4 - Intra-debt…………………………………………………... 99 4/2/5 - Domestic Public Debt Service…………………………….. 99

5 - External Transactions

5/1 - Foreign Exchange Market………………………………... 100 5/2 - Balance of Payments……………………………………... 102 5/2/1 - Trade Balance…………………………………………….. 102 5/2/1/1- Merchandise Exports by Degree of Processing………….. 104 5/2/1/2- Merchandise Import Payments by Degree of Use………... 104 5/2/1/3- Sectoral Distribution of Commodity Transactions……….. 105 5/2/1/4- Geographical Distribution of Commodity Transactions…. 107 5/2/2 - Services Balance and Transfers…………………………... 109 5/2/3 - Capital and Financial Account…………………………… 113 5/3 - International Finance…………………………………….. 115 5/3/1 - FDI in Egypt……………………………………………… 117 5/3/2 - External Official Grants…………………………………... 120 5/3/3 - External Debt……………………………………………... 123

Annex

- Statistical Section………………………………………… 131

Main Monetary and Financial Indicators

July/March GDP (LE bn) 2008/2009 2009/2010

GDP at Current and Market Prices 771.6 893.5 Annual Growth Rate (%) 16.0 15.8 Real GDP at Factor Cost 592.7 623.0 Annual Growth Rate (%) 4.7 5.1

GDP Growth at Factor Cost by Sector (%) A) Productive Sectors Of which: Construction & Building 10.3 13.7 Electricity 5.6 6.6 Water 6.7 6.6 Manufacturing (Oil Refining & Others) 3.4 5.0 Extractions 5.9 1.9 B) Services Sectors Of which: Communications 15.0 12.6 Tourism 1.1 12.0 Transportation and Storage 6.4 6.8 Wholesale and Retail Trade 5.8 6.2 Finance 4.2 5.0

Price Index (%) 2008/2009 2009/2010 - Change in consumer price index (urban) (January 2007 = 100) 6.4 8.6 - Change in producer price index (2004/2005 =100) -17.7 6.3

July/March 2008/2009 2009/2010 Monetary Survey (LE bn)

End of Period

Domestic liquidity (M2) 808.6 888.2 Growth rate (%) 5.5 6.9 Reserve Money 174.0 196.1 Growth rate (%) 2.4 12.0 Money supply (M1) 173.2 201.9

Growth rate (%) 1.6 10.3 Currency in circulation/Money supply (%) 65.2 63.6 Banking system foreign assets, of which: 277.7 312.2

CBE foreign assets 178.7 188.1 Banking system foreign liabilities, of which: 31.4 35.8

CBE foreign liabilities 1.4 8.3 Total deposits with banks (excluding the CBE) 790.5 867.1

In local currency 578.1 664.9 In foreign currencies 212.4 202.2

Foreign currency deposits/Total deposits (%) 26.9 23.3 Total lending and discount balances extended by banks (excluding the CBE), of which: 430.6 441.4

To government and public economic authorities 31.8 33.0 To business sector (public and private) 303.2 301.5

Portfolio of securities and TBs with banks (excluding the CBE), of which: 296.2 372.3

TBs and government bonds 248.7 313.4 Loans/Deposits with banks (%) 54.5 50.9 Investment in securities, TBs and equity participations/Deposits (%) 37.5 42.9

US Dollar Exchange Rate Announced by the CBE (PT/Dollar) - Buy and Sell Exchange Rates (Average of the period) 549.5 549.7

- End of the Period (Market Buy Rate) 562.9 549.1

2009/2010

Estimates Actual Consolidated Fiscal Operations of the General Government (Budget Sector)

FY (July/March) LE bn - Total Revenues 225.0 151.8 - Total Expenditures 323.9 238.9 - Cash Deficit (or Surplus) 98.9 87.1 - Net Acquisition of Financial Assets 0.7 -0.2

July/March Annual Discount and Interest Rates (%) 2008/2009 2009/2010

End of Period CBE Lending and Discount Rate 10.0 8.5 CBE Overnight Deposit and Lending Rates Deposit 10.0 8.25 Lending 12.0 9.75 Interest Rate on Less than 3-Month Deposits 7.1 6.0 Interest Rate on Less than One Year Loans 12.4 11.10

Overall Deficit (or Surplus) 99.6 86.9 Total Finance 99.6 86.9 - Domestic Finance 106.1 104.9 Banking 105.4 45.7 Non-Banking 0.7 59.2 - Foreign Borrowing -5.6 -4.6 - Arrears - - - Others -0.9 -0.3 - Revaluation Differences - -1.6 - Net Privatization Proceeds - 0.4 - Difference between TBs Face Value and Present Value - -1.1 - Foreign Debt Reclassification Diff. and Related FX Diff. - - - Discrepancy - -10.8 - Cash Deficit (or Surplus) /GDP (%) 8.4% 7.3% - Overall Fiscal Balance /GDP (%) 8.4% 7.3% - Expenditures /GDP (%) 27.4% 19.9% - Revenues /GDP (%) 19.1% 12.7%

End of

June 2009 March 2010 Domestic Public Debt LE bn

- Government (net) 562.3 667.2 - Public Economic Authorities 52.3 53.5 - NIB 140.7 142.6

US$ bn July/March Balance of Payments 2008/2009 2009/2010

Current Account & Transfers (3.4) (2.6) Trade Balance (19.5) (18.5) Merchandise Exports 19.3 17.0

Oil and its Products % 44.6 41.6 Others % 55.4 58.4 Merchandise Imports 38.7 35.5 Intermediate Goods % 33.7 33.3 Investment Goods % 20.8 21.1

Consumer Goods % 18.0 25.2 Fuel, Raw Materials and Others % 27.5 20.4

Services Balance 9.6 8.7 Receipts, of which: 18.4 17.7

Transportation % 31.6 29.5 Travel % 43.0 49.2

Investment Income % 9.3 3.7 Payments, of which: 8.8 9.0

Transportation % 13.7 10.2 Travel % 24.8 19.8 Investment Income % 15.9 32.8

Transfers 6.4 7.2 Official % 9.1 12.5 Private % 90.9 87.5 Capital and Financial Account 0.7 5.2 Overall Surplus/(Deficit) (2.3) 3.1 Outstanding External Debt (at End of March) 30.9 32.3

The Leading Article

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Demand for Broad Money (M2) in Egypt: Stability Testing and Monetary Policy Implications

Introduction

The main objective of the Central Bank of Egypt (CBE) is to maintain price stability. In pursuit of this objective, the CBE has to set an intermediate policy target. Under a maturing financial system, the CBE’s operational target aimed at regulating bank liquidity to minimize interest rate fluctuations on the money market that has been gaining increased importance. Therefore, studies have focused on estimating demand for money as a relevant topic to the monetary policy decision-making process. Such studies attempt to test stability by employing the co-integration analysis and mainly estimating income (using GDP as a proxy) and interest rate elasticity.

Testing the stability of the money demand function is a crucial issue for the proper implementation of the monetary policy. Its importance stems from the fact that shifting to the inflation-targeting framework requires the existence of an unstable money demand function; which implicitly indicates a loose relationship between the monetary aggregate and inflation; a subject that the study tries to investigate. Therefore, the main purpose of this paper is to explore the demand for money in Egypt, going beyond the process of estimating a well-specified model and testing its stability over time. In fact, it has been shown that the co-integration analysis should enclose short-run, as well as long-run dynamics to allow the incorporation of the structural adjustments occurring in the short-run.

Against this background, this paper intends to estimate the money demand function in Egypt in the period (1997–2009), on the basis of Johansen procedure, for identifying the long-run co-integrating vector. Subsequently, the Error Correction Model (ECM) is adopted to identify the short-run dynamics, on one hand, and to reflect, on the other hand, the structural adjustments occurring in the short-run due to the inclusion of the “error correction term”. Then, the Unrestricted Reduced Form (URF) equation is estimated, before moving to the General-to-Specific procedure to test the stability of the estimated money demand function. From that test, the paper is going to draw out some policy implications. The long-run co-integrating equation provides an important inference about the transaction motive elasticity, which helps the monetary authority to accurately determine the liquidity needed to stimulate the economy.

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The paper's main findings denote the stability of the long- and short-run demand functions, signifying that the monetary authority can still rely on the targeting of the monetary aggregate (M2) as an intermediate target, instead of shifting to the inflation-targeting framework. One reason is that the estimated results actually prove the existence of a stable relationship between M2 and the selected macroeconomic variables; indicating a predictable link between M2 and inflation that justifies monetary targeting until the relationship is violated.

The paper is motivated by the belief that this type of analysis can shed new light on the persistency of money demand in Egypt, in the wake of major structural breaks in the monetary policy and in the Egyptian financial system in the last decades. Accordingly, the paper is organized as follows: the first chapter presents analysis of the development of the monetary policy and transmission mechanism channels in Egypt during the study period. The second chapter clarifies the empirical evidence of money demand function estimation and stability testing in Egypt, followed by the main policy implications. Finally, the study presents the conclusions and policy implications.

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First: Evolution of Monetary Policy and Monetary Transmission Mechanism Channels in Egypt

Tracing the developments in both the monetary policy and its transmission mechanism channels is considered a crucial issue for the estimation of money demand, as it provides the researcher with an overview of the historical background of the monetary policy objectives and instruments. It is also highly informative of the structural and institutional changes that have taken place over the study period, which affect the stability of the money demand function, being one of the main concerns of the paper. Taking into consideration the structural and institutional changes will be useful in selecting and incorporating the proper macroeconomic variables that adequately represent the money demand function i.e. help avoid the misspecification of the estimated function.

This part in particular is divided into three main episodes which the

monetary policy has gone through, covering the period (1991 - 2008). The rationale behind this classification is to study each episode per se to highlight its main features. Each episode sheds the light on the development of the monetary policy stance, inflation rate (CPI based), domestic liquidity growth rate and the exchange rate regime.

1. The Period 1991 – 1999:

Starting from 1990/1991 up to 1998/1999, the CBE had endeavored to

achieve the two principal objectives of price and exchange rate stability to steer the Monetary Policy. Accordingly, the CBE used various quantitative and price instruments at different time points to achieve its multiple objectives, yet at the expense of the consistency of the monetary policy management. Among these objectives were price stability, economic growth, the creation of new job opportunities and fostering of confidence in the domestic currency. Such inconsistency can be borne out by examining the monetary policy intermediate and operational targets, tools and policies, as follows:

• Operational and Intermediate Targets: the operational targets were

mainly the excess reserves with the CBE in local currency and the short- term nominal interest rate management. The intermediate target was to control domestic liquidity (M2) growth. It is worthy to mention that the FY 1990/1991 is considered an exceptional year; in terms of the intermediate target which happened to be controlling the net domestic assets of banks rather than liquidity.

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• The Instruments: the Central Bank relied mainly on the indirect market tools as the required reserve ratio, reserve money and open market operations, and interest rates( e.g. the discount rate, 3-month deposit rate, less-than-one year loans and Treasury bills rate).

It is noteworthy that this period particularly witnessed some structural

changes in the tools of the monetary policy. As a point of departure, the 1990s period experienced various changes in the use of direct and indirect tools of the central bank:

Firstly, reforms were introduced to the interest rate regime, with the aim of creating a market-oriented economy. Accordingly, the first stage1 of the ERSAP gave priority to reforming the banking sector, whereupon the CBE had liberalized interest rates on loans and deposits. Moreover, banks were given the freedom to set their loan and deposit interest rates, yet under the restriction that the interest rate on 3-month deposits should not exceed 12% per annum. However, interest rates were completely liberalized without being restricted by a ceiling in 1991/1992, to enhance the attractiveness of the domestic currency. Moreover, the credit ceiling for the private sector was eliminated in October 1992, resulting in increased lending to the private sector that reached a peak in 1994/1995.

Secondly, the CBE has begun to use treasury bills since the beginning of the

1990s, to control liquidity in the money market. Furthermore, in 1990/1991 the CBE geared the discount rate to the interest rates on treasury bills, resulting in the reduction of interest rates on treasury bills during the period from 1991 till 1997. (Moursi et al, 2007)

This action was intended to minimize the burden of the domestic

government debt service, by subduing the upward trend in interest rates, and also to narrow the spread between the 3 month T-bills rate and the 3 month deposit rate. In this context, the discount rate was reduced to 13.5% in 1995/1996 and 12.25% in 1996/1997 from 14% in the FY 1994/1995. This was accompanied by a slight increase in the 3 month deposit rate to 10.2% in 1995/1996 from 10% in the previous FY, which was likely to narrow the gap between the two above mentioned rates of return, as interest rates on T-bills used to be higher since 1991. [Refer to figure (1)]

1 The second stage focused on the reallocation of resources through the liberalization of prices and foreign trade.

The third stage was designed to enhance the private sector’s participation in economic activities through the privatization of the state enterprises, (Noshy et al., 2001)

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Figure (1)

Source: CBE

Thirdly, as for open market operations, the most massive sterilized intervention has been undertaken by the Central Bank in this period (since the introduction of the Economic Reform and Structural Adjustment Program by the Government of the Arab Republic of Egypt). This step was taken to support the stability of the nominal exchange rate in the face of the massive capital inflows that amounted to US$ 400 million in 1994. This process, however, aggravated the fiscal burden of sterilization in terms of outstanding T-Bills and interest payments on the stock of outstanding debt. (El Mashat et al., 1998)

Also, the importance of open market operations significantly increased for

the second time in the aftermath of the liquidity crisis in 1997/19982. The CBE depended on the repurchase operations of Treasury Bills (repos), to provide liquidity and stimulate economic growth. To elaborate, during this year, 19

2 During the fiscal year 1997/1998, Egypt was attacked by three consecutive crises, leading to a sharp decline in

the economy’s foreign exchange reserves. In detail, the economy was hit by the Asian financial turmoil in August 1997, the terrorism attack in Luxor in November 1997, and the shock of the slump of oil prices in 1998. The resultant shortage in liquidity triggered a rapid deterioration in Egypt’s external position as capital inflows and tourism revenues sharply declined.

Interest Rate Spread Between 3-month Deposit Rate and the 3-month Treasury Bill Rate

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on three month deposits (rate of return on holding money)

3-month T-bills (end of month)

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repos injected liquidity of LE 7.5 billion. Additionally, the following year witnessed the expansion in repos by LE 61 billion. Their value even increased to LE 209 billion in 1999/20003. The duration of these operations was extremely short; less than nine days (in some cases two or three days). Despite their large size, these operations did not make up for the shortage of liquidity that banks had to face, to be able to satisfy the business sector’s need for longer-term credit. (El Refai 2001)

As for the domestic liquidity (M2), according to El Refai (2001), the

domestic liquidity during the period March 1996 to December 1999, whether in terms of domestic liquidity M2 or Money Supply M1, increased in absolute terms. However, the Egyptian economy witnessed a sharp decline in liquidity growth during the period from September 1997 to March 1998, due to the jump in the capital outflows on the back of the aforementioned international events that had occurred in the FY 1997/1998 causing the foreign currency liquidity shortage. In this context, domestic liquidity growth was almost halved to 8.6%. A point to mention here is that despite the decline in liquidity and its impact on interbank rates, no change was made in the discount rate in response.

As for the exchange rate, the CBE undertook a number of far-reaching

reforms in the exchange rate system. At the beginning of the 1990s, the country had adopted a fixed exchange rate regime, whereby the authorities set the official exchange rate without regard to market forces. Under this system, the exchange rate started to act as a nominal anchor for the monetary policy, resulting in a highly stable Egyptian pound exchange rate relative to the US dollar, on the one hand, and in the emergence of a black market for the foreign exchange, on the other (El-Asrag, 2003). In February 1991, a dual exchange rate regime consisting of a primary restricted market and a secondary free market, was introduced to simplify the exchange rate system. Finally, the two markets were unified in October 1991. The fixed nominal ER, along with high real interest rates, caused a real appreciation in the value of the Egyptian pound in the 90s. According to (Noshy et al, 2000), the real effective exchange rate (based on SDR weights) showed that the real appreciation of the Egyptian pound reached 52 percent between 1992 Q1 and 1997 Q2. Accordingly, the expected depreciation of the Egyptian pound became inevitable, leading the investors to demand increased cash of the US$ dollar. In the meantime, the speculative practices in the foreign exchange market and the rise in the imports bill caused a shortage of dollars in the economy. In the light of the periodical intervention in 3 It is worth mentioning that the use of open market operations became consistent with the liberalization of

interest rates when the CBE resorted to the market to finance government debt (Moursi, 2007).

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the foreign exchange market to maintain the peg, according to El Mashat (2007), foreign reserves were steadily reduced from US$ 16.8 billion in early 1997 to US$ 12.9 billion in late 2000, and a series of gradual devaluations amounting to 8.4 percent (against the US$ dollar) began in April 1999 to prevent the drainage of foreign reserves. Eventually, it was inevitable for the Egyptian pound to depreciate against the US dollar, reaching LE 3.69 in June 2000, down from LE 3.4.

The inflation rate was volatile throughout the aforementioned period,

reflecting both international and domestic circumstances. After the 1991 devaluation, inflation showed an upward trend in the period from October 1992 to December 1993, recording an average of 11.5% during the period. However, it dropped in the following year, influenced by the stability of the nominal exchange rate. In detail, starting from December 1993 till the corresponding month of 1994, inflation moderated registering an average of 8.5%. Unfortunately, the improvement was short-lived, because of the highly increasing lending to the private sector that reached record levels in 1994/1995; averaging 15.5% in 1995. In fact, inflation continued to be stable at low levels from 1996 to the end of the period, recording an average of 4.7%. A plausible explanation for this trend is the low international price levels that prevailed in this period. Additionally, the domestic liquidity shortage (1998/1999) influenced the inflation rates, giving rise to a contraction episode.

Box (1) Main highlights for the period: 1991 – 1999

• Massive intervention to sterilize the large capital inflows after ERSAP.

• Interest rate liberalization without ceilings in 1991/1992. • The devaluation of the Egyptian pound in 1991, in addition to a

series of devaluations starting in April 1999. • Increased usage of the TBs as a monetary policy tool in the 1990s. • Repos to ease the domestic currency liquidity shortage in

1998/1999. • M2: liquidity crunch: Foreign currency shortage (1997/1998), credit

crunch (1998/1999). • Inflation: trending upwards in the beginning of the period till the

first half of 1996 then lowering during the period (July 1996: December 1999) supported by the low international price levels.

• Exchange Rate Regime: pegged.

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The Period 2000 - 2004:

The Central bank used the securities issued in coordination with the government to sterilize capital inflows. Even after the overnight domestic currency interbank market was introduced in 2001, the volatility of this indicator failed to track the movements of the macroeconomic indicators. With the contradiction between the ultimate targets of the monetary and fiscal policies, the whole economy lost its credibility. The CBE employed various quantitative and price instruments at different points in time to achieve its multiple objectives, leading to inconsistency in the monetary policy management. However, the independence of the central bank established by the new Banking Law of 2003 and the new monetary policy framework that aimed at enhancing the interest rate channel, managed to support the financial sector reforms in 2004 and restored credibility to the new monetary policy authority.

Price stability - measured by the development in inflation - demonstrates

the real macroeconomic functioning in the light of the set of facts mentioned above. Between January 2000 and December 2001, the consumer price index (CPI) and wholesale price index (WPI) inflation rates were relatively low, hovering around 2.5 percent (y/y) and 1.4 percent (y/y), respectively. Furthermore, there were minimal signs of volatility due to the exchange rate regime that limited the degree of exchange rate pass-through to domestic prices. However, the situation changed at the beginning of 2002 and after floating the exchange rate in January 2003. Between January 2002 and April 2004, the CPI and WPI inflation followed a steep upward trend, peaking to 17.2 percent (y/y) and 21.7 percent (y/y), respectively. The heightening of inflation reflected the lagged pass-through of a series of devaluations, with a cumulative depreciation of 29 percent in the nominal LE/US$ exchange rate between January 2000 and December 2001. This trend was further amplified by the shift to the managed float regime in January 2003.

The pickup in domestic liquidity growth rates, which averaged more than 15 percent annually and peaked to 20 percent in late 2003/early 2004, was not paralleled by the real GDP growth that rather slowed down in comparison to the first phase (1997-1999). Moreover, the lagged pass-through of the exchange rate channel, together with all the factors mentioned above, had the effect of eliminating the downward pressures on inflation during this phase.

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Further investigations into domestic liquidity (M2) revealed that the share and growth rates of foreign currency deposits surpassed those of domestic currency ones. The structure of M2 in the period under review was marked by preference for the foreign currency, mainly due to the disorders of the foreign exchange market that fed the propensity for hoarding and raised uncertainty about the Egyptian pound. The inherited pressure on the pound from the late 1990s led to a currency crisis in the mid-2000. In light of the liquidity shortage prevailing in the mid-1999, the East Asian economies meltdown and other events that had exerted pressures on the pound since 1997, the drainage of the resources of the official foreign exchange market exacerbated in this phase. The period under investigation reflects the instability and inconsistency in the policy management that gave rise to the hoarding of foreign exchange [see figures (2) and (3)]. Moreover, the lack of credibility in the system set the stage for public expectations to be materialized through several steps of devaluation.

Monthly Growth Rates in the Quasi‐Money Components (Annualized)

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Time Deposits in Domestic CurrencyCurrent Deposits in Foreign CurrencyTime Deposits in Foreign Currency

Figure (2)

Source: CBE

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Evidence for such disturbance was mirrored in the speculative practices in the parallel market. Even when the authorities tried to address the aforementioned pressures by intervention in the foreign exchange market and adoption of tighter credit policies, the turbulence in the foreign exchange market was rather aggravated by the events of September 11, 2001 and the war on Iraq which revealed the bad need for a free market.

In response to the persistent distress of the exchange rate, the Egyptian government took several remedial actions resulting in three radical changes in the exchange rate regime. In this respect, several steps of devaluation of the de jure peg were made as of April 1999. But the situation changed in the beginning of 2001, when the exchange rate was set to crawl within horizontal bands in an unsuccessful attempt to reduce the shortage in foreign exchange. Initially, a band of ±1 percent was established around the central rate, but it was eventually widened to ±3 percent in August 2001. Eventually a new exchange rate policy was adopted in January 2003 to allow the exchange rate to float. However, stability was not restored to the market before 2004.

Development of the Share of the Quasi‐Money Components

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Share of the Domestic Currency Time Deposits in Quasi-money

Share of the Foreign Currency Current and Time Deposits in Quasi-money

Figure (3)

Source: CBE

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In the same sense, the fluctuation in the external position represented by the BOP balance hindered the interaction between the global environment and the mix of policies adopted in this phase. The deterioration in the current account receipts that marked the beginning of this period (recognized as a phase of capital outflows) was accompanied by the reduction in the Central Bank’s international reserves, because of supporting the peg of the pound to the US dollar. After the global economy had shown signs of recovery from the slowdown and the capital inflows had pumped again into the emerging markets, the improved performance of the Egyptian economy and the stability of the foreign exchange market in the late 2003/2004 started to be mirrored in the current account. The current account continued to improve during FY 2003/2004, registering a surplus of US$ 3.7 billion against US$ 1.9 billion during the preceding FY. However, the balance of payments ran an overall deficit of US$ 158.3 million during the said year, against an overall surplus of US$ 546.0 million in the preceding FY.

2. The Period 2005 – 2008:

This is considered a unique period in the Egyptian economy characterized by distinctive features, paramount of which was the preference for saving in the local currency. In other words, the LE time and saving deposits remained the main contributor to growth in the broad money (M2) i.e. demand for money in the form of the domestic currency dominated this period. That denoted the reversal of the pattern of the previous period (1999-2003), i.e preference for the foreign currency, as a result of a series of devaluations of the Egyptian pound. (see figure 4)

Box (2) Main highlights for the period: 2000 – 2004

• Inconsistency in managing the targets of the fiscal and monetary policies.

• A new Banking Law in (2003) provided independence to the central bank through its own instruments.

• Monetary transmission mechanism: the effect of the exchange rate channel intensified in view of the disturbance in the foreign exchange market and loss of confidence.

• M2: rapid growth rates and preference for the foreign currency deposits.

• Inflation: late downward shift after long resistance to the exchange rate pass-through.

• Exchange rate regime: Crawling peg in 2001 followed by the managed float regime in 2003.

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The preference for the local currency is attributable to the following factors:

1. The stability experienced by the foreign exchange resulted from the actions taken by the CBE to eliminate the parallel market through the establishment and activation of the interbank foreign currency market in December 2004. As such, the Egyptian pound strengthened vis-à-vis the US dollar and, in March 2005, appreciated for the first time since the launch of the ERSAP in 1990s, as illustrated in figure (4).

2. The remarkable increase in the LE interest rates (except for FY 2005/2006

when the CBE eased the monetary policy). During FY 2004/2005, the interest rate on 6-month and one-year deposits slightly increased, and in FY 2006/2007 the key CBE interest rates (overnight deposit and lending rates) were raised a number of times reaching 8.75% and 10.75%, in order, by the end of this FY. In pursuit of its main target of curbing inflationary pressures,

Inflation and Exchange Rate Movements from 1992 till 2009

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CPI Annual Growth Rate Ex Rate Annual Growth Rate EGP/USDDollarization Rate

Fixed Exchange Rate Regime (after devaluation since 1991)

Jan 97 ‐ Dec00 Pegged

Jan 01 ‐ Dec 02 Crawling Peg

Jan 03 ‐ Dec 04 Managed Float

Jan 05 ‐ Now Active FX, Interbank Market

Figure (4)

Source: CBE

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since the launch of the corridor system in June 2005, the Monetary Policy Committee (MPC) made other successive increases in the policy rates bringing the overnight deposit and lending rates to 10.5% and 12.5%, respectively, by the end of June 2008. [refer to figure (5)]

3. This trend further strengthened after the US Federal Reserve had kept the

short-term interest rate unchanged during FY 2006/2007, following many successive increases during FY 2005/2006.

The period under review was also characterized by excess liquidity in the banking system and the sterilization of the increase in the international reserves. That was reflected on the fluctuation of the interbank rate (operational target) close to the lower bound of the corridor, thus prompting the CBE to recurrently intervene by recourse to the open market operations, to absorb this excess. In doing so, the CBE either used its traditional instruments such as the TBs reverse repos and the interest-bearing deposit acceptance mechanism, or created new instruments like the CB notes with maturities over one to two years and the CBE certificates of deposits (CDs) with maturities spanning up to one year, which the CBE sells to banks through outright sales. The last two instruments were

Figure (5)

Movements in the Outer Bounds of the Corridor and the Operational Target Overnight Interbank Rate

7.50

9.00

10.50

12.00

13.50

Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08

Deposit Facility Rate Lending Facility Rate

Overnight Interbank Rate

Source: CBE.

- 14 -

introduced to the market during the FY 2005/2006. Along with these two instruments, the CBE reactivated its deposit auctions in January 2007 to be used since then as the main instrument to contain the inflationary pressures arising from monetary expansion.

The monetary transmission mechanism especially the interest rate channel improved, as market interest rates on deposits and loans became more responsive to the CBE's key policy rates. This signifies the relative activity of this channel - that had been weak for decades - due to the adoption of the corridor system since June 2005. Hence, it appears that the monetary policy somehow affects consumers’ and business decisions and, in turn, the level of output. Mindful of this, the Monetary Policy Committee announced the adoption of a new monetary policy framework (inflation-targeting) as of June 2005, upon the fulfillment of certain prerequisites. In the transition period, it relied on the use of overnight interest rates on interbank transactions as an operational target that represents the CBE’s main policy instruments. These key rates provide the outer bounds of a corridor, within which the ceiling is the overnight interest rate on lending from the Bank and the floor is the overnight deposit rate at the Bank.

As for the inflation rate, the period (2004 - 2008) was characterized by

highly volatile domestic prices. In order to get a clue about the CPI-based inflation developments, the period is broken down into segments to study each period individually. As for FY 2004/2005, the inflation increased to 12.6% in October 2004, reflecting the lagged pass-through effects of the cumulative depreciation of 32% in the official exchange rate of the Egyptian pound vis-à-vis the US dollar since April 1999 (Al-Mashat and Billmeier, 2007). Since then the inflation rate eased till May 2006, reflecting the disinflationary impact of the Egyptian pound appreciation throughout the same period, as a result of the activation of the interbank foreign exchange market launched in December 2004. In March 2007, prices went up again, driven by the supply shocks related to oil subsidy cuts and the second round-effects of the avian flu. Furthermore, during FY 2007/2008, the inflation gradually increased reaching a peak of 20.2% in June 2008, because of the mixed effect of some external and internal shocks. The former are related to the rise in the international food prices, while the latter are traced to the rising prices of some oil products; especially benzene 90 and 92 owing to May 2008 decrees. Another factor at work was the acceleration of economic growth rates; particularly in the sectors of construction and manufacturing, that anchored inflation expectations into an upward trend, as inflation peaked to 23.6% in August 2008. [See figure (4)]

-15 -

I. Development of the Monetary Transmission Mechanism Channels in

Egypt:

1. Interest Rate Channel:

During the period 1990-2005, the interest rate channel has a weak effect on the macroeconomic variables. Suggested policy rates were the discount rate, the 3-month Treasury bill rate and the overnight domestic currency interbank market which was only introduced in 2001. As the movements in these interest rates appear to be secular, with no evident cyclical pattern and with no independency, the interest rate channel did not contribute to economic fluctuations in Egypt. Moreover, the quantitative measures proved to be more effective in managing the intermediate target due to the resistance in the banking sector interest rate structure as interest rates remain flat and unresponsive. Eventually, the self-imposed constraints on the monetary policy and the lack of a good signal for the policy rate enforce the need to deepen this channel.

In the second phase (2005-2008) characterized by financial reforms, the

interest rate channel showed an improvement in gearing the macroeconomic outcomes. On June 2, 2005, the CBE introduced an interest rate corridor system

Box (3) Main highlights for the period: 2005 – September 2008

• Foreign exchange currency interbank activation (December 2004). • New monetary policy framework launch of corridor system (June

2005). • Introducing new Open Market Operation instruments: CDs and CB

notes, in addition to the reactivation of the deposits auctions. • Monetary transmission mechanism: interest rate channel has

relatively activated. • M2: moderate growth rate, preference for domestic currency

deposits • Inflation: supply shocks, volatile prices driven by a set of internal

shocks (administered prices due to oil subsides cuts) and external shocks (international oil and food prices increase).

• Exchange rate regime: floated exchange rate, active foreign exchange market, relative stabilization, elimination of the parallel market.

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that relies on two standing facilities: the overnight lending facility and the overnight deposit facility. The ceiling of that corridor is the overnight interest rate on lending from the CBE and the floor is the overnight deposit interest rate at the CBE. Moreover, the CBE started issuing its own instruments to be used in liquidity management through the open market operations. The new monetary policy framework was accompanied by strengthening the banking sector. Also, several steps were undertaken to enhance the competitiveness and efficiency of this sector as a prerequisite for an effective interest rate channel. To sum up, the interest rate channel potentials are strong but subject to the banking sector functioning.

2. Exchange Rate Channel:

During the period 1990-2005, there were significant changes in the exchange rate dynamics in Egypt, which have been largely reflected in domestic prices via the exchange rate pass-through effect. We distinguish four periods in the exchange rate regime of the Egyptian pound against the U.S. dollar as a main reference currency.

From January 1990 to December 2000 the Egyptian pound was pegged to

the U.S. dollar and was devaluated remarkably several times due to the deterioration in the CBE reserves and capital outflows. From January 2001 to December 2002 it was still pegged but in a crawling manner as the band was widened twice to stand at ±3 percent in August 2001. However, public expectations wiped out the credibility of that system. In the period January 2003 to December 2004 the Egyptian government decided to adopt a new exchange rate policy in January 2003 under which the exchange rate was allowed to float. However, the large deviation in the parallel market rate away from the official one reflected the lack of credibility in the pound and fuelled macroeconomic instability and dollar hoarding. Finally, in December 2004, the CBE officially launched a new inter-bank foreign exchange market to gear the foreign exchange liquidity towards the official channels. Since 2005 and up till 2008 the parallel market was abolished and a stable exchange market caused an appreciation in the Egyptian pound. This was not reflected on the price level due to the integrated events in the international markets.

Evidently, this implies that the exchange rate channel in Egypt is a highly

competent channel, which can be clearly mirrored in real macroeconomic variables.

- 17 -

3. Asset Price Channel:

The alternative asset market where investments could be channeled was starting to pick up in 2000. The stock market index started to show a relative improvement which was a result of an ongoing privatization program and legislative developments that aimed at reforming current practices to adhere to international standards. Market capitalization rose from $4 billion to $43 billion over the last five years, with over 1056 companies listed on the stock market. Traded volume for the first half of 2000 surpassed $9 billion, compared to $5 billion for the same period in 1999. Therefore, the only market that could be reflecting this channel in Egypt is the stock market.

The stock market activity during the 1990s was limited; however trading has

increased massively as evidenced by the stock market index over the past years. The development in this market as measured by CASE 30 could be considered an enrichment to the monetary policy effect on real activity and prices through the effect on investor’s decisions and household consumption. Meanwhile, the market performance and its effect are subject to whether the recent increase in activity was primarily related to retail or institutional investors. (Al- Mashat, 2009)

With the ongoing developments in the stock market instruments and facilities provided with the high capital mobility and institutional macroeconomic development, the asset price channel is expected to adequately play a powerful role in determining the effect of monetary policy.

4. Bank Lending Channel:

The relationship between bank lending and economic activity in Egypt was distinguished by several aspects. During the 1990s till 2000 there was a positive significant relationship between lending and GDP growth, while after the expansion of 2004 there was no considerable increase in bank lending to the private sector (Al-Mashat, 2007). On the one hand, the lack of information symmetries geared the resources mainly towards large corporations with solid reputations and rendered lending to the private sector risky in the aftermath of the Asian crisis and other international shocks. On the other hand, financing the government deficit with high stable rates and the accumulation of government securities led to crowding out lending to risky investments in the private business sector in 1998/1999. Lending to the private sector as a percent of GDP – especially the household – has accelerated since 2003 /2004 with the

- 18 -

establishment of the first credit registry company (2004) and the resolution of the NPLs problem under the banking sector reform. This is in addition to foreign international investment that helped in freeing up banks’ resources by holding a substantial amount of government securities. The banking sector was also restructured since 2004 to provide a well functioning channel. The evidence supports the possibility of a future strong contribution of the bank lending channel through the accomplishment of financial reforms and solving the problem of information asymmetry.

Second: Estimating the Money Demand Function and Testing its Stability in Egypt

The stability of the Egyptian money demand function, after estimating the function with a great emphasis on correctly selecting the incorporated variables, is considered a crucial issue to adequately implement the monetary policy. In this context, the current chapter will focus on presenting in detail the selected variables and dynamic framework that has been chosen, followed by the results interpretation and policy implications.

I. Variables Selection and Data Manipulation:

The first chapter of the study shows that the general framework for the money demand estimation concentrates mainly on two main variables: the scale variable for the economic activity and an opportunity cost variable reflecting the foregone interest as a result of holding money. A crucial issue in estimating the money demand function relates to the well specification and the adequate choice of the relevant macro-economic variables that are able to correctly depict the relationship between the demand for money and the macro-economy. In this context, the paper tries to correctly select and to incorporate the variables in the light of what has been mentioned and recommended by the literature taking into account the suitability of these choices with the institutional and structural givens of the Egyptian economy.

Tackling again the institutional givens of the Egyptian economy, the paper

shows that the CBE relied on the growth rate of the broad money (M2) as the intermediate target in implementing its monetary policy since 1991/1992. For this reason, estimating the money demand function and testing its stability from

- 19 -

the broad money measure (M2) will be of great interest for the monetary authority. The study covers the period July 1997 till June 2009, with monthly data after some interpolations are introduced to the GDP series4 (refer to the appendix to compare quarterly raw GDP data to the interpolated series). Worth mentioning, dealing with monthly data requires the control of the seasonal factor that some variables might exhibit. Against this background, the GDP series was seasonally adjusted using multiplicative X-11 technique. Moreover, all the variables are introduced to the model in LN form. In this context, the real money balances are calculated by the deflation of the Nominal M2 by the Consumer Price Index (CPI).

Turning to the selection of the variables of the macro-economy, the paper

incorporates the following: the interpolated real gross domestic product (GDP) as the scale variable of the economic activity in addition to 3-months deposit rate being the rate of return of holding money. As for the opportunity cost vector, the paper includes the 3-month Treasury bill rate, the expected depreciation of the bilateral nominal exchange rate of the Egyptian pound vis-à-vis the US dollar, and the expected annual inflation rate to capture the changes in the investment portfolio that take place in the real assets sector which the nominal interest rates fail to reflect (as suggested by Subramanian, 1999). In addition, an impulse dummy variable is introduced to the model to control for the shift happening in the exchange rate regime from fixed to floating since 2003.

An important issue to be addressed is that the literature assumes that

excluding a variable that reflects the financial innovation process in the economy might lead to the misspecification of the money demand function. Against this background, the paper will utilize the suggested indicators of the financial innovation to get a clue about whether to incorporate a variable for that or not. In this context, the M2/M1 ratio is a good indicator for this concept. An increase in this ratio implies that the quasi-money array is increasing at the expense of the demand on narrow money (M1), i.e. the economic agents are unwilling to hold money or they are economizing their money holding for the reason that the banking sector offers new means of payments that can minimize the transaction costs.

4 The main reason behind this starting point is that the technique used to interpolate the monthly GDP depends

on the monthly electric energy production data that was not available before January 1997. The paper employed the uni‐variate Denton approach with that variable. The MATLAB package was utilized for this purpose.

- 20 -

To investigate the financial innovation process in Egypt, the paper calculated the annualized monthly growth rate for the narrow money (M1) and the domestic liquidity (M2). The paper notices that during the period starting from April 1999 till the end of 2003, there were signs of financial innovation taking place in the Egyptian economy, since the growth rate in M2 exceeds that of M1. The main source of this increase emerges from the surge in foreign currency deposits. In addition, this increase in M2 growth rate has caused the velocity of M2 to decrease substantially during this period. However, the decline in M1 growth rate causes almost no change in the velocity of M1, a situation showing that the growth in M2 does not replace that of M1, i.e. a pseudo financial innovation process. A relevant economic interpretation for this situation is that this period was characterized by a series of devaluations in the Egyptian pound causing continuous expectations of further devaluations. This induced the agents to increase their deposits in foreign currency for speculative purposes rather than being means of payment.

The Financial Innovation in Egypt Proxied by M2/M1

3.0

3.5

4.0

4.5

5.0

5.5

6.0

6.5

Jun-

91

Jun-

92

Jun-

93

Jun-

94

Jun-

95

Jun-

96

Jun-

97

Jun-

98

Jun-

99

Jun-

00

Jun-

01

Jun-

02

Jun-

03

Jun-

04

Jun-

05

Jun-

06

Jun-

07

Jun-

08

M2/M1

July 1999 April 2003

Figure (6)

- 21 -

II. The Applied Methodology:

The paper employs the methodology provided by the literature entitled the co-integration test, based on Johansen procedure for the sake of obtaining the long-run co-integrating vector. Subsequently, the Error Correction Model (ECM) is adopted to identify the short-run dynamics, on the one hand, and to reflect, on the other hand, the structural adjustments that take place in the short-run due to the inclusion of the error correction term. Then, the Unrestricted Reduced Form (URF) equation is estimated, followed by a parsimonious model employing General-to-Specific procedure to test for the stability of the estimated money demand function. From that test, the paper is going to draw out some policy implications.

The methodology starts by employing the unit root test, based on Augmented Dickey Fuller to get the level of integration of each variable. The test shows that all the variables are stationary i.e.: I (0), except 2 variables: the real money demand (real M2) and the real GDP, which appear to be I (1). Nevertheless, the variables appear to be integrated of different order. A co-integrating vector can be estimated among this dataset relying on the Johansen (1998) and Johansen and Juselius procedure (1990). Subsequently, the co-integration test is carried out after determining the appropriate lag length based on the information criteria. The test provides 2 test statistics: the trace statistics and the max. Eigen value, both of them show the rejection of zero in favor of at least one co-integrating vector at 95% and 99% confidence levels. In this context, the Johansen test was employed on the above-mentioned variables and a dummy variable was introduced as exogenous. The test shows that neither of the expected depreciation of the domestic currency nor the rate of return on 3 month deposits was significant in the co-integrating framework; that's why the estimations were conducted by incorporating the GDP, the interest rate on 3 month treasury bills and the annual inflation expectations. In the light of this result, the ECM was estimated to provide both the long-run co-integrating vector and the short-run dynamics taking place after incorporating the error correction term.

Estimated Results and Policy Implications:

The Johansen co-integration test was carried out to obtain the long-run co-integrating relationship that can be given by the following equation:

- 22 -

LRM2(t) = 0.92 LGDP_SA(t)* – 0.69 LTBILL(t)* – 3.09 INF(t)* – 5.39 R2 = 0.998 and Durbin-Watson (DW) = 1.97

Where: LRM2: Real Domestic Liquidity (M2) in LN LGDP_SA: Seasonally adjusted interpolated monthly Real Gross Domestic Prices (2001/2002=100) in LN LTBILL: 3-month Treasury Bill Rate in LN INF: Annualized inflation expectations calculated as: [lncpi(t)–lncpi(t-1)]*12 In addition to a Dummy variable that was introduced as exogenous to the Johansen Test

* Indicates that the estimated parameter is significant at 5% significance level

The long-run equation's estimates are all significant at 95% confidence level. Worth mentioning, all the estimated elasticities conform to the expected signs with acceptable magnitudes :

• For the GDP, its coefficient represents the transaction or the wealth effect. It

appears to carry a positive sign and it is just approaching unity implying well-specification of the model as mentioned in most of previous works which proved to be empirically valid. This situation indicates that the CBE increases money supply on a one-to-one basis with the increase in real economic growth.

• As for the treasury bill variable which reflects the money’s alternative rate

of return, it appears to have the least direct impact on the demand for real money. This is due to the fact that most of the impact is captured by the inflation expectations variable which traces most of the speculative activities taking place in the commodities market (real assets market) to reflect the unobserved changes in the investment portfolios, which the Treasury bill variable fails to capture.

In order to be able to test for the stability of the money demand function, it is recommended to include the short-term dynamics taking place in the money demand. One important reason is that the short-run model provides information concerning how adjustments are taking place among various variables to restore back equilibrium to the long-run level in response to short-term disturbances in the demand for money. It's the ECM, which contains an Error-Correction term (EC) to ensure that the long-run relationship is satisfied.

- 23 -

Against this background, the short-term equation is estimated based on the long-run co-integrating vector obtained from the Johansen test. To do so, the paper estimates the Unrestricted Reduced Form Model including the appropriate lag length, which is suggested to be nine. Then the paper employs the General-to-Specific procedure to exclude the variables which appear to be insignificant and affect the overall significance of the model. The parsimonious short-run model can be given by the following equation:

∆LM2(t) = ‐0.013*[LM2(t‐1) ‐ 0.91 LGDP_SA(t‐1) + 0.69 LTBILL(t‐1) + 3.09 INF(t‐1) ‐

5.39] + 0.026 ∆LTBILL(t‐4) + 0.022 ∆INF(t‐2) ‐ 0.034 ∆INF(t‐6) ‐

0.020 ∆INF(t‐8) +0.005

Moving to the short-term dynamics model which provides a crucial piece of information that is related to the feedback coefficients in the short-run, i.e. the variables which contribute to the dynamics taking place in the short-run and are corrected by feedback term obtained from the long-run equilibrium relationship, the test indicates that only two variables are significant in the short-run and are responsible for these dynamics; the Treasury bill rate and inflation expectations (reflecting unobserved changes in the investment portfolio taking place in the real assets market or the commodity market). In addition, the Treasury bill rate plays an important role especially in absorbing the effects of the capital inflows in the form of hot money taking place in the short-term. However, the GDP appears to be insignificant in the adjustment process that is taking place in the short-run.

Worth mentioning that the error correction term appears to carry a negative

and significant sign, implying that a true co-integration relationship does prevail. Its coefficient indicates very slow adjustments to restore back equilibrium which is estimated at 1.3% in the first month. This indicates that the economy needs about three years to recover by 50% from disequilibrium.

In the light of the estimated models, some diagnostic tests are carried out to

ensure that the model is free from any econometrical or statistical problems. In this regard, the paper utilizes the Breusch-Godfrey test for residuals serial autocorrelation, Autoregressive Conditional Heteroscedasticity, White Heteroscedasticity and the RAMSEY Reset Test to test whether the model is well-specified or not. Finally, after the model appears to be free from any problem, stability test based on the Cumulative Sum of Residuals (CUSUM) and the Cumulative Sum of Squares of Residuals (CUSUMSQ) are conducted on both the long-run and short-run equations.

- 24 -

The results show that the model is free from serial autocorrelation and heteroscedasticity. In addition, it is well-specified according to RAMSEY reset test. An important issue to address while testing the stability of the money demand function is that the model has to incorporate the short-term dynamics and adjustments to better reflect the level of stability. In this context, the relationship appears to have a vulnerable episode covering the period July 2005 till June 2007. This can be attributed to the fact that in June 2005 a new monetary policy framework was introduced representing a structural break to the Egyptian economy, which appears with a lag effect of 1 month in July 2005. The vulnerable episode is intensified by supply shocks, which took place over the fiscal years 2005/2006, 2006/2007 and 2007/2008, recalling the increase in the international price level due to the avian flu, oil prices and food price hikes.

Against this background, revisiting the money demand and its relation to the

macro-economy is of relevance as this relation is linked to the aggregate demand framework. That's why when the economy experiences any supply shocks (aggregate supply side), the stability of the aggregate demand is negatively affected, because the monetary authority is entitled to only respond to the aggregate demand shocks of the economy. This justification might succeed in explaining why the co-integrating equation exhibits this vulnerable episode.

Third: Policy Results and Implications

The unstable money demand function implies loose relationship between the monetary aggregate and inflation. That's why it has been claimed in economic literature that in case of unstable money demand function, i.e. inconstant velocity, the inflation has to be targeted directly. In this context, the objective of this study is to provide empirical evidence on the stability of the Egyptian money demand function based on a well-specified model. The paper gains its importance from the fact that it tries to draw out some monetary policy recommendations based on the stability of the money demand function, to adequately implement the monetary policy in Egypt; especially in the absence of an explicit inflation targeting framework.

It is worth mentioning that the market based monetary policy can be based

on either the narrow or broader measures of money. However, the paper shows that CBE relied on the growth rate of the broad money (M2) as the intermediate target in implementing its monetary policy since 1991/1992. Therefore, estimating the money demand function and testing its stability were made, using

- 25 -

the broad money measure (M2). Following the Keynesian approach, real money balances were used and calculated by the deflation of the Nominal M2 by the Consumer Price Index (CPI).

Regarding the selection of the variables, the literature shows that the real money balances are a function of two sets of data: one reflecting the real economic activity in the form of scale variable (S), and the other is in the form of an array of opportunity cost (OC) variables for holding money. Based on the literature, the paper incorporated the Real Gross Domestic Product (GDP) as the scale variable of the economic activity. As for the opportunity cost vector, the paper included 3-month Treasury bill rate and the expected annual inflation rate to capture the changes in the investment portfolio that take place in the real assets sector, which the nominal interest rates fail to reflect. In addition, an impulse dummy variable is introduced to the model to control the shift happening in the exchange rate regime from fixed to floating since January 2003. As for the data coverage, the study covers the period July 1997 till June 2009 with monthly data after some interpolations are introduced to the GDP series. Moreover, all the variables are introduced to the model in LN form.

A relevant variable to be incorporated in the model is that of the financial

innovation where the literature proved that excluding it might lead to the misspecification of the money demand function. In this context, the literature provides a variety of indicators of financial innovation, among them is the M2/M1 ratio. Based on monthly annualized growth rate of M1 and M2, the paper shows signs of financial innovation taking place in the Egyptian economy in the period starting from April 1999 till the end of 2003 since the growth rate in M2 exceeds that of M1. However, the mentioned innovation can be classified as a pseudo financial innovation. A plausible explanation for this conclusion is that the decline in M1 growth rate causes almost no change in the velocity of M1, implying no substantial effect between M1 and M2 being a crucial condition for the financial innovation to take place. In addition, the period was characterized by a series of devaluations in the Egyptian pound causing continuous expectations of further devaluation. This induced the agents to increase their deposits in foreign currency for speculative purposes rather than being means of payment.

- 26 -

As for the applied methodology, the paper employs the methodology entitled the co-integration test, based on Johansen procedure for the sake of obtaining the long-run co-integrating vector. Then, the Error Correction Model (ECM) is adopted to identify the short- run dynamics, on the one hand, and to reflect, on the other hand, the structural adjustments taking place in the short-run, as a result of including the error correction term.

The paper then conducts some diagnostic tests, aiming to ensure that the

model is free from any statistical problems. Fortunately, the model appeared to be free from all the statistical problems based on the diagnostic tests of Breusch-Godfrey, Autoregressive Conditional Heteroscedasticity, White Hetero-scedasticity and the RAMSEY Reset Tests. Finally, the last step remaining was to test the stability of the money demand function. The step required incorporating the short-term dynamics in the long-run function.

To conclude, the results showed that the long-run equation's estimates are

all significant at 95% confidence level, with all the estimated elasticities having the expected signs along with acceptable magnitudes. A point to be mentioned here is that the error correction term appears to carry a negative and significant sign, implying that a true co-integration relationship does prevail. Its coefficient indicates very slow adjustments to restore equilibrium which is estimated at 1.3% in the first month.

The results supported the stability of both the short and the long-run

equations, which happened to be exceptionally vulnerable during the period 2005-2007. A reasonable explanation for this vulnerable episode is the introduction of a new monetary policy framework in June 2005, representing a structural break to the Egyptian economy. A point to be highlighted is that the mentioned episode was magnified by an additional supply shock, driven by the avian flu, which led to the increase in prices. So it is not hard to see that the supply shocks can have a negative effect on the stability of the money demand function. The point is further clearer in the light of the fact that the monetary policy is only responsive to the aggregate demand shocks of the economy.

In the light of the aforementioned results, a number of monetary policy implications can be drawn out. Among these are the following:

• First of all, the long-run co-integrating equation provides an important

inference about the transaction motive coefficients, which helps the

- 27 -

monetary authority to adequately determine the quantity of money supplied to stimulate the economy. It indicates that the CBE needs to increase the money supply on a one-to-one basis with the increase in real GDP growth.

• The inflation expectations variable is capable of reflecting most of the

speculative activities taking place in the real assets markets, which are likely to affect the demand for the real money balances. In addition, it is able to capture what the Treasury bill rate fails to trace, noting that TB market is one of the important alternative assets markets to money in Egypt. This implies that when inflation is expected to increase in the future, the Egyptian agents decide to change their investment portfolios by substituting their money balances with commodities, such as gold, real estate,…etc, rather than rushing into the Treasury bills market; a conclusion that gives an important inference about the investment behavior and the demand for money in Egypt.

• The stability of the long and the short-run demand functions implies that the monetary authority can still rely on targeting the monetary aggregate (M2) rather than shifting to inflation targeting framework. One reason for that stems from the fact that the estimated results show a stable relationship between the monetary aggregate (M2) and the macro-economy, justifying the monetary targeting till this relationship is invalidated and replaced by the inflation targeting framework.

• The interest rate channel (especially the interest rate on 3-month Treasury bills, which is considered a good indicator for the monetary policy stance) appears to have the upper hand in depicting the monetary policy in Egypt, since it plays a crucial role in the dynamics taking place between the M2 and the macroeconomy in the short-run. However, the GDP appears to be insignificant in the same time horizon, which suggests that the economic agents' transactions motive relies primarily on the permanent income component, rather than the current income as argued by Milton Friedman in his modern quantity theory of money.

- 28 -

References

• Abu El Eyoun, M. (2003), “Monetary Policy in Egypt: A Vision for the

Future”, ECES Working Paper No. 78, in Arabic (Cairo: Egyptian Center for Economic Studies)

• Al-Mashat, A. Rania and David A. Grigorian (September 1998), "Economic Reforms in Egypt: Emerging Patterns and their Possible Implications", the World Bank, Europe and Central Asia, Private and Financial Sectors Development Unit and University of Maryland, Policy Research Working Paper 1977

• Al Mashat, Rania and Andreas Billmeier (December 2007), "The Monetary Transmission Mechanism in Egypt", International Monetary Fund, IMF Working Paper, Middle East and Central Asia Department, WP/07/285

• Arrau, Patricio and Jose De Gregorio (January 1991), "Financial Innovation and Money Demand: Theory and Empirical Implementation", Policy Research and External Affairs, Working Papers, Debt and International Finance, International Economics Department, the World Bank, WPS 585

• Bahmani, Sahar and Ali M. Kutan (2009), "How Stable is the Demand for Money in Emerging Economies", Department of Economics, Georgia Southern University, Staesboro, Department of Economics and Finance, Southern Illinois University, Edwardsville, the Emerging Markets Group, London; the William Davidson Institute, Michigan

• Celsum, Oya and Mangal Goswami (December 2002), "An Analysis of Money Demand and Inflation in the Islamic Republic of Iran", International Monetary Fund, IMF Working Paper, Middle East Department, WP/02/205

• Central Bank of Egypt, "The Annual Report", various issues.

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• Domingo, Eugenio (February 2003), "A Speech on the Structural Change and Growth Prospects in Asia: Challenges to Central Banking", delivered at the 38th SEACEN Governors Conference, European Central Bank, Euro System, Manila

• El-Refaie, Faika (March 2001), “Featured Expert Column: Liquidity in Egypt-Reasons and solutions, Privatization in Egypt Quarterly Review”, Privatization coordination support unit, CARANA Corporation under the USAID Monitoring Services Project.

• El-Shazly, Alaa, “The Demand for Money and Monetary Policy in Egypt: An Empirical Investigation”, Cairo University.

• E-Views version 4.0, October 16, 2001, Standard Edition.

• E-Views Manual (February 2002), "E-Views 4 User's Guide", Quantitative Micro Software, LLC, U.S.A.

• Hauner, David and Gabriel Di Bella (September 2005), "How Useful is Monetary Econometrics in Low-Income Countries? The Case of Money Demand and the Multipliers in Rwanda", International Monetary Fund, IMF Working Paper, African Department, WP/05/178

• International Monetary Fund (IMF), October 2008, International Financial Statistics (IFS), CD-ROM.

• MATLAB version 7.6.0.324 (R2008a), February 10, 2008.

• Mishkin, F.S. (1996), “The Channels of Monetary Transmission: Lessons for Monetary Policy”, NBER Working Paper No. 5464.

• Moursi, Tarek Abdelfattah, Mai El Mossallamy and Enas Zakareya (April 2007), “Effect of Some Recent Changes in Egyptian Monetary Policy: Measurement and Evaluation”, Cairo University and IDSC, the Cabinet Information and Decision Support Center.

• Nos’hy, Ahmed and Khaled A. Hussien (2001), “What caused liquidity crisis in Egypt?”

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• Reinhart, Carmen, Arrau, Patricio, De Gregorio, Jose and Wickham, Peter (May 1991), "The Demand for Money in Developing Countries: Assessing the Role of Financial Innovation", University of Maryland, College Park, Department of Economics

• Siram, S. Subramanian (December 1999), "Demand for M2 in an Emerging-Market Economy: An Error-Correction Model for Malaysia", International Monetary Fund, IMF Working Paper, Research Department, WP/99/173

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Appendix

Figure (A1): Quarterly Gross Domestic Product (2001/2002=100)

Source: Ministry of Economic Development

Figure (A2): Interpolated Monthly GDP and GDP (Seasonally Adjusted)

Source: Ministry of Economic Development. Authors' calculations were obtained from the MATLAB based on Denton univariate Temporal Disaggregation approach.

20000

40000

60000

80000

100000

120000

140000Q

1 20

02

Q3

2002

Q1

2003

Q3

2003

Q1

2004

Q3

2004

Q1

2005

Q3

2005

Q1

2006

Q3

2006

Q1

2007

Q3

2007

Q1

2008

Q3

2008

Q1

2009

Q3

2009

(LE million )

Quarterly GDP

20000

25000

30000

35000

40000

45000

50000

Jul-0

1

Jan-

02

Jul-0

2

Jan-

03

Jul-0

3

Jan-

04

Jul-0

4

Jan-

05

Jul-0

5

Jan-

06

Jul-0

6

Jan-

07

Jul-0

7

Jan-

08

Jul-0

8

Jan-

09

Jul-0

9

(LE million )

Interpolated GDP GDP_Seasonally Adjusted

- 32 -

Table (1): Johansen Co-integration Test

Unrestricted Co-integration Rank Test Hypothesized Trace 5 Percent 1 Percent Hypothesized

No. of CE(s) Eigenvalue Statistic Critical Value Critical Value None ** 0.4 89.8 47.2 54.5

At most 1 0.1 28.3 29.7 35.7 At most 2 0.1 14.2 15.4 20.0

At most 3 * 0.0 5.0 3.8 6.7 *(**) denotes rejection of the hypothesis at the 5%(1%) level Trace test indicates 1 co-integrating equation(s) at both 5% and 1% levels

Hypothesized Max-Eigen 5 Percent 1 Percent Hypothesized No. of CE(s) Eigenvalue Statistic Critical Value Critical Value

None ** 0.4 61.5 27.1 32.2 At most 1 0.1 14.1 21.0 25.5 At most 2 0.1 9.1 14.1 18.6

At most 3 * 0.0 5.0 3.8 6.7 *(**) denotes rejection of the hypothesis at the 5%(1%) level Max-eigen value test indicates 1 co-integrating equation(s) at both 5% and 1% levels

Table (2): Restricted Long-run Co-integrating Vector

1 Co-integrating Equation

Normalized co-integrating coefficients (std.err. in parentheses) LRM2 LGDP LTBILL INFEX

1.00 0.92 -0.69 -3.09 (7.40) (-5.41) (-4.97)

Adjustment coefficients (std.err. in parentheses) D(LRM2) D(LGDP) D(LTBILL) D(INFEX)

-0.04 -0.01 -0.31 -0.15 (-3.10) (-0.77) (-3.22) (-1.63)

Note: • Dummy variable for the exchange rate regime is introduced as exogenous • T-statistics between parentheses

- 33 -

Table (3): Diagnostic Tests for the Long-run Equilibrium Equation

Breusch-Godfrey Serial Correlation LM Test F-statistic 1.99 Probability 0.14 Obs*R-squared 4.07 Probability 0.13

ARCH Test F-statistic 0.01 Probability 0.14 Obs*R-squared 0.03 Probability 0.13

White Heteroscedasticity Test F-statistic 2.53 Probability 0.01 Obs*R-squared 18.68 Probability 0.02

Ramsey RESET Test F-statistic 2.17 Probability 0.12 Log likelihood ratio 4.50 Probability 0.11

Table (4): Error Correction Model (ECM)

Dependent Variable: DLRM2 Method: Least Squares Sample (adjusted): 1998:05 2009:06 Included observations: 134 after adjusting endpoints

Variable Coefficient Std. Error

t-Statistic Prob.

EC(-1) -0.01 0.00 -5.16 0.00DLTBILL(-4) 0.03 0.01 2.78 0.01DINFEX(-2) 0.02 0.01 2.17 0.03DINFEX(-6) -0.03 0.01 -3.38 0.00DINFEX(-8) -0.02 0.01 -1.83 0.07C 0.00 0.00 6.14 0.00 R-squared 0.24 Mean dependent var 0.00Adjusted R-squared 0.21 S.D. dependent var 0.01S.E. of regression 0.01 Akaike info criterion -6.51Sum squared residual 0.01 Schwarz criterion -6.38Log likelihood 441.98 F-statistic 8.01Durbin-Watson stat 1.85 Prob (F-statistic) 0.00

- 34 -

Table (5): Diagnostic Tests for the ECM

Breusch-Godfrey Serial Correlation LM Test F-statistic 0.78 Probability 0.46 Obs*R-squared 1.65 Probability 0.44

ARCH Test F-statistic 0.30 Probability 0.74 Obs*R-squared 0.61 Probability 0.74

White Heteroscedasticity Test F-statistic 1.66 Probability 0.10 Obs*R-squared 15.96 Probability 0.10

Ramsey RESET Test F-statistic 2.00 Probability 0.12 Log likelihood ratio 6.27 Probability 0.10

Figure (A3): Stability Test of the Long-run Equation

-40

-30

-20

-10

0

10

20

30

40

00 01 02 03 04 05 06 07 08

CUSUM 5% Significance

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

00 01 02 03 04 05 06 07 08

CUSUM of Squares 5% Significance

- 35 -

Figure (A4): Stability Tests of Error Correction Model

-40

-30

-20

-10

0

10

20

30

40

00 01 02 03 04 05 06 07 08

CUSUM 5% Significance

-0.2

0.0

0.2

0.4

0.6

0.8

1.0

1.2

00 01 02 03 04 05 06 07 08

CUSUM of Squares 5% Significance

- 37 -

1: Macroeconomic Performance

1/1- Gross Domestic Product (GDP)

Egypt's economy continued to recover from the spillovers of the global

financial crisis, with the acceleration of the annual real GDP growth at factor cost to 5.1 percent during July/March 2009/2010, up from 4.7 percent during the same period of the previous FY. That rate was higher than the average growth rate of the emerging economies as a whole which reached 4.5 percent during the period under review.

Egypt's Real GDP vs. Emerging Economies

4.5

7.75.85.7

4.1 4.3 4.5 4.6 5.0

5.3

1.6-1.3

-0.7

1.3

-2

0

2

4

6

8

10

Q1: 08/09 Q2: 08/09 Q3: 08/09 Q4: 08/09 Q1: 09/10 Q2: 09/10 Q3: 09/10

Egypt Emerging Economies

(%)

Source: Ministry of Economic Development. As concerns emerging economies, "JP Morgan

World Financial Markets Report, June 2010".

On the supply side, the increase in the pace of growth was mainly attributed to the higher contributions of domestic demand-driven sectors, particularly manufacturing; followed by wholesale and retail trade; construction and building; agriculture; communications; and the general government.

- 38 -

GDP Growth by Domestic and External Demand-Driven Sectors in July/March of FY 2009/2010

(percentage point) Domestic Demand-Driven Sectors

Sector Growth Rate %

Share in Real GDP Growth (5.1 %)

Agriculture, Irrigation & Fishing 3.5 0.5 Manufacturing 5.0 0.8 Electricity 6.6 0.1 Construction & Building 13.7 0.7 Transportation & Storage 6.8 0.3 Communications 12.6 0.5 Wholesale & Retail Trade 6.2 0.7 Financial Intermediaries & Supporting Services 5.0 0.2 General Government 4.5 0.4 Other sectors 0.3 Total 4.5

External Demand-Driven Sectors

Sector Growth Rate %

Share in Real GDP Growth

Extractions 1.9 0.3 Suez Canal -6.8 -0.2 Tourism 12.0 0.5 Total 0.6

Source: According to the Ministry of Economic Development data for July/March 2009/2010.

External demand-driven sectors contributed 0.6 percentage point of GDP growth, mainly generated from tourism and extractions. The contribution of tourism went up, because of the increase in tourism revenues. Moreover, extractions continued to make a positive contribution to GDP growth, although this share was lower than its level in the period of comparison. On the other hand, the share of the Suez Canal remained negative, driven by the fall in its transit receipts. However, its share became positive during Q3 of 2009/10 as compared with the preceding quarter, due to its higher receipts during January/March 2009/10, following the upturn in international trade.

By analyzing the results of estimating the trend curve of real GDP growth,

the main economic performers in the third quarter of FY 2009/2010 can be divided into three main categories: sectors under recession; sectors in the process of recovering from recession; and sectors undergoing economic expansion and contributing to the reduction of the economic gap.

- 39 -

Development of the Real GDP Growth Rate Divided into Potential GDP and GDP Gap (%)

5.7

5.4

-4.00

-2.00

0.00

2.00

4.00

6.00

8.00

10.00

Q1:

02/

03

Q3:

02/

03

Q1:

03/

04

Q3:

03/

04

Q1:

04/

05

Q3:

04/

05

Q1:

05/

06

Q3:

05/

06

Q1:

06/

07

Q3:

06/

07

Q1:

07/

08

Q3:

07/

08

Q1:

08/

09

Q3:

08/

09

Q1:

09/

10

Q3:

09/1

0

GDP Gap_Business CycleGDP Growth Rate_Seasonally AdjustedPotential GDP_Trend

The economy managed to overcome recession

Source: According to the Ministry of Economic Development data The chart above shows that the economy managed to pull out from

economic recession in the third quarter of FY 2009/10 as the GDP gap changed to a positive value for the first time, after the outbreak of the global financial crisis in the first quarter of FY 2008/2009. The economy managed to achieve an actual growth rate of about 5.7 percent (seasonally adjusted), thus exceeding the potential growth rate (5.4 percent) by about 0.3 percentage point.

Such a positive development was mainly ascribed to the significant

improvement in the business cycles of some sectors which managed to overcome recession and to gradually recover (such as the Suez Canal, wholesale and retail trade, manufacturing, transportation and storage, and financial intermediation). This indicated that the GDP gap of these sectors reversed from a negative level in the second quarter of FY 2009/10 to a positive level in the third quarter of the same year. The booming business cycles of tourism and construction and building have also contributed to this positive development.

The extractions sector was the least performer during the third quarter of

FY 2009/10, as it continued to suffer from recession. It was even noticed that the GDP gap of this sector expanded, as compared with the second quarter of the same year.

- 40 -

Real Growth Rates (Seasonally Adjusted) and GDP Gap of Main Categories of Economic Sectors

(%)

First: Sectors under Economic Recession

Real Growth GDP Gap (Business Economic Cycle) Sector Q3

2009/2010 Q2

2009/2010 Q3

2009/2010 Extractions -2.4 -1.0 -7.0

Second: Recovering Sectors Suez Canal 14.3 -12.0 11.0 Wholesale and Retail Trade

7.6

-0.4

2.4

Transportation & Storage 7.4 -0.7 1.0 Financial Intermediaries 5.6 -0.8 0.3 Manufacturing 5.5 -0.9 0.3

Third: Sectors Achieving Economic Expansion Tourism 18.3 3.9 8.9 Construction & Building 15.0 0.7 3.7 General Government 4.4 0.5 0.3 Real Estate 4.1 0.5 0.2

Source: According to the data of the Ministry of Economic Development.

As regards the public and private sectors’ contributions to economic growth (5.1 percentage points) during July/March 2009/10, the public sector generated 1.1 percentage points (against 1.6 points in the period of comparison), compared with 4.0 points contributed by the private sector (against 3.1 points). This indicated that the private sector continued to play a major role in development. The main driver of growth on the level of the public sector was the general government (due to the increase in salaries and wages). As to the private sector, the main contributors to economic growth were the sectors of manufacturing, wholesale and retail trade, construction and building, agriculture, and tourism.

- 41 -

On the demand side, the noticeable improvement in real GDP growth at

market prices (5.1 percent against 4.7 percent) was essentially ascribed to the continuous positive contribution of private consumption to GDP growth (2.8 percentage points), although that share was lower than its level in the corresponding period (3.4 percentage points). In addition, the contribution of net external demand to economic growth went up (1.5 percentage points against nil), driven by the fall in the imports of goods and services to a higher degree than that in the exports of goods and services. Those factors compensated for the poor contribution of total investment (including change in stock) to GDP growth, which fell to only 0.3 percentage point, down from 0.8 point. This was a result of the retreat in the real growth rate of total investments, to reach only 1.4 percent (against 4 percent), due to the continuous low level of the real growth rate of private investment (this rate is still almost zero although it changed from a negative level in the period of comparison to a positive one in the reporting period).

Contribution of the Private Sector to GDP Growth by Economic Sector during July/March

0.2

0.1

0.5

0.1

0.6

0.3

0.2

0.6

0.7

0.1

0.5

0.0 0.2 0.4 0.6 0.8

Education,Health,andPersonal Services

Real Estate

Tourism

FinancialIntermediaries

Wholesale &RetailTrade

Communications

Transportation &Storage

Construction &Building

Manufacturing

Extractions

AgricultureIrrigation& Fishing

2008/2009 ( 3.1%) 2009/2010 (4.0%)

Contribution of the Public Sector to GDP Growth by Economic Sector during July /March

0.4

0.0

-0.2

0.1

0.1

0.1

0.0

0.1

0.1

0.1

0.2

0.1

-0.4 -0.2 0.0 0.2 0.4 0.6 0.8

Education,Health,andPersonal Services

General Government

Social Solidarity

FinancialIntermediaries

Suez Canal

Communications

Transportation &Storage

Construction &Building

Water

Electricity

Manufacturing

Extractions

2008/2009 (1.6%) 2009/2010 (1.1%)

- 42 -

Share of Demand Components in Real GDP Growth Rate During July/March

(percentage point) Share in GDP Growth Growth Rates

2009/10 2008/09 2009/10 2008/09

5.1 4.7 5.1 4.7 Real GDP Growth Rate (1+2) 3.6 4.7 3.4 4.5 1-Domestic Demand (A+B) 3.3 3.9 3.9 4.6 A- Final Consumption 2.8 3.4 3.8 4.6 Private 0.5 0.5 4.4 4.6 Public

0.3 0.8 1.4 4.0 B- Capital Formation (Including Change in the Stock)

1.5 0.0 31.5 -0.3 2- Net External Demand -1.2 -3.6 -3.9 -10.4 A- Exports of Goods & Services 2.7 3.6 -7.7 -9.1 B- Imports of Goods & Services

Shares of Consumption,Investment and Net Exports in Real GDP Growth Rate during July / March (Percentage Point)

0.80.3

3.93.3

1.5

0

2

4

6

2008/2009 2009/2010

Consumption Investment Net Exports

Implemented investments* (at 2006/07 prices) reached LE 124 billion, with a growth rate of 1.2 percent during the period (against 1.7 percent in the period of comparison). That growth was totally concentrated in the 1.2 percentage point contribution of the public sector (mainly from real estate, transportation and storage, and manufacturing (excluding oil refining). A breakdown of total implemented investments by economic sector during the period indicated that crude oil, natural gas, and other extractions accounted for 22.5 percent, agriculture and manufacturing 14 percent, electricity and water 10.5 percent, construction and building 2 percent, and services 51 percent (productive services 28 percent, and social services 23 percent).

* Excluding change in stock

- 43 -

The reporting period witnessed the foundation of 5415 new companies

(1977 of which were founded during the last quarter of the period) with capital of LE 14.1 billion, of which 43.6 percent belonged to the services sector. According to the geographical distribution, roughly 64 percent of those companies are located in Cairo and Giza. 1/2-Employment and Unemployment

According to the data of the social and economic follow-up report in the

period July/March of FY 2009/2010, unemployment decreased to 9.1 percent, from 9.4 percent in the same period of the previous FY. The decrease was a main result of the slight retreat in female unemployment from 22.9 percent to 22.0 percent. Meanwhile, male unemployment remained almost stable at 5.2 percent. It is worth noting that the new job opportunities reached 158 thousands during the period January/March of FY 2009/10, almost twofold their number during the corresponding period of the previous FY.

Contribution of the Private Sector to the Real Investment during July /March by Sector

-0.2

2.1

-1.5

-1.2

1.4

2.4

0.7

-0.8

1.8

-1.1

-0.6

0.3

-3.3

-10.0 -5.0 0.0 5.0 10.0

Agriculture,Irrig.& Reclam.

Crude Oil

Natural Gas

Oil Refining

OtherManufacturing

Transportation& Storage

Communications

Wholesale&Retail Trade

Tourism

Real Estate

EducationalServices

Health services

Other Services

2008/2009 ( -2.6%) 2009/2010 ( 0.0%)

Contribution of the Public Sector to the Real Investment by Sector during July/ March

0.0

0.0

-1.5

-0.2

0.4

-0.7

0.5

0.8

0.1

-0.2

0.8

0.0

0.3

0.8

-2.0 -1.0 0.0 1.0 2.0

Agriculture,Irrig.& Reclam.

Crude Oil

Natural Gas

Oil Refining

OtherManufacturing

Electricity

Water

Transportation& Storage

Communications

Tourism

Real Estate

EducationalServices

Health Services

Sanitation

2008/2009 ( 4.4%) 2009/2010 ( 1.2%)

- 44 - Development of Unemployment Rates

(%) FY 2008/2009 2009/2010 Q1 Q2

Q3

Q4

Q1

Q2

Q3

Unemployment 8.6 8.8 9.4 9.4 9.4 9.4 9.1 Source: CAPMAS, Labor Force Survey.

Labor Market Indicators ( % )

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Q1 Q2 Q3 Q4 Q1 Q2 Q38.2

8.4

8.6

8.8

9.0

9.2

9.4

9.6

Unemployment Labor Force Employment

2008/2009 2009/2010

(Labor Force & Employment) Unemployment

- 45 - 1/3- Inflation

A - Consumer Price Index (CPI) In July/March of FY 2009/2010, the annual headline CPI inflation (urban)

rose to 8.6 percent, from 6.4 percent during the corresponding period of the previous year. The increase was particularly pronounced in the prices of food and non-alcoholic beverages that added 7.1 percentage points to headline inflation (against 2.9 points a year earlier).

Source: The CAPMAS.

The inflation of food and non-alcoholic beverages accelerated to 14.8 percent during the period under review (well above the 6.2 percent of the period of comparison), fuelled by the increase in international food prices (11.2 percent) during the year ending March 2010, especially palm oil, sugar, and meat.

Source : The IMF.

Annual CPI and Price Index of Food and Non-Alcoholic Beverages (Urban)

610141822263034

Jun.2

008 Jul.

Aug.

Sep.

Oct.Nov

.Dec

.Ja

n.Feb

.Mar.

2009 Apr. May

Jun.2

009 Jul.

Aug.

Sep.

Oct.Nov

.Dec

.Ja

n.Feb

.Mar.

2010

%

All Items Food and Non-Alcoholic Beverages

-25.0-15.0-5.05.0

15.025.035.045.0

Mar.2009/Mar.2010 11.2 -17.3 -3.4 42.5 19.9 41.7 12.5 20.8 -12.9

Feb.2010/Mar.2010 -0.1 -1.7 -1.7 5.2 5.0 -22.6 1.8 0.0 -6.9

Food Wheat Maise Palm Oil Meat Sugar Coffee Tea Rice

% Change in the International Prices of Basic Foodstuffs Stuff

- 46 -

The rise in the share of food and non-alcoholic beverages in headline

inflation was ascribed to larger contributions of the subgroups of vegetables (3.5 percentage points against 0.5 point), meat and poultry (2.1 points against 0.1 point), fruit (0.8 point against 0.7 point), sugar and confectionary (0.4 point against 0.1 point), and oils and fats (0.3 point against -0.2 point). That reflected the increase in the inflation rates of these groups during the period under review, especially vegetables (45.7 percent), meat and poultry (15.8 percent), and sugar and confectionary (21.9 percent). However, declines were observed in the groups of fish (-0.2 point against 0.3 point), and milk, cheese and eggs (0.3 point against 0.7 point), under the drop in their inflation rates, thus subduing the rise in headline inflation.

The following table illustrates the shares of CPI groups (urban) in headline

inflation during the reporting period and the period of comparison: Inflation Rate July/March

(%)

Share in Headline Inflation July/March

(Percentage Point) Main CPI Groups

Weights

2008/09 2009/10 2008/09 2009/10 General Index 100.0 6.4 8.6 6.4 8.6 Food & non-alcoholic beverages 43.9 6.2 14.8 2.9 7.1 Alcoholic beverages, tobacco and narcotics 2.5 7.9 0.0 0.2 0.0 Clothing and footwear 7.9 12.0 0.6 0.8 0.0 Housing, water, electricity, gas & fuel 13.5 4.2 1.2 0.5 0.1 Furnishings, household equipment and routine maintenance 4.2 10.1 1.2 0.4 0.1 Health care 3.6 4.5 0.3 0.2 0.0 Transportation 5.2 3.8 0.4 0.2 0.0 Communications 3.6 5.2 -0.1 0.2 0.0 Culture & recreation 3.4 9.9 0.6 0.3 0.0 Education 4.4 4.6 9.4 0.2 0.5 Restaurants & hotels 3.6 6.2 4.3 0.3 0.2 Miscellaneous goods & services 4.2 6.0 15.6 0.2 0.6

Contribution of Main Items of Food to Annual Headline Inflation July/March

-1-0.5

00.5

11.5

22.5

33.5

4

Bread &Cereals

Meat Fish Milk,Cheeseand Eggs

Oils & Fats Fruit Vegetables Sugar

Percentage Point

2008/20092009/2010

- 47 -

Adding 0.6 point (against 0.2 point), miscellaneous goods and services also pushed up headline inflation during the period under review, due to the rise in health insurance fees in October 2009. Add to this the increase in the share of education (0.5 point against 0.2 point). However, the contribution of the other groups in headline inflation declined, especially clothing and footwear (nil against 0.8 point), and housing, water, electricity, gas & fuel (0.1 point against 0.5 point).

According to the CPI (urban), the monthly headline inflation recorded an

average of 0.9 percent during the period under review, against 0.7 percent during the previous corresponding period.

The rise in the monthly average of headline inflation was attributed mainly to the increase in the prices of the subgroups of vegetables, fruit, meat and poultry, especially meat.

-4.0-3.0-2.0-1.00.01.02.03.04.05.06.07.08.0

Mar.20

09 Apr. May Jun. Jul.

Aug.

Sep.

Oct.

Nov.

Dec.

Jan.

Feb.

Mar.20

10

% Monthly Inflation Rates for Meat and Poultry (Urban)

Monthly CPI (Urban)

-1.5-1

-0.50

0.51

1.52

2.53

Jun.2

008 Ju

l.Aug

.Sep

.Oct.

Nov.

Dec.

Jan.

Feb.

Mar.20

09 Apr. May

Jun.2

009 Ju

l.Aug

.Sep

.Oct.

Nov.

Dec.

Jan.

Feb.

Mar.20

10

%

- 48 -

B - Producer Price Index (PPI)

Taking the same upward trend as the CPI, the annual PPI inflation accelerated in the period under review, registering 6.3 percent, against a negative 17.7 percent in the corresponding period a year earlier.

The rise in PPI inflation was largely ascribed to the higher contribution of mining and quarrying (2.9 points against a negative 17.1 points), and agriculture and fishing (1.5 point, against a negative 0.1 point). The rise in the contribution of the former group stemmed from the noticeable pickup in the contribution of crude oil (4.5 points against -26.5 points), due to the 20 percent increase in its prices during the period under review, compared with a steep decline of 67.5 percent during the period of comparison. At the level of agriculture and fishing group, the bulk of the increase in its share in PPI inflation stemmed from vegetables (adding 1.4 point to inflation, against a negative 0.1 point), mainly due to the surge of vegetable prices to 26.5 percent against a negative 2.1 percent.

The following table shows inflation rates and the shares of PPI groups in

inflation during the two periods of review and comparison:

Annual PPI Inflation ( 2004/2005 = 100 )

-20

-10

0

10

20

30

40

Jun.2

008 Ju

l.Aug

.Sep

.Oct.

Nov.

Dec.

Jan.

Feb.

Mar.20

09 Apr. May

Jun.2

009 Ju

l.Aug

.Sep

.Oct.

Nov.

Dec.

Jan.

Feb.

Mar.20

10

%

- 49 -

Shares of PPI Groups in Inflation

Inflation Rate (%)

July/March

Share in Inflation July/March

(Percentage Point)

Main PPI Groups

2008/09 2009/10

2008/09

2009/10 General Index -17.7 6.3 -17.7 6.3 1-Agriculture, Forestry

and Fishing, of which: -0.4 4.7 -0.1 1.5 Cereals and leguminous crops -23.8 0.0 -1.1 0.0 Rice -48.9 -18.7 -0.8 -0.2 Vegetables -2.1 26.5 -0.1 1.4 Fruit 20.0 -2.4 1.0 -0.2 Poultry and eggs 7.2 17.2 0.2 0.6 Fish -1.7 -4.8 0.0 -0.1

2-Mining and Quarrying, of which: -56.8 14.6 -17.1 2.9 Crude oil -67.5 20.0 -26.5 4.5 Stone, sand and clay 3.7 11.4 0.0 0.0

3-Manufacturing, of which: -3.4 4.3 -1.1 1.6 Processed food products, of which: 5.8 9.8 0.4 0.8 Oils and fats 5.4 1.2 0.1 0.0 Dairy products 7.6 0.3 0.1 0.0 Fertilizers 17.8 7.8 0.1 0.1 Wood & products -3.8 0.2 0.0 0.0 Cement 7.3 1.5 0.1 0.0 Iron and steel -37.9 7.6 -2.2 0.3

4-Electricity and Gas, of which: 0.9 22.0 0.0 0.4

Electric power generation, transmission and distribution 1.1 29.4 0.0 0.4

5-Water Supply Activities 0.0 5.6 0.0 0.1 6-Transportation and

Storage, of which: 12.0 0.5 0.2 0.0 Land transport 0.0 3.5 0.0 0.0

7-Accomodation and Food Services, of which: 6.6 -4.7 0.3 -0.2 Meal serving services in limited service facilities 7.4 2.4 0.0 0.0

8-Information and Communications 4.4 0.0 0.1 0.0

- 50 -

1/4- Tourism

According to the data of the Ministry of Tourism, tourist arrival indicators in Egypt improved in July/March of FY 2009/2010, relative to the previous corresponding period. The total number of arrivals rose by 11.0 percent to some 10.3 million (against 9.3 million), and that of tourist nights for departures by 10.1 percent to 102.6 million (against 93.3 million).

Among the signs of recovery was the pickup in tourism revenues, even though the average spending per tourist a night remained unchanged at US$ 85 a night. Hence, tourism revenues went up by 10.1 percent to US$ 8.7 billion (against US$ 7.9 billion) or 4.0 percent of GDP at current market prices during FY 2009/2010 (against 4.2 percent), making up 25.1 percent of total BOP visible and invisible receipts during the period under review (against 21.0 percent).

Number of Tourists & Tourist Nights (July/Mar.)

93.3

102.6

9.310.3

6065707580859095

100105

2008/2009 2009/20106.07.08.09.010.011.012.013.014.015.0

Tourist Nights of Departures Number of Tourists

million touristsmillion nights

0.04.08.0

12.016.020.024.028.0

2008/2009 2009/2010

%

Indicators of Tourism Revenues during July/Mar.

Tourism Revenues / Visible & Invisible Receipts Tourism Revenues / GDP

- 51 -

Investments in the tourism sector (restaurants and hotels) amounted to LE

3.3 billion during the reporting period, constituting 2.0 percent of total investments. The private sector undertook the majority of these investments (about 92.4 percent).

Statistical Indicators

July/March 2008/2009 2009/2010 Change + (-) %

Number of arrivals (000s) 9267 10287 11.0 Number of nights for departures (000s) 93250 102622 10.1 Estimated average spending per tourist a night (US$ ) 85.0 85.0 0.0 Tourism revenues (US$ bn) 7.93 8.72 10.1 Average tourist stay (night) 10.06 9.98 (0.8) GDP at current prices (LE bn) 1038.6 1198.0 15.3 GDP at current prices(US$ bn) 189.0 217.9 15.3

Source: CBE and the Ministries of Tourism & Economic Development

Number of Tourists

During the reporting period, visitors from all tourist exporting markets registered 10.3 million, with an increase of 1 million or 11.0 percent, in comparison with the previous corresponding period. The growth in the number of tourists signaled a rebound in tourism activity that followed a decline during the global financial crisis.

Number of Tourist Arrivals

(Thousand) July/March

2008/2009 2009/2010

Number Relative Weight

Number Relative Weight

Change + (-) %

Total 9267 100.0 10287 100.0 11.0 Europe 6839 73.8 7825 76.1 14.4 Middle East 1298 14.0 1229 11.9 -5.4 Africa 310 3.3 333 3.2 7.5 The Americas 357 3.9 388 3.8 8.7 Asia and the Pacific 429 4.6 481 4.7 12.0 Others 34 0.4 31 0.3 -7.4

Source: Ministry of Tourism

- 52 -

With a relative weight of 76.1 percent of total tourist flows, the European group remained in the lead, registering a rise of 986.0 thousand tourists or 14.4 percent. Despite the 5.4 percent decline in visitors from the Middle East group, it occupied the second position, with a share of 11.9 percent in the total number of tourists. Ranking third, the Asian and Pacific group accounted for 4.7 percent, as arrivals therefrom rose by 12.0 percent. Arrivals from the Americas group ranked fourth, with a relative weight of 3.8 percent, up by 8.7 percent. The African group occupied the last position, with a relative weight of 3.2 percent, and a growth rate of 7.5 percent.

Tourist Nights

Following suit of tourist arrivals, tourist nights exhibited an upward trend during July/March 2009/2010. The number of nights spent by all departure groups totaled some 102.6 million, up by 9.4 million or 10.1 percent above the period of comparison.

Relative Weight of Tourist ArrivalsJuly/March 2008/2009

Asian & Pacif ic

countries4.6%

The Americas

3.9%African countries

3.3%

Middle East

countries14.0%

Others0.4%

European countries

73.8%

Relative Weight of Tourist ArrivalsJuly/March 2009/2010

European countries

76.1%

Others0.3%

Middle East

countries11.9%

African countries

3.2%

The Americas

3.8%

Asian & Pacif ic

countries4.7%

- 53 -

Number of Tourist Nights by Departure Group (Thousand)

July/March 2008/2009 2009/2010

Number Relative Weight

Number Relative Weight

Change + (-) %

Total 93250 100.0 102622 100.0 10.1 Europe 63635 68.2 72594 70.7 14.1 Middle East 17255 18.5 17065 16.6 -1.1 Africa 3526 3.8 3743 3.6 6.2 The Americas 4462 4.8 4777 4.7 7.0 Asia and the Pacific 3788 4.1 4178 4.1 10.3 Others 584 0.6 265 0.3 -54.7

Source: Ibid.

The European group ranked first, with a relative weight of 70.7 percent of

the total and a rise of about 9.0 million nights or 14.1 percent above the period of comparison. This constituted about 95.6 percent of the increase in tourist nights. With a relative weight of 16.6 percent, the Middle East group ranked second; however, tourist nights by departures of this group shrank by 0.2 million nights or 1.1 percent. The Americas group ranked third, with a share of 4.7 percent, followed by the Asian and Pacific markets and the African markets, with respective relative weights of 4.1 percent and 3.6 percent.

Tourist Nights by Departures Groups (July/March)

01020304050607080

Europeancountries

MiddleEast

countries

Africancountries

TheAmericas

Asian &Pacific

countries

Others

2008/20092009/2010

%

- 54 -

2: Monetary and Banking Developments 2/1- Monetary Policy and Monetary Aggregates

2/1/1- Monetary Policy

The CBE adopted price stability as the overriding objective of the monetary policy, seeking to bring inflation to such an appropriate and stable level that helps deepen confidence and sustain adequate levels of investment and economic growth. To this end, the CBE had already developed a framework for managing the monetary policy “the corridor system” that relies on the “overnight interbank interest rates” as an operational target, which provides the outer bounds of the corridor. The ceiling of that corridor is the overnight interest rate on lending from the CBE and the floor is the overnight deposit interest rate at the CBE.

In this context, the Monetary Policy Committee (MPC) took a number of

decisions responsive to changes in inflation and its own assessment of inflationary pressures (six MPC meetings were held during July/March 2009/2010). Accordingly, the MPC decided in the two meetings dated July 30 and September 17, 2009 to cut down the CBE’s key interest rates (the overnight deposit and lending rates), with a cumulative drop of 0.75 percent to 8.25 percent and 9.75 percent, respectively, at the end of Sept. 2009. The discount rate was also cut by 0.50 percent to 8.5 percent per annum. In the meetings held during the period from November 2009 to the end of March 2010, on 6 May and 17 June 2010, and also at the time of preparing this Review, the MPC decided to keep the overnight deposit and lending rates and the discount rate unchanged.

The following are the CBE’s key interest rates according to the MPC’s decisions in the six meetings held during the reporting period:

Overnight Deposit

Rate Overnight Lending

Rate Lending &

Discount Rate 18 June 2009 9.00% 10.50% 9.00% 30 July 2009 8.50% 10.00% 8.50% 17 September 2009 8.25% 9.75% 8.50% 5 November 2009 8.25% 9.75% 8.50% 24 December 2009 8.25% 9.75% 8.50% 4 February 2010 8.25% 9.75% 8.50% 18 March 2010 8.25% 9.75% 8.50%

- 55 -

The above decisions of the MPC were reflected on the overnight

interbank interest rates, as their weighted average declined from about 9.035 percent in July 2009 to some 8.267 percent in March 2010. Given the excess liquidity at the banking system, the weighted average of the overnight interbank interest rate moved closer to the CBE overnight deposit rate during the period under review (see the following chart).

The average market interest rate on three-month deposits decreased from

6.9 percent in July 2009 to 6.4 percent in March 2010, and that on one-year-or-less loans from 12.1 percent to 11.1 percent.

The reporting period witnessed a rise in the outstanding balance of

liquidity which the CBE had absorbed from the market. It registered LE 100.2 billion at the end of March 2010 (against LE 82.9 billion at the end of June 2009). That was largely attributed to higher purchases of foreign exchange by the CBE from banks. 2/1/2- Reserve Money (M0)

Reserve money mounted by LE 21.0 billion or 12.0 percent during

July/March 2009/2010, reaching LE 196.1 billion at end of March 2010, against a rise of LE 4.1 billion and 2.4 percent during the corresponding period of the previous FY. Such a pickup resulted from the rise in banks' local currency deposits at the CBE by LE 10.8 billion and in the currency in circulation outside the CBE by LE 10.2 billion.

O/N Interbank Rate and Policy Rates

7.508.008.509.009.50

10.0010.5011.0011.5012.0012.5013.0013.5014.00

30-Jun-08

30-Jul-08

30-Aug-08

30-Sep-08

30-Oct-08

30-Nov-08

30-Dec-08

30-Jan-09

28-Feb-09

30-Mar-09

30-Apr-09

30-May-09

30-Jun-09

30-Jul-09

30-Aug-09

30-Sep-09

30-Oct-09

30-Nov-09

30-Dec-09

30-Jan-10

28-Feb-10

30-Mar-10

( % )

Overnight interbank Deposit facility rate Lending facility rate

- 56 -

Reserve Money and Counterpart Assets (LE mn)

Change during July/ March 2008/2009 2009/2010

Balances at End of

March 2010 Value % Value % A- Reserve Money 196106 4105 2.4 21002 12.0

Currency in circulation outside the CBE 136438 9140 8.2 10170 8.1 Banks' local currency deposits 59668 (5035) (8.6) 10832 22.2

B- Counterpart Assets 196106 4105 2.4 21002 12.0 Net Foreign Assets 179809 (3033) (1.7) 8077 4.7 Foreign Assets 188132 (3288) (1.8) 15077 8.7

Gold 9386 0 0.0 1 0.0 Foreign securities 163029 6016 4.0 12473 8.3 Foreign currencies 15717 (9304) (42.0) 2603 19.9

Foreign Liabilities 8323 (255) (15.1) 7000 529.0 Net Domestic Assets 16297 7138 (68.5) 12925 383.3

Claims on the Government (Net) 85140 6184 7.6 16527 24.1Claims, of which: 160335 3183 2.0 13436 9.1Government securities 124559 (650) (0.5) 2851 2.3Deposits 75195 (3001) (3.9) (3091) (3.9)

Claims on Banks (Net) 23841 (79603) (102.6) 23507 7038.8Claims 43764 (78816) (80.6) 21978 100.9Foreign currency deposits 19923 787 3.9 (1529) (7.1)

Net Balancing Items -92684 80557 (47.4) (27109) 41.3

Growth Rate of Reserve Money by Component July/March

10.04

-2.96

6.19

5.815.38

9.08

-8.00-4.000.004.008.00

12.0016.0020.00

2007/2008 2008/2009 2009/2010

(%)

Banks' Local Currency Deposits Money in Circulation outside the CBEGrow th Rate of Reserve Money

- 57 -

The rise in reserve money was a result of the increase in both net domestic assets and net foreign assets. In figures, net domestic assets scaled up by LE 12.9 billion, contributing the major part of 7.4 percentage points of the growth of reserve money. Net foreign assets picked up by LE 8.1 billion worth, adding 4.6 percentage points to the growth of reserve money.

Reserve Money Counterpart Assets

End of March 2010

Net Foreign Assets91.7%

Net Domestic Assets8.3%

A number of factors stood behind the pickup in net domestic assets. First, the CBE's net claims on the government went up by LE 16.5 billion (due to the rise in its claims on the government by LE 13.4 billion and the decline in government deposits therewith by LE 3.1 billion). Second, the CBE's net claims on banks rose by LE 23.5 billion due to the increase in its claims by LE 22.0 billion (represented in the pickup of the CBE’s foreign currency deposits at banks) and the drop in banks' foreign currency deposits at the CBE by LE 1.5 billion worth. On the other hand, the negative balance of other items (net) rose by LE 27.1 billion, owing to the LE 17.4 billion increase in the deposits accepted by the CBE under the open market operations, and the LE 9.7 billion drop in net unclassified assets and liabilities.

Meanwhile, the rise in net foreign assets with the CBE reflects the pickup

in its foreign assets by LE 15.1 billion worth. However, such an increase was curbed by the rise in foreign liabilities by the equivalent of LE 7.0 billion. It is worthy to note that SDR allocations - issued by the IMF to its members under the operations conducted to boost the global financial markets - were classified as foreign assets and liabilities in accordance with the IMF’s new classification.

- 58 - 2/1/3- Banknote Issue

Banknote issue went up by LE 11.1 billion or 8.7 percent during

July/March 2009/2010 (against LE 9.0 billion and 8.0 percent during the corresponding period a year earlier), reaching LE 138.7 billion at the end of March 2010. The banknote issue was covered by gold of LE 9.4 billion worth, Egyptian government bonds of LE 125.4 billion and foreign currencies of LE 3.9 billion worth.

The Banknote Issue and Components of the Cover

153045607590

105120135150

Jun-08 Mar-09 Jun-09 Mar-10

LE bn

Gold Egyptian Government Bonds Foreign Banknote Banknote Issue

The currency in circulation outside the CBE (excluding subsidiary coins) increased by LE 10.2 billion or 8.1 percent, posting LE 136.1 billion at the end of March 2010. It was noticed that large denominations (LE 200, LE 100 and LE 50) accounted for around 91.6 percent of the total at the end of March 2010, against 90.7 percent at the end of June 2009. The increase was mainly concentrated in the relative importance of the new LE 200 note (after modifying its specifications and size and putting it in circulation as of August 2009). That mirrored the continued preference for large notes, in the light of the increasing value of transactions associated with higher prices.

- 59 -

Against these developments in the relative structure of the currency in circulation, the average value per note increased from LE 30.77 at the end of June 2009 to LE 31.87 at the end of March 2010.

2/1/4- Domestic Liquidity (M2) and Counterpart Assets

Domestic liquidity (M2) totaled LE 888.2 billion at the end of March 2010, up by LE 57.0 billion or 6.9 percent during July/March 2009/10 (against LE 41.9 billion and 5.5 percent during the period of comparison).

Growth Rate of Domestic Liquidity by Component July/March

4.12.3

10.1

5.14.6

0.40.02.04.06.08.0

10.012.014.016.0

2007/2008 2008/2009 2009/2010

(%) Quasi-money

Money Supply

Domestic Liquidity

March 2010

7.5%

14.1%

0.9%29.0%

48.5%

Denominations:One pound andless5 pounds-20pounds

50 pounds

100 pounds

June 2009

1.0% 8.3%

18.2%

48.3%

24.2%

- 60 -

Domestic Liquidity Structure (LE mn)

Change during July/March End of March 2010 2008/2009 2009/2010 Balances Relative

ImportanceValue % Value %

Domestic Liquidity (M2) 888176 100.0 41939 5.5 56965 6.9 Money Supply (M1) 201869 22.7 2649 1.6 18878 10.3 Currency in circulation outside the banking system 128433 14.4 8330 8.0 10287 8.7 Local currency demand deposits 73435 8.3 (5681) (8.6) 8591 13.2 Quasi-Money 686308 77.3 39290 6.6 38088 5.9 Time and Saving Deposits in Local Currency 528844 59.6 29490 6.8 47790 9.9 Foreign Currency Deposits 157464 17.7 9800 6.1 (9702) (5.8) - Demand 33857 3.8 3759 14.1 1807 5.6 - Time and saving 123607 13.9 6041 4.5 (11509) (8.5)

The pickup in domestic liquidity during the reporting period was reflected

on the growth of money supply and quasi-money. Money supply rose by LE 18.9 billion or 10.3 percent (against LE 2.6 billion and 1.6 percent), reaching LE 201.9 billion or 22.7 percent of total domestic liquidity at the end of March 2010. The increase in money supply was due to the rise in the currency in circulation outside the banking system by LE 10.3 billion or 8.7 percent, and in local currency demand deposits at banks by LE 8.6 billion or 13.2 percent.

Quasi-money augmented by LE 38.1 billion or 5.9 percent during the period (against LE 39.3 billion and 6.6 percent during the corresponding period of the previous FY), registering LE 686.3 billion or 77.3 percent of total domestic liquidity at the end of March 2010. The increase in quasi-money was an outcome of the pickup in LE time and saving deposits by LE 47.8 billion or 9.9 percent. The bulk of this increase (almost 80 percent) was concentrated in the household sector’s time and saving deposits, which rose by about LE 37.9 billion or 9.7 percent, to reach LE 426.2 billion or 80.6 percent of total local currency time and saving deposits and 62.1 percent of total quasi-money at the end of March 2010. On the other hand, such an increase in local currency time and saving deposits of all sectors was contrasted with a decline in foreign currency deposits at the sectoral level too (down by LE 9.7 billion worth or 5.8 percent) to reach LE 157.5 billion worth at the end of March 2010. The household sector accounted for most of the decrease (65 percent), with a drop of LE 6.3 billion or 6.3 percent in its deposits to about LE 93.9 billion at the end of March 2010. All these factors led to the drop in the dollarization rate (the ratio

- 61 -

of deposits in foreign currencies to total deposits) from 23.4 percent at the end of June 2009 to 20.7 percent at the end of March 2010, which gave evidence of the continued propensity for saving in Egyptian pound. That was driven by the mounting confidence in the efficient management of the forex market, which dispelled dealers’ concerns about the LE fluctuations. Another factor at work was the higher interest rate on local currency deposits compared with the US dollar and other main currencies. Also, during the period under review, some banks raised their interest rates on LE long-term deposits (three years and more).

Dollarization Rate (Deposits in US$/Total Deposits)

& Interest Rates on Deposits in LE & US$

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

Jun.06 Sept. Dec. Mar.07 Jun. Sept. Dec. Mar.08 Jun. Sept. Dec. Mar.09 Jun. Sept. Dec. Mar.10

Interest Rates (%)

16.00

18.00

20.00

22.00

24.00

26.00

28.00

30.00

Dollarization Rate (%)

Interest rate on less than 3-month deposits in LE Interest rate on 3-month deposits in US$Dollarization rate

The increase in domestic liquidity was ascribed to the pickup in both net domestic and net foreign assets. The former contributed the greatest share (4.2 percentage points), while net foreign assets added 2.7 percentage points.

Domestic Liquidity Growth

by Counterpart Assets

July/March + (-) 2008/2009 2009/2010 Domestic Liquidity (M2) Growth 5.5 6.9

- Net Domestic assets 13.0 4.2 Domestic credit assets 15.6 6.7

Net balancing items (unclassified) (2.6) (2.5) - Net foreign assets (7.5) 2.7

- 62 -

Net domestic assets rose by LE 34.7 billion or 6.0 percent in the reporting period, due to the pickup in domestic credit by LE 55.6 billion or 8.0 percent (against LE 119.2 billion and 20.9 percent), reaching LE 750.9 billion at the end of March 2010. However, the increase in domestic credit was lessened by the rise in the negative balance of net balancing items by LE 20.9 billion or 17.6 percent, to LE 139.1 billion at end of March 2010.

Domestic Liquidity Counterpart Assets (LE mn)

End of Change during July/March March 2010 2008/2009 2009/2010 Balances Relative

Importance Value % Value %

Domestic Liquidity Counterpart Assets 888176 100.0 41939 5.5 56965 6.9 Net Foreign Assets 276379 31.1 (57342) (18.9) 22245 8.8

- The CBE 179809 20.2 (3033) (1.7) 8077 4.7 - Other banks 96570 10.9 (54309) (44.0) 14168 17.2

Domestic Credit 750883 84.5 119226 20.9 55558 8.0 Government (net) 320885 36.1 95433 54.8 47764 17.5 Public business sector 36708 4.1 3962 14.7 3562 10.7 Private business sector 303855 34.2 9873 3.4 (615) (0.2) Household sector 89435 10.1 9958 12.7 4847 5.7 Other Items (Net) -139086 -15.6 (19945) 18.5 (20838) 17.6

The breakdown of credit extended by banks during the period under review indicated an increase in net claims on the government by LE 47.8 billion or 17.5 percent, reaching LE 320.9 billion or 42.7 percent of total domestic credit at the end of March 2010. The rise was an outcome of the increase in banks' holdings of government securities and treasury bills by LE 40.1 billion and in government borrowing by LE 12.8 billion, on the one hand, and the rise in government deposits at banks by LE 5.1 billion, on the other.

- 63 -

Growth In Domestic Credit by Sector during July/March

-0.501.503.505.507.509.50

11.5013.5015.5017.5019.5021.50

2007/2008 2008/2009 2009/2010

Government Sector (net)Public Business SectorPrivate Business SectorHousehold SectorDomestic Credit Growth

(%)

Credit to the household sector rose by LE 4.8 billion or 5.7 percent, during the period in question, bringing its indebtedness to LE 89.4 billion or 11.9 percent of the total domestic credit at the end of March 2010, due to the increase in the activities of retail banking and credit consumption (especially personal loans). In addition, credit to the public business sector moved up by LE 3.6 billion or 10.7 percent, reaching LE 36.7 billion or 4.9 percent of the total. By contrast, the share of the private business sector rolled back by LE 0.6 billion or 0.2 percent, reaching LE 303.9 billion or 40.5 percent of total domestic credit at the end of March 2010. Apparently, the private business sector has not wholly recovered from the adverse effects of the global financial crisis as its investments continued to grow at a sluggish pace.

Net foreign assets at the banking system amounted to LE 276.4 billion worth at the end of March 2010, denoting a rise of LE 22.3 billion worth or 8.8 percent during the period (against a drop of LE 57.3 billion worth or 18.9 percent during the corresponding period). The rise reflects larger net foreign assets at banks, up by LE 14.2 billion worth or 17.2 percent, and at the CBE by LE 8.1 billion worth or 4.7%. The increase in net foreign assets at the CBE was an outcome of the stronger performance of the balance of payments that ran an overall surplus of US$ 3.1 billion during the period (against an overall deficit of US$ 2.3 billion during the period of comparison).

- 64 -

Change in Foreign Assets and Liabilities

at the Banking System (LE mn)

July/March + (-) 2008/2009 2009/2010 Value Growth

(%) Value Growth

(%) Net Foreign Assets at the Banking System (57342) (18.9) 22245 8.8 Net Foreign Assets at the CBE (3033) (1.7) 8077 4.7

- Foreign assets (3288) (1.8) 15077 8.7 - Foreign liabilities (255) (15.1) 7000 529.0

Net Foreign Assets at Banks (54309) (44.0) 14168 17.2 - Foreign assets (49736) (33.4) 14172 12.9 - Foreign liabilities 4573 18.0 4 00

2/1/5- Payment Systems and Information Technology (IT) The CBE stepped up its efforts to develop its payment systems and IT

sector, by seeking to reduce credit risks and speed up payment settlements and ensure their reliability and confidentiality. It aimed ultimately at enhancing the soundness and stability of the financial system and progressively moving to a cashless society. In this respect, the following achievements were made during July/March 2009/2010:

• A project for the development of the operating systems (core banking &

financial systems) is currently under way. An international bid was made for this purpose and offers were received from international companies with high experience in that field. The CBE is now in the process of making technical evaluations of theses offers and bringing them to discussion with the relevant companies. The project aims at raising the efficiency of the CBE’s branches (including the Printing Press) and different departments and sectors. By facilitating the Ministry of Finance’s access to its data and reports, with timeliness and accuracy, the aforementioned system will enable it to monitor - on a real time basis - the transactions that affect its accounts at the CBE. Moreover, the project aims to apply the international accounting standards. As an initial step, the updating and development of the Bank’s accounting framework was completed with the participation of all the sectors concerned.

• The development of the banking sector units database at the CBE is currently under way, by setting up a data warehouse conforming to the

- 65 -

international standards. The warehouse is designed to help the CBE’s different sectors to obtain such accurate and transparent reports that are required for them to follow up the performance of the banking sector’s units and make the appropriate decisions.

• The establishment of a permanent backup site for the CBE is on track, to be functional in emergencies as an alternative to the main center at El-Gomhoria building. The action aims at ensuring access to data and services with accuracy and timeliness, taking into account that the backup site should conform to the international rules and conditions. The CBE building in Tanta was chosen to be the location for this site, and a study was approved for this purpose.

• The CBE has finished the design, installation and operation of the new domestic market monitoring system (DMMS). The system aims to electronically monitor the performance of the domestic market (mutual funds, interbank market, and interest rates). Technically, the system receives electronic files through the interface with the CBE. After uploading files to the system, data should be analyzed and a number of monitoring reports are produced with the aim of following up the banks' performance.

• Short and medium-term plans were devised to ensure information security at the banking system, by means of establishing some controls and governing rules that obligate banks to abide by the minimum information security limits.

• The payment systems and information technology sector is participating in the project, by designing and monitoring the infrastructure of Qasr El Nile building.

2/1/6- RTGS and SWIFT Local Services

Data on local banking transfers under the RTGS system showed an

increase in the number and value of executed messages, to register 865.2 thousand messages, with a value of LE 10088.1 billion during July/March 2009/2010 (against 575.3 thousand with a value of LE 1975.6 billion) conducted via the Fin-Copy system during the corresponding period of the previous FY. The substantial increase during the period was ascribed to the initiation of the RTGS system which had still been under implementation in the period of comparison. In addition, the RTGS transactions included, for the first time, banks’ deposit acceptance operations at the CBE (corridor transactions and deposits for monetary policy purposes).

- 66 -

RTGS and SWIFT Local Services* in Local Currency

Change Number of Messages (Unit)

Value of Transfers (LE mn) Number Value

July/March 2007/2008 501915 2335903 124317 763297 July/March 2008/2009 575310 1975558 73395 (360345)July/March 2009/2010 865173 10088080 289863 8112522 *As of mid-March 2009, the RTGS system was applied.

According to the statistics of the CBE Automated Clearing House, where transactions are conducted via RTGS, the number of exchanged cheques kept increasing during the period, reaching 9.6 million (against 8.8 million cheques). Moreover, the value of those cheques went up to LE 427.6 billion (against LE 399.9 billion during the corresponding period of the previous FY). As a result, the average value per cheque fell to LE 44.5 thousand during the period (from LE 45.5 thousand during the corresponding period a year earlier).

CBE Automated Clearing House Activity

Change (%) Number of Cheques

(Thousand) Value of Cheques

(LE mn) Number Value July/March 2007/08 8627 342241 12.5 35.1 July/ March 2008/09 8786 399905 1.8 16.8 July/ March 2009/10 9612 427648 9.4 6.9

Transactions executed in foreign currencies under the Fin-Copy system, via SWIFT, showed a decrease in terms of the number and value. As such, the number of executed transactions reached 8.9 thousand at a value of US$ 51.0 billion (against 10.0 thousand at a value of US$ 70.8 billion).

SWIFT Local Service Activity in US Dollar

Change

Number of Messages

(Unit)

Value of Transfers (US$ mn) Number Value

July/ March 2007/2008 10276 80799 1922 33752 July/ March 2008/2009 9999 70777 (277) (10022) July/ March 2009/2010 8875 51040 (1124) (19737)

- 67 -

2/2-Banking and Credit Developments 2/2/1- Banking Reform

Pressing forward with its banking reform plan, launched in September

2004, the Central Bank has completed preparations for the second stage (2009 - 2011). This stage aims at enhancing the efficiency and soundness of the Egyptian banking sector, and upgrading its competitiveness and risk management ability so that it can perform its role in financial intermediation for the interest of the national economy, and achieve the targeted development. The reform plan is based on a number of pillars, namely:

• Prepare and implement a comprehensive program for the financial

and administrative restructuring of specialized state-owned banks (the Principal Bank for Development and Agricultural Credit, Egyptian Arab Land Bank, and Industrial Development and Workers Bank of Egypt), which is expected to positively affect these banks’ performance by the end of the second stage of the said banking reform plan;

• Follow up the results of the first stage of the restructuring program of

the National Bank of Egypt (NBE), Banque Misr (BM) and Banque du Caire (BdC), which revealed that the first stage of the reform plan (2004/2008) had already yielded fruit and positively affected their performance levels. The second stage set to finalize the requirements necessary to improve the efficiency of these banks in financial intermediation, risk management, human resources, and IT to ensure the continued improvement of their financial performance and competitiveness.

• Apply Basel II standards in Egyptian banks to enhance their risk

management practices. In this context, a protocol had been signed with the European Central Bank and seven European central banks to provide a three-year technical assistance program launched on 1 January 2009, to implement Basel II requirements in the Egyptian banking sector. It is worthy to note that the strategy of the CBE in implementing Basel II framework, which was announced for Egyptian banks and the relevant parties in an extensive meeting held on Oct. 2009, is based on two main principles; simplicity and consultation with banks, to ensure banks’ compliance with these standards.

- 68 -

According to the above-said strategy, Basel II standards should be phased in over the following stages:

• The first stage (January 2009 - June 2009) focused on the capacity

building of the CBE’s core team and elaboration on the Egyptian strategy for Basel II implementation. That stage was successfully completed.

• The second stage (July 2009 - June 2011) - the pivotal stage of the reform plan-covers extensive coordination with the banking sector, through discussion papers related to the most important topics and selection of the most appropriate methods for application in Egypt, taking into consideration similar experiences in other countries that have implemented Basel II. Moreover, the quantitative impact of the possible consequences of Basel II standards will be measured before the mandatory application.

• The third stage (July 2011 - December 2011) will focus on the fine-tuning of future supervisory regulations related to Basel II, taking into account the legal aspects and development of corrective action plans commensurate with the different types of banks, according to the simulation results for each bank on a case by case basis. Also, a parallel run of existing regulations and Basel II will be applied upon issuance, and a new data warehousing framework will be implemented to support the future updated supervisory regime.

• The fourth stage (continuing implementation) - a parallel run of Basel II and existing regulations concerning capital adequacy will be applied upon issuance. Moreover, the data warehousing framework will be completed.

• Adopt an initiative promoting the development and growth of

banking activities/services catering and access to finance for various sectors, especially small- and medium-sized enterprises (SMEs). In this context, to encourage banking credit to small- and medium-sized enterprises (SMEs), the CBE exempted banks' deposits - equivalent to the size of loans extended thereby to finance SMEs - from the reserve requirement ratio (14 percent).

It is noteworthy that poor access to adequate, timely and reliable

statistical data and information is one of the main obstacles to improving and financing small- and medium-sized enterprises (SMEs). Hence, the Central Bank of Egypt and the Egyptian Banking

- 69 -

Institute (EBI), in collaboration with the Central Agency for Public Mobilization and Statistics (CAPMAS), embarked on a field survey of small- and medium-sized enterprises (SMEs) covering all the governorates of Egypt, on the basis of the full count approach. As a preliminary stage, this survey will be initiated in Al Sharqiya Governorate, and in the light of the results, it will be completed in the rest of the governorates. According to the findings, a database will be set up and is to be periodically updated.

• Review and strictly apply the international governance rules to the

Egyptian banking sector and the CBE. Preparations for the second stage of the banking reform plan have

proceeded, after the first stage was successfully implemented and proved highly effective in weathering the adverse effects of the global financial crisis on the Egyptian banking sector. The first stage was centered on four pillars: (1) consolidation and privatization of the banking sector, (2) financial and managerial restructuring of state-owned banks, (3) addressing of the non-performing loans issue, (4) upgrading of the Supervision Sector at the CBE.

As for the first pillar, some voluntary and state-forced mergers took place, leading to a decrease in the number of banks operating in Egypt from 57 at the end of December 2004 to 39 banks at end the of December 2008. Under this plan, 80 percent of the stake of the Bank of Alexandria was sold to Italy’s Sanpaolo Bank, besides the divestiture of the shareholdings of state-owned banks in a number of joint venture banks.

With respect to the second pillar, state-owned banks were restructured

under a comprehensive and time-lined plan, designed by the Banking Reform Unit at the CBE. The plan was intended to reform the practices of all departments and technological systems, besides establishing new departments, particularly for risk management, information technology (IT), management information systems (MIS) and human resources. To this end, a project on the application of the international best practices - implemented with the assistance of foreign consultants - was completed on time. In addition, a full audit of state-owned banks was conducted according to the international accounting standards, covering the years from 2004 to 2008. Finally, the recruitment of highly qualified banking cadres and leaderships at state-owned banks (with finance from the Banking Reform Fund) enabled those banks to push ahead with reform and development.

- 70 -

Concerning the third pillar, to address the problem of non-performing

loans, the CBE's NPL Management Unit worked out a variety of approaches and programs that helped settle more than 90 percent of NPLs (excluding debts of the public business sector). With regard to the irregular debts of public business sector enterprises to public banks, an amount of LE 16 billion (62%) was repaid in cash to the public commercial banks. As for the remaining debts (38%), an agreement was signed on 14/9/2009 whereby the cash repayment of the remaining debt will have been made by the end of June 2010.

A program for the reform of the Supervision Sector was devised to

achieve the following targets: enhance the efficiency of this sector by benefiting from the international best practices, and apply the concept of risk-based supervision to ensure the sector’s robustness and soundness. Furthermore, efforts were exerted to recruit highly qualified staff versed in advanced technology, enhance the efficiency of human cadres to be capable of managing this key sector, and upgrade the management information system (MIS) to ensure timely access to accurate data. In this context, a technical assistance program in collaboration with the European Central Bank (ECB) and four European central banks, was completed in the last quarter of 2007. 2/2/2- Banking Supervision Sector

The CBE is the authority in charge of bank supervision in Egypt, to

ensure the soundness of banks’ financial positions and evaluate their performance from the perspective of risk-based supervision. In addition, it ascertains banks’ compliance with the established regulatory requirements, including the minimum reserve requirement and liquidity ratios, the maximum limits of a bank’s exposure to a single customer, his related parties, and exposures abroad, as well as the asset-liability matching in terms of maturity and currency. This is in addition to a number of qualitative standards that ensure the soundness of banks’ performance and the safety of depositors’ funds, including governance rules, information systems efficiency rules and eligibility and competency criteria for the officials and managers of the key sectors at banks.

In response to the repercussions of the sub-prime loans crisis that hit the US and European markets, the Central Bank instructed banks to study the exposure limits in the respective countries according to the scale of economy and sovereign credit rating of each. Moreover, banks are to study and determine the maximum limits of exposure to their customers of foreign financial institutions, given that these limits are to be periodically reviewed. Also,

- 71 -

investments should be reviewed with financial institutions. Banks should also comply with the maximum limits determined - on a daily basis - by the CBE’s Board of Directors in this respect. Amidst the financial crisis, it became clear that the instructions and reform policies adopted by the CBE to restructure banks, raise their capitals and strengthen their risk management systems proved instrumental in containing the effects of the crisis. Moreover, the CBE had thoroughly monitored the financial crisis in Dubai and Greece to be capable of making immediate decisions when necessary to counteract the spillovers in due time.

In the period under review, the CBE approved the following rules,

regulations and instructions: 1- Prior to providing e-banking services or entering into a contract with a

company operating in this field, a bank should obtain the approval of the CBE.

2- The rules and regulations governing the operation of payment orders

via mobile phones in Egypt (mobile-banking) were approved, with the aim of regulating money transfer transactions through mobile phones. These rules aim to ensure the availability of the necessary infrastructure (including guarantees of safety and protection for the operation of these systems). If it is found out, upon verification by the CBE, that the technical and administrative systems of an applicant bank do not conform to the above-said rules and regulations, it shall be denied the CBE’s approval.

3- Banks shall be obligated to increase their “bank risk reserves”

annually, by the amount of 10 percent of the value of assets that are transferred to their ownership, in discharge of debts owed to them by other parties, in the event that these debts are not disposed of within the period specified in Article (60) of Law No. 88 for 2003 of the Central Bank, the Banking Sector and Money. However, this action shall not be an alternative to disposing of the assets in question, as banks were urged to exert more efforts to dispose of them.

As for enhancing the framework of governance at the Egyptian banking

sector, the CBE's Board of Directors approved the competency criteria for chairmen, board members and executive managers of banks to make sure that they are qualified for their positions. Moreover, the Board agreed to modify

- 72 -

These criteria by adding a new criterion stipulating that “It shall be prohibited for any one to simultaneously occupy the two positions of a senior manager in one bank and a member of the board of directors of another bank. This shall only be applicable to future nominations, and an exception shall be made for those banks that are entirely owned by the CBE.” The criterion in question is intended to prevent any conflict of interests, in compliance with the sound corporate governance practices. In addition, interviews should be made with the chairmen and their deputies, delegated members, executive board members of banks and the executive managers to ensure that they are eligible for the positions they are nominated for, with a focus on the occupants of risk- and compliance-related positions.

In line with the CBE's policy of encouraging the growth and spread of

banks by opening new branches nationwide, the applicable criteria for approving the establishment of new branches/agencies for banks were revised, with a view to organizing and simplifying the relevant procedures. Moreover, a number of guidelines were set for the applicant banks, that give due regard to the soundness of banks’ financial positions, internal control systems, the efficiency of their information systems and their capital adequacy to ensure that they can better face the risks arising from the expansion in their activities.

The CBE has set and updated the rules of examining the documents

required from the houses of expertise (that are qualified for participating in the evaluation of collaterals/guarantees provided to banks) to be listed in the register of houses of expertise at the CBE (62 houses of expertise were listed). This step is bound to raise the efficiency and effectiveness of the credit decisions made by banks to prevent the recurrence of the problem of non-performing loans. On the other hand, the auditors who are authorized to audit the financial statements of banks shall be registered in a special register in conformity with certain criteria that ensure a satisfactory degree of efficiency and expertise.

Recently, banks have been eager to provide e-banking services to keep

pace with the technological progress in this field. These are either traditional banking services or innovative ones (effected via electronic networks) and had already been regulated by the rules issued by the CBE's Board of Directors. On 2 February 2010, the CBE’s Board of Directors made a decision approving the rules governing the operation of payment orders through mobile phones (mobile-banking) in Egypt as mentioned above. Furthermore, the CBE is currently in the process of updating the rules of internet banking.

- 73 - The CBE has been exerting strenuous efforts to ensure banks’ compliance with the rules regulating the credit registration system at the CBE according to the provisions of Law No. 88 of 2003 of the Central Bank, the Banking Sector and Money and its Executive Regulations, and the CBE’s Board of Directors’ decision dated 26 April 2005. A step forward in this direction was the field inspection made recently on a number of banks to verify compliance with the rules and decisions mentioned above. Also, a great deal of the information and data sent by banks on their customers were corrected, to enhance disclosure and transparency of customers’ positions and help make informed credit granting decisions.

As regards on-site supervision, the Central Bank started its 2010 plan for the inspection of the banking sector units (banks) and exchange dealer companies. Under this plan, the inspection is expected to cover as many banks as possible and each bank is inspected in a comprehensive or a limited manner according to its level of risk and quality of products and activities. In this context, the inspection capacity has been gradually increased whether in terms of number or quality. It is worth noting that a major part of bank inspection is conducted by means of automated systems and laptops. For this purpose, a program was developed to produce the credit examination sample in a more comprehensive way, and to help inspectors identify - with a higher degree of accuracy - the strengths, weaknesses and risks of customers and banks. Moreover, an examination of certain aspects of specific bank customers has been under way, to help take immediate corrective actions as deemed necessary, needless of waiting for the full examination over these banks to be made.

The inspection reports made lately have contributed not only to upgrading

the risk management framework in several banks and furthering the application of the international best practices in various fields (e.g. governance, and outsourcing), but also to creating a more conducive environment for on-site supervision and the combating of money laundering and terrorism finance. In this context, a core team was formed to follow-up and manage the IT systems, being tasked with analyzing and reporting on risk areas at banks. Together with off-site supervision, this will help outline a blueprint for the inspection plans and progress on the corrective actions.

On the other hand, the supervision sector at the CBE continued to

cooperate with the other supervisory and judicial authorities in resolving a number of money and banking issues. Moreover, the sector examines the complaints filed by bank customers and provides the required banking expertise.

- 74 -

The financial position of registered banks operating in Egypt (39 banks at

end of March 2010) recorded an increase of LE 106.2 billion or 9.7 percent during the period under review, compared with a slight increase of LE 8.3 billion or 0.8 percent in the corresponding period a year earlier, to reach some LE 1.2 trillion at end of March 2010.

On the liabilities side, the increase stemmed primarily from a rise in banks' deposits by LE 57.4 billion or 7.1 percent, representing 54.0 percent of the pickup in total finance resources available for banks. In addition, obligations to local banks scaled up by LE 16.6 billion or 53.4 percent, as an outcome of the rise in obligations to the CBE by LE 22.2 billion, and the fall in those to other banks by LE 5.6 billion. Increases were also seen in banks’ equities by LE 8.1 billion or 12.8 percent and their provisions by LE 1.4 billion or 2.0 percent.

Around 37.4 percent of the increase on the assets side was traceable to the

surge in banks' investments in securities and bills by LE 39.7 billion or 11.9 percent. Likewise, balances with local banks augmented by LE 23.7 billion or 13.6 percent (due to higher balances at the CBE by LE 29.7 billion and lower balances at banks by LE 6.0 billion). In addition, increases were seen in lending and discount balances by LE 11.4 billion or 2.7 percent to LE 441.4 billion, thereby constituting 36.8 percent of banks' aggregate financial position. Balances with banks abroad increased by LE 10.4 billion or 13.5 percent.

2/2/3 - Overview of Banks' Aggregate Financial Position

Change in Liabilities during July/March

-80

-60

-40

-20

0

20

40

60

Capital Reserves Provisions Bonds &Long-term

Loans

Obligationsto Local Banks

Obligationsto BanksAbroad

TotalDeposits

OtherLiabilities

2008/20092009/2010

LE bnه ن

- 75 -

Most of the increase in banks' investments in securities and bills was concentrated in government bonds which rose by LE 38.8 billion or 46.7 percent. In addition, investments in corporate equities rose by only LE 1.9 billion, while investments in treasury bills retreated by LE 1.5 billion or 0.8 percent.

Relative Structure of Banks' Portfolio Investment

0.00.0

24.9

58.1

2.210.0

4.8

32.7

9.44.32.1

51.5

0.0

10.0

20.0

30.0

40.0

50.0

60.0

Treasury Bills Gov. Bonds Non-gov.Bonds

Corp.Equities

CBE Notes ForeignSecurities

%

Jun-09Mar-10

Change in Assets during July/March

-100-80-60-40-20

020406080

100120

Securities &Investments in TBs

Balances at Banksin Egypt

Balances w ithBanks Abroad

Loan & DiscountBalances

Other Assets

2008/20092009/2010

LE bn

- 76 -

In the first nine months of 2009/2010, banks' transactions with correspondents abroad unfolded an increase in their net credit balances by the equivalent of LE 10.2 billion or 17.4 percent, bringing their net balances with banks abroad to LE 69.1 billion worth at end of March 2010 (against LE 58.9 billion worth at end of June 2009). The rise was attributable both to the step-up in their balances with banks abroad by the equivalent of LE 10.4 billion, and the increase in their obligations thereto by LE 0.2 billion worth.

Transactions with Banks Abroad

(LE mn) March/Change during July

At End ofJune 2009

March 2010

2008/2009 2009/2010

Value % Value % Net Position 58925 69157 )56966( )52.0( 10232 17.4 Balances at banks abroad 77120 87540 (48676) (39.6) 10420 13.5 Obligations to banks abroad 18195 18383 8290 62.2 188 1.0

2/2/4- Interbank Transactions in Egypt

The volume of transactions in the interbank money market in Egypt (in terms of deposits) retreated by LE 6.0 billion or 25.8 percent during the period, against an increase of LE 4.3 billion or 27.0 percent in the corresponding period a year earlier. That was an outcome of the decrease in local currency deposits by LE 4.3 billion and in foreign currency deposits by LE 1.7 billion worth.

Interbank Transactions in Egypt

Banks' Transactions with Correspondents Abroad

- 77 -

Change in Deposits in the Interbank Money Market

during July/March

(4500)(4000)(3500)(3000)(2500)(2000)(1500)(1000)(500)

0500

10001500200025003000350040004500

2008/2009 2009/2010

Local Currency

Foreign Currencies

LE mn

Deposits at banks (including government deposits) amounted to LE 867.1 billion or 72.4 percent of banks' aggregate financial position at end of March 2010, posting an increase of LE 57.4 billion or 7.1 percent in the reporting period, compared with LE 43.3 billion in the corresponding period a year earlier. The growth of deposits in local currency outpaced that of total deposits. In figures, local currency deposits surged by LE 66.3 billion or 11.1 percent, to reach LE 664.9 billion, thus exceeding three quarters of the volume of deposits at banks (76.7 percent) at end of March 2010. Conversely, foreign currency deposits retreated by LE 8.9 billion worth or 4.2 percent, to reach LE 202.2 billion worth. The expansion of LE deposits was mainly attributed to the relatively higher interest rate on the Egyptian pound as compared with main foreign currencies. Another contributing factor was the successful endeavor of banks to attract more deposits by introducing long-term saving systems (three months or more) with interest rates much higher than those on short-term deposits (one year or less). Add to this the confidence in the efficient management of the foreign exchange market, which in turn dispelled dealers' concerns about the LE fluctuations.

2/2/5- Deposits

- 78 -

The household sector accounted for the lion's share of the increase in local currency deposits (62.5 percent). Its deposits surged by LE 41.5 billion or 10.0 percent to LE 455.0 billion, representing 68.4 percent of total LE deposits at end of March 2010. Additionally, increases were seen in the deposits of the private business sector by LE 12.2 billion or 11.7 percent to LE 116.4 billion, and of the government sector by LE 9.9 billion or 20.0 percent to LE 59.5 billion.

Change in Deposits in Local Currency by Sector during July/March

-0.3

41.0 41.5

(1.4)

66.3

4.0 9.92.5

(17.3)

12.2 0.2

26.0

(18)(8)2

122232425262728292

2008/2009 2009/2010

LE b

n

Government Sector Public Business Sector Private Business Sector Household SectorExternal Sector Total

The above contraction in foreign currency deposits was mainly caused by low deposits of the household sector (down by LE 6.3 billion worth), and of the public and private business sectors (by the equivalent of LE 1.7 billion and LE 1.6 billion, respectively).

7.7

0.9

-0.2

4.2

(1.7) (1.6)(6.3)

5.7

(0.2)(0.1)

17.3

(9.0)-12-8-4048

121620

2008/2009 2009/2010

Government Sector Public Business Sector Private Business Sector Household SectorExternal Sector Total

Change in Deposits in Foreign Currency by Sector during July/March

LE b

n

- 79 -

Banks' lending and discount balances amounted to LE 441.4 billion, representing 36.8 percent of total assets and 50.9 percent of total deposits at end of March 2010, thus registering an increase of LE 11.4 billion or 2.7 percent in the period under review, compared with a rise of LE 29.2 billion or 7.3 percent in the corresponding period a year earlier. The increase was attributable to the pick-up in the lending and discount balances extended in both local and foreign currencies by some LE 5.7 billion each.

Lending and discount balances in local currency edged up by some LE 5.7

billion or 1.9 percent in the reporting report, against an increase of LE 22.7 billion or 8.5 percent in the period of comparison, to stand at LE 300.9 billion at end of March 2010. This was mainly ascribed to the increase in loans to the household sector by about LE 8.1 billion or 10.3 percent (against LE 10.1 billion or 14.5 percent) due to the expansion in retail banking and consumer credit business (particularly personal loans). Likewise, increases were seen in loans to the public business sector by LE 3.8 billion or 15.9 percent, and to the government sector by LE 1.0 billion or 8.2 percent. By contrast, the share of the private business sector declined by LE 5.9 billion or 3.4 percent due to the continuous low level of the real growth rate of its investments (close to zero during the period under review). In addition, banks were precautious about providing high-risk loans, especially under the repercussions of the global financial crisis. Despite the decline in the loans granted to the private business sector, they still accounted for more than half of total LE lending and discount balances (56.9 percent).

Change in Credit Facilities in Local Currencyduring July/ March

(1.1)

2.3 3.8

(5.9)

10.1 8.1

0.0 1.0

11.4

(1.3)

22.7

5.7

-14-10-6-226

10141822

2008/2009 2009/2010Government Sector Public Business Sector Private Business Sector Household SectorExternal Sector Total

LE bn

2/2/6- Lending Activity

- 80 -

Lending and discount balances in foreign currencies went up by the equivalent of LE 5.7 billion or 4.2 percent in the period under review (compared with LE 6.5 billion worth or 4.8 percent in the period of comparison) to reach LE 140.4 billion worth at end of March 2010. The increase was an outcome of the pickup in loans to the external sector by LE 4.9 billion worth, the private business sector by LE 3.2 billion worth, and the government sector by LE 1.2 billion worth, and the decline in loans to the household and public business sectors by the equivalent of LE 3.3 billion and LE 0.3 billion, in order.

A breakdown of loans by economic activity indicates that the manufacturing sector was the major recipient, with a share of 36.9 percent of the total loans extended by banks. The services sector came next with a share of 24.1 percent, followed by trade with 13.3 percent, then agriculture with 1.4 percent, and finally unclassified sectors with 24.3 percent.

Loans and advances (excluding discounts) offered by banks registered an increase of LE 11.9 billion or 2.8 percent in the period under review, to reach LE 439.4 billion at end of March 2010. The increase was centered on loans with maturities of one year or more, which rose by LE 20.0 billion due to their growth in local and foreign currencies by LE 17.2 billion and LE 2.8 billion worth, respectively. On the other hand, loans with maturities of one year or less went down by LE 8.1 billion as an outcome of the decrease in local currency loans by LE 11.3 billion and the increase in foreign currency loans by LE 3.2 billion worth.

Change in Credit Facilities in Foreign Currency during July/ March

1.7 1.21.8 3.0 3.2(0.2) 0.1

4.9 5.7

(0.3) (3.3)

6.5

-4-202468

1012

2008/2009 2009/2010

Government Sector Public Business Sector Private Business Sector Household SectorExternal Sector Total

LE b

n

- 81 -

2009/20102008/2009 2009/20102008/2009-15

-10

-5

0

5

10

15

20

Local Currency Foreign Currencies

Over One YearOne Year or Less

Change in Loans & Advances by Banks (Excluding Discounts) during July/March

LE bn

- 82 -

3: Stock Market

Efforts continued to develop and activate the stock market and to enhance its stability. In addition to the decisions and measures taken in the first half of 2009/10, the Minister of Investment issued a decree to amend some provisions of the Capital Market Law. This aimed at simplifying bond issuance procedures, especially of medium - and long-term issuances by companies and legal personalities. According to previous rules, companies were required to prepare a summary of estimated budgets for the time at the end of which the value of bonds is paid. This sharply curtailed the issuance of medium and long-term bonds, because it was difficult to make actual and reliable estimates for companies' financial performance over a long period of time. Amendments aimed at streamlining the procedures of issuing bonds, while maintaining a high level of disclosure by companies and legal personalities for cash flows, liquidity and expected profitability. Bond issuances by legal personalities were also regulated. The entities applying for bond and bill issuances were required to disclose in the prospectus all required information and to provide their credit rating certificates. There is no doubt that this will help the economic and service public legal entities in issuing bonds in the Egyptian market to meet their financing needs.

The Egyptian Financial Supervisory Authority (EFSA) issued a decision

regulating the activities regarding the depository of securities and the issuance of the Egyptian Depository Receipts (EDRs) by depository banks. It is worthy mentioning that the activity of depository banks was stated in the Law of Depository and Central Registry for Securities. Depository banks are not considered "banks" in the traditional sense of the Banking Law, as they do not accept deposits or practise banking activities. Hence, the main task of these banks is to issue EDRs against foreign securities, to be listed and traded on EGX as a new financial instrument. This aims at strengthening the EGX and diversifying its instruments. Moreover, EFSA issued a decision regarding the basic standards of professional performance for companies engaged in security assessment and rating. The decision includes the standards regarding the quality and reliability of credit rating, the independence of credit rating companies (to prevent the conflict of interests), the duties and responsibilities of the credit rating companies towards investors and the entities applying for credit rating, as well as the disclosure of professional performance standards, and communication with market parties.

- 83 -

During July/March, 2009/2010, the Egyptian Exchange indices have been

on the rise, relative to the corresponding period a year earlier. This came despite the fallout from Dubai’s debt crisis that erupted in Nov. 2009. The EGX Benchmark Index (EGX 30) climbed by 19.3 percent during the period to 6806.11 points at the end of March 2010. Moreover, EGX 70 recorded 715.2 points, up by 14.8 percent, and EGX 100 rose to 1160.82 points, up by 4.9 percent. Also, the CMA’s index posted 1562.62 points at the end of March 2010, increasing by 0.3 percent during the reporting period.

The trading indicators of shares and bonds (on the floor and over the

counter) revealed an upturn in terms of the number of transactions, and the volume and value of traded securities. In figures, the number of transactions rose by 18.1 percent above the level of the previous corresponding period, to reach 9.6 million transactions. Likewise, the volume of traded securities went up by 29.5 percent to 22.8 billion papers, and their value jumped by 79.5 percent, reaching LE 339.7 billion during the period. Shares accounted for most of trading on the EGX (90.3 percent of the total value of traded securities), while dealing in bonds represented only LE 32.7 billion.

Foreigners' transactions on the EGX (in LE and US$) moved up by 14.3

percent. Their transactions unfolded net purchases of LE 4.1 billion during the period, against net sales of LE 2.4 billion during the corresponding period a year earlier.

CMA & EGX 30 Indices

1000

3000

5000

7000

9000

11000

13000

Oct. 07

Nov. 0

7

Dec. 0

7

Jan.0

8

Feb. 0

8

Mar. 08

Apr. 08

May. 08

Jun.

08Ju

l.08

Aug. 0

8

Sep. 0

8

Oct. 08

Nov. 0

8

Dec. 0

8

Jan.

09

Feb.09

Mar.09

Apr. 09

May. 09

Jun.

09Ju

l.09

Aug. 0

9

Sep. 0

9

Oct.09

Nov.09

Dec.09

Jan.1

0

Feb.10

Mar.10

EGX 30 CMA

- 84 -

3/1- Shares Market

3/1/1- Primary (New Issue) Market

A- New Issues

The EFSA approved 2458 new issues during the period. Issues for setting

up new businesses accounted for 1575, with 4.5 billion shares, at a value of LE 6.5 billion or 19.5 percent of the total value of issues. Issues for capital increases were 883 in number, with 83.9 billion shares, at a value of LE 26.7 billion.

New Share Issues on the EGX

July/March 2008/2009 2009/2010

Total Number of Issues (Unit) 2417 2458 New corporations 1621 1575 Capital increases 796 883 Total Number of Shares (mn) 4140 88304 New corporations 862 4453 Capital increases 3278 83851 Total Value of Shares (LE mn) 61250 33209 New corporations 11534 6461 Capital increases 49716 26748

Source: Egyptian Financial Supervisory Authority (EFSA).

B- Companies Listed on the EGX The number of companies listed on the Egyptian Exchange went down to

219 at the end of March 2010, from 333 at the end of June 2009, and so did their nominal capital to LE 130.7 billion, from LE 149.6 billion. Likewise, the market value of corporate shares dropped by 0.7 percent during the period, recording LE 460.7 billion at the end of March 2010.

Foreign Investors' Transactions During Jul./Mar.

-10

0

10

20

30

40

50

60

2008/2009 2009/2010

Purchases

Sales

Net

LE bn

- 85 -

3/1/2- Secondary (Trading) Market

Trading in shares on the floor and over the counter (in LE and foreign currencies) was bullish during the period. Mounting by LE 132.7 billion or 76.2 percent during the period under review above the previous corresponding period, the trading value reached LE 306.8 billion. Trading on the floor represented 67.2 percent of the total. LE shares accounted for 96.1 percent of the total trading on the floor, with a total value of LE 198.1 billion. Meanwhile, the value of US$ shares traded on the floor reached LE 8.1 billion worth. On the other hand, OTC trading in shares registered LE 100.6 billion or 32.8 percent of the total value of trading, mostly in Egyptian pound (97.0 percent).

Trading in Shares on the EGX

July/March

2008/2009 2009/2010 No. of

Transactions (Unit)

Volume (000s)

Market Value

(LE mn)

No. of Transactions

(Unit)

Volume (000s)

MarketValue

(LE mn)

Total Trading 8114122 17539924 174073 9612360 22723929 306755 On the Floor 7501293 13775312 142729 9010099 17553128 206193 LE shares 7326121 13258686 138515 8761840 16876930 198057 US$ shares 175172 516626 4214 248259 676198 8136 Over the Counter 612829 3764612 31344 602261 5170801 100562 LE shares 604205 3737771 23182 595329 5091589 97511 US$ shares 8624 26840 8162 6909 75826 2363 Euro shares - - - 23 3386 688 Source: EFSA.

Companies Listed on the Egyptian Stock Exchange

377 351 333

219

050

100150200250300350400450

Jun-08 Mar-09 Jun-09 Mar-10

Companies

0100020003000400050006000700080009000

(LE bn)

Number of Companies - in Unit Nominal Value of Capital - LE mnMarket Value of Capital - LE mn

- 86 -

Most of sectoral indicators moved upwards. The sector of basic resources

came first with a rise of 52.5 percent, then construction and building with 35.9 percent; and healthcare and pharmaceuticals with 33.2 percent. In contrast, travel and leisure, and personal and household products declined by 13.3 percent and 9.5 percent, respectively.

3/2- Bonds Market

3/2/1- Primary (New Issue) Market

During the period in question, the nominal value of listed bonds increased

by LE 55.3 billion, to post LE 152.9 billion at the end of March 2010. This came on the back of the rise of LE 49.2 billion in the balance of treasury bonds (primary dealers bonds –PD bonds), of LE 4.8 billion in securitization bonds, and of LE 1.3 billion in corporate bonds.

Changes in Sector Indices during July /March 2009/2010

35.9%

15.2%

12.7%

22.0%

30.4%

22.0%

9.5%

33.2%

52.5%

0.4%

-13.3%

-9.5%

-15% -5% 5% 15% 25% 35% 45% 55%

Construction and Building Materials

Chemicals

Personal & Household Prod.

Industrial Goods & Services

Travel & Recreation

Financial Services excl. Banks

Banks

Real Estates

Food & Beverages

Healthcare & Pharmaceuticals

Basic Resources

Communications

- 87 -

Bonds Listed on the EGX (Value in LE mn)

End of June 2009 March 2010 Listed % Listed % Total 97586 100.0 152911 100.0 Government Bonds 92625 94.9 141890 92.8 - Treasury bonds 92500 94.8 141767 92.7 - Housing bonds 115 0.1 114 0.1

- - US dollar development bonds 10 0.0 9 0.0

Corporate Bonds 3096 3.2 4365 2.9 Securitization Bonds 1865 1.9 6656 4.4

Source: EGX. 3/2/2- Secondary (Trading) Market

The value of traded bonds rose by LE 17.8 billion during July/March,

2009/10, reaching LE 32.9 billion. All transactions were conducted on the floor and were mostly in treasury bonds (PD), as 32.0 million bonds were traded at a value of LE 32.9 billion through 919 transactions.

Dealing in Bonds on the Floor (Listed)

July/March 2008/2009 2009/2010

During the Period

No. of

Transactions (Unit)

Volume (000s)

Value (mn)

No. of Transactions

(Unit)

Volume (000s)

Value (mn)

Total Bonds in Egyptian Pound 23771 90371 15118 921 32076 32936 Treasury bonds 23201 74597 199 0 0 0 Treasury bonds (PD) 559 14615 14862 919 31982 32932 Housing bonds 6 1 0 0 0 0 Corporate bonds 5 1158 57 2 94 4 Total Bonds in US Dollar 9 1 0 0 0 0 Development bonds 9 1 0 0 0 0 Corporate bonds 0 0 0 0 0 0

Source: EFSA.

3/3- Mutual Funds

The EFSA approved nine new mutual funds during the period, thus bringing their number to 62 at the end of March 2010 (59 open-end and 3 close-end funds), against 53 funds at the end of June 2009 (50 open-end and 3 close-end funds).

- 88 -

4: Public Finance and Domestic Public Debt 4/1- Consolidated Fiscal Operations of the General Government

In July/March of FY 2009/2010, the slowdown in domestic economic

activity, on the back of the repercussions of the global financial crisis, drove down public revenues. Thus, total revenues fell by 19.9 percent below the level of the previous corresponding period, exceeding by far the 1.9 percent decrease in expenditures. Accordingly, the overall deficit significantly increased during the period by LE 30.7 billion. Recently, a new appropriation of LE 10.0 billion has been made in the state budget during the period in question to meet additional investment requirements, particularly potable water and sanitation, roads, the Hinterland villages and Nuba housing project.

Hereunder is a review of the data released by the Ministry of Finance on the execution of the state budget over the first nine months of FY 2009/2010, compared with the actual figures of the previous corresponding period. Budget Sector

According to the data of the Ministry of Finance, collected revenues totaled

some LE 151.8 billion or 12.7 percent of GDP, with a sharp decline of LE 37.7 billion or 19.9 percent below the previous corresponding period. Total ex-penditures reached about LE 238.9 billion or 19.9 percent of GDP, down by LE 4.6 billion or 1.9 percent. Consequently, the overall budget deficit widened to some LE 86.9 billion (7.3 percent of GDP) during the period under review, against LE 56.2 billion (5.4 percent of GDP) in the period of comparison.

7.35.25.03.1

5.45.0

4.0

7.3

0.0

5.0

10.0

15.0

20.0

25.0

2006/2007 2007/2008 2008/2009 2009/20100.01.02.03.04.05.06.07.08.0

Expenditures RevenuesCash Deficit Overall Deficit

%%

Ratios of Expenditures, Revenues & Deficit / GDP(July / March)

- 89 -

Around 32.6 percent of the decrease in public revenues stemmed from the decline of LE 12.3 billion in the property income from the SCA, the EGPC, economic authorities and some companies. Likewise, tax revenues on income and business profits from the SCA, the EGPC and some other units shrank by LE 9.3 billion. External grants from foreign governments retreated by some LE 4.3 billion. On the other hand, customs receipts amounted to about LE 10.2 billion, keeping almost the same level of the previous corresponding period. Meanwhile, taxes on property increased by some LE 3.9 billion, taxes on goods and services by LE 1.6 billion, and on sales of goods and services by LE 1.4 billion and taxes payable by individuals by LE 0.7 billion.

61.0 64.657.5

69.7

29.6 25.6 22.7 20.210

20

30

40

50

60

70

80

2006/2007 2007/2008 2008/2009 2009/2010

Tax Revenues Property Income

% Ratios of Tax Revenues & Property Income / Total Revenues(July / March)

21.4

5.98.2

1.9 1.2

15.2

-3.2 -4.3

-12.3

1.4

-0.3

-19.1

-20

-15

-10

-5

0

5

10

15

20

25

Tax Revenues Grants PropertyIncome

Sales of Goods& Services

FinancialInvestment

Others

2008/20092009/2010

Change in the Structure of Public Revenues during July/MarchLE bn

- 90 -

Expenditures shrank by LE 4.6 billion or 1.9 percent below the

corresponding period, totaling some LE 238.9 billion or 19.9 percent of GDP. The decrease in expenditures was mainly in subsidies, grants and social benefits that steeply fell by LE 33.2 billion or 34.7 percent, to reach LE 62.3 billion. Of this figure, GASC subsidies accounted for LE 13.5 billion, with a decline of 28.6 percent, while oil subsidies represented LE 33.7 billion, with a drop of 27.7 percent. It is to be noted that the reduction in subsidies occurred despite the world price hikes of energy and a number of foodstuffs; albeit not as high as the pre-crisis levels.

Structure of Expenditures during July/March

On the other hand, domestic and external interest payments escalated by some LE 13.3 billion or 32.8 percent, to LE 53.8 billion (mostly domestic interest payments), representing almost one quarter of total expenditures. That in turn reflected the increasing burden of interest payments on the budget. Wages and compensations of employees also mounted by LE 7.7 billion as compared with the corresponding period of the preceding FY, reaching LE 58.0 billion, thus absorbing 38.2 percent of total revenues and making up 27.5 percent of total current government spending. Moreover, private investment spending in the projects outlined in the economic development plan picked up by LE 3.0 billion (mostly earmarked for infrastructure projects), standing at LE 28.1 billion. Moreover, the purchases of goods and services rose by LE 2.3 billion to LE 15.3 billion.

2008/2009

Other Expenditures

7.9%

Subsidies, Grants and

Social Benefits 39.2%

Interests 16.6%

Purchases of Goods and

Services 5.4%

Wages 20.6%

Investments 10.3%

Interests 22.5%

Other Expenditures

8.9%

Subsidies, Grants and

Social Benefits 26.1%

Wages 24.3%

Investments 11.8%

Purchases of Goods and

Services 6.4%

2009/2010

- 91 -

Against this background, the budgetary cash deficit in July/March

2009/2010 hit LE 87.1 billion or 88.0 percent of the cash deficit estimated for the whole FY. Net acquisition of financial assets reached some LE 0.2 billion (negative), bringing the overall deficit in the reporting period to LE 86.9 billion or 87.2 percent of the budgeted deficit for the whole year, representing 7.3 percent of GDP (against an overall deficit of LE 56.2 billion or 5.4 percent of GDP in the period of comparison). This reflected the rise in the overall deficit to GDP, which the fiscal policy seeks to reduce to 3.5 percent by FY 2014/2015 as a prerequisite for cutting down the ratio of domestic public debt to GDP.

Local financing sources (mainly subscriptions for treasury bills and bonds) were chiefly used to finance the overall deficit, besides making external repayments of LE 4.6 billion. Budget Sector, NIB and SIFs

Adding the fiscal operations of the SIFs and NIB to those of the budget sector, total revenues would augment by 15.4 percent to LE 175.2 billion (14.6 percent of GDP).

0.05.0

10.015.020.025.030.035.040.045.0

2006/2007 2007/2008 2008/2009 2009/2010

Subsidies, Grants& Social Benefits Wages Interests

%

Subsidies, Wages & Paid Interests / Total Expenditures July / March

- 92 -

Consolidated Fiscal Operations of the General Government

(Budget Sector, NIB and SIFs) (Total Revenues)

(LE bn) July/March 2009/2010

Budget Sector

Relative Structure

Execution Ratio/Total Estimates

for the Year

Budget Sector, NIB & SIFs

Relative Structure

Execution Ratio/Total Estimates

for the Year

Total Revenues 151.8 100.0 67.5 175.2 100.0 67.3 Tax Revenues 105.9 69.7 72.8 105.9 60.5 72.8 Taxes on income and profits 41.1 27.1 70.0 41.1 23.5 70.0

The EGPC 15.4 10.1 83.6 15.4 8.8 83.6 The SCA 6.6 4.4 73.4 6.6 3.8 73.4 The CBE 0 0.0 0.0 0 0.0 0.0 Other units 8.1 5.3 48.4 8.1 4.6 48.4 Payable by individuals 11.0 7.3 76.0 11.0 6.3 76.0

Taxes on property 6.1 4.0 74.6 6.1 3.5 74.6 Taxes on goods and services 46.4 30.5 75.6 46.4 26.5 75.6

Taxes on international trade (customs) 10.2 6.7 72.7 10.2 5.8 72.7

Other taxes 2.1 1.4 65.0 2.1 1.2 65.0 Grants 2.3 1.5 29.9 2.3 1.3 29.9 Other Revenues 43.6 28.8 60.8 67.0 38.2 62.7 Property income 30.7 20.2 64.4 34.8 19.8 61.6 Selling proceeds of goods and services 8.4 5.6 64.1 8.5 4.8 64.1 Financing investments 2.4 1.6 78.4 2.4 1.4 78.4 Others 2.1 1.4 27.0 21.3 12.2 62.5 Source: Ministry of Finance. Percentages are calculated in terms of LE million.

Expenditures also rose by 9.3 percent, posting LE 261.1 billion or 21.8

percent of GDP.

- 93 -

Consolidated Fiscal Operations of the General Government

(Budget Sector, NIB and SIFs) (Total Expenditures)

(LE bn) July/March 2009/2010

Budget Sector

Relative Structure

Execution Ratio/Total Estimates

for the Year

BudgetSector,NIB & SIFs

Relative Structure

Execution Ratio/Total

Estimates for the Year

Total Expenditures 238.9 100.0 73.8 261.1 100.0 75.1 Wages & Compensations of Employees 58.0 24.3 66.3 58.7 22.5 66.3 Purchases of Goods & Services 15.3 6.4 56.1 15.4 5.9 56.2 Interest 53.8 22.5 75.7 45.2 17.3 72.6 Subsidies, Grants & Social Benefits 62.3 26.1 84.8 92.1 35.3 88.1

Subsidies 55.1 23.1 92.7 55.2 21.1 92.7 Grants 3.6 1.5 91.2 3.6 1.4 91.2 Social benefits 3.4 1.4 51.1 33.1 12.7 87.9 Others 0.2 0.1 5.8 0.2 0.1 5.8 Other Expenditures 21.3 8.9 76.0 21.5 8.2 75.9 Purchases of Non-Financial Assets (Investments) 28.2 11.8 77.2 28.2 10.8 77.1 Source: Ministry of Finance. Percentages are calculated in terms of LE million.

The cash deficit of the consolidated fiscal operations of the general government reached about LE 85.9 billion in the reporting period. By adding the net acquisition of financial assets (some LE 6.4 billion) to the cash deficit, the overall deficit would post LE 92.4 billion or 7.7 percent of GDP. Local banking and non-banking sources were used to finance the deficit.

- 94 -

Consolidated Fiscal Operations of the General Government (Budget Sector, NIB and SIFs)

(Cash and Overall Deficit/Surplus & Financing Sources) (LE bn)

July/March 2009/2010

Budget Sector

Relative Structure

Execution Ratio / Total

Estimates for the Year

Budget Sector, NIB & SIFs

Relative Structure

Execution Ratio /Total Estimates

for the Year

Total Revenues 151.8 67.5 175.2 67.3 Total Expenditures 238.9 73.8 261.1 75.1 Cash deficit 87.1 88.0 85.9 98.1 Net acquisition of financial assets -0.2 -20.7 6.4 153.4 Overall Deficit 86.9 87.2 92.3 100.7 Finance Sources 86.9 100.0 87.2 92.3 100.0 100.7 Domestic Finance 104.9 120.7 98.9 109.4 118.5 111.4 Banking finance 45.7 52.6 43.4 45.5 49.3 49.5 Non-banking finance 59.2 68.1 7807.2 63.9 69.2 1011.9 External Borrowing -4.6 -5.3 82.3 -4.6 -5.0 82.3 Others -0.3 -0.4 35.3 0.6 0.7 -73.9 Revaluation Differences -1.6 -1.8 00 -1.6 -1.7 00 Net Privatization Proceeds 0.4 0.5 00 0.4 0.4 00 The Difference between the TBs Face & Present Value -1.1 -1.3 00 -1.1 -1.2 00 Discrepancy -10.8 -12.4 00 -10.8 -11.7 00 Source: Ministry of Finance. Percentages are calculated in terms of LE million.

- 95 -

4/2- Domestic Public Debt

In the first nine months of 2009/2010, domestic public debt rose by about LE 108.0 billion or 14.3 percent, reaching LE 863.3 billion or 72.1 percent of GDP at the end of March 2010, against 71.7 percent in the corresponding period a year earlier. Its balance equals the sum total of the net government debt, debt of public economic authorities and net debt of NIB, less the intra-debt of public economic authorities and the government to the NIB (investments in government securities).

4/2/1- Debt of the Government (Net) The government's debt (net) amounted to some LE 667.2 billion or 55.7 percent of GDP at the end of March 2010, up by LE 104.9 billion or 18.7 percent during July/March of FY 2009/2010. The rise was an outcome of the LE 98.2 billion pickup in the balances of government bonds and bills and the LE 6.7 billion decline in the net credit position of the government with the banking system (due to the respective increase in government loans and deposits of LE 12.2 billion and LE 5.5 billion).

667.2

53.5

207.9

-65.3

863.3

-200 0 200 400 600 800 1000

Net Domestic Debt ofGovernment

Borrowing ofEconomic Authorities

NIB Debt (Net)

NIB Intra- debt

Gross Domestic Debt

Domestic Public Debt at End of March 2010 (LE bn)

- 96 -

Net Government Debt

(LE bn) June 2009 March 2010 Change+(-) Balances at End of Value % Value % 2009/2010

Net Government Debt 562.3 100.0 667.2 100.0 104.9 Balances of Bonds & -

*Bills 681.8 121.3 780.0 117.0 98.2 • Notes and bonds, of which: 442.7 78.8 494.7 74.2 52.0 Tradable on the exchanges 100.4 17.9 149.8 22.5 49.4 • Treasury bills 239.1 42.5 285.3 42.8 46.2 Credit Facilities from -

SIFs 2.3 0.4 2.3 0.3 0 Net Balances at the -

Banking System 121.8- 21.7- 115.1- 17.3- 6.7 • Credit facilities 15.5 2.7 27.7 4.1 12.2 • Deposits (-) 137.3 -24.4 142.8 -21.4 -5.5 Net government debt/GDP (%) 54.1 55.7

Source: Ministry of Finance, CBE, and NIB. Ratios are calculated in terms of LE million. * Including treasury bonds; housing bonds; bonds denominated in foreign currencies with public

commercial banks; the 5 percent ratio retained from profits of corporations subject to Law No. 97 for 1983 for the purchase of government bonds; holdings of resident financial institutions in Egypt (the banking and insurance sectors) of bonds floated abroad; and the SIFs’ bonds against the transfer of NIB debt to the Public Treasury

Hereunder are the developments behind the LE 98.2 billion rise in the balance of government bonds and bills:

A- The pickup in the balance of government bonds by LE 52.0 billion, to reach LE 494.7 billion at the end of March 2010, as a result of the following:

1- The LE 49.2 billion rise in the balance of Egyptian treasury bonds,

because of the following:

- The LE 4.5 billion increase in the 47th tranche of 5-year Egyptian treasury bonds (2014), previously issued on 8 December 2009 with an interest rate of 12.5 percent. The increase was effected on 18 Jan., 2 Feb. and 16 Feb. 2010 at a value of LE 1.5 billion for each increase and on the same issuance conditions.

- 97 -

- The issuance of the 49th

tranche (2013) of 3-year bonds on 15 Jan. 2010 at a value of LE 3.0 billion and an interest rate of 12.35 percent. The tranche was further increased by LE 1.5, 1.5 and 2.0 billion on 2 Feb., 2 March and 16 March 2010, respectively (on the same previous conditions of issuance), raising its total value to LE 8.0 billion.

- The issuance of the 50th tranche (2017) of 7-year bonds on 16 Feb. 2010

at a value of LE 2.0 billion and an interest rate of 12.6 percent annually. The tranche was increased on 30 March 2010 by LE 2.0 billion (on the same issuance conditions), to reach a total value of LE 4.0 billion.

- The issuance of the 51st tranche (2015) of 5-year bonds on 2 March 2010

at a value of LE 3.0 billion and an annual interest rate of 12.5 percent.

- The issuance of treasury bonds at a value of LE 35.7 billion during July/December, 2009/2010.

- The redemption of the Egyptian treasury bonds at a value of LE 6.0

billion including the 16th tranche on 2 August 2009 at a value of LE 4.0 billion and the 22nd tranche on 3 Jan. 2010 at a value of LE 2.0 billion.

2- The issuance of 10-year public treasury bonds (non-interest bearing) on 1

July 2009, at a value of LE 9.1 billion.

3- The redemption of public treasury bonds at a value of LE 6.2 billion, of which LE 1.8 billion were channeled to finance the budget deficit, LE 3.8 billion to cover the cash deficit and LE 0.6 billion to finance the GASC deficit till 1981.

4- The LE 0.1 billion rise in the bonds floated abroad (denominated in US

dollar and LE).

5- The decline in the balance of foreign currency bonds at public commercial banks by the equivalent of LE 0.2 billion, as a result of revaluation differences.

B- The rise of LE 46.2 billion in the outstanding balance of treasury bills to

LE 285.3 billion at the end of March 2010, against LE 239.1 billion at the end of June 2009.

- 98 -

The debt of public economic authorities went up by LE 1.2 billion,

posting LE 53.5 billion at the end of March 2010. The rise was traceable to the increase in their net borrowing from the NIB by LE 1.0 billion, along with the rise of LE 0.2 billion in their borrowing from the banking system (owing to the LE 1.4 billion rise in their loans and the LE 1.2 billion increase in their deposits).

4/2/3- Debt of the National Investment Bank (Net) The NIB's debt (net) amounted to some LE 207.9 billion at end of March 2010, with a rise of LE 7.2 billion above the level of end of June 2009. The rise reflected the pickup in total debt of the NIB (represented in the high resources invested at the Bank) by LE 5.7 billion to LE 211.3 billion and the retreat in its deposits with the banking system by some LE 1.4 billion to stand at LE 3.4 billion at the end of March 2010.

4/2/2- Debt of Public Economic Authorities

Net Domestic Debt of Government

-200-100

0100200300400500600700800900

March 2009 June 2009 March 2010 0

10

2030

40

50

60

70

Treasury BillsBondsNet Government Balances with the Banking SystemRatio of Government Debt / GDP

%LE bn

- 99 -

4/2/4- Intra-debt The intra-debt of the public economic authorities and the government (investments in government securities) to the NIB reached about LE 65.3 billion at the end of March 2010, against LE 60.0 billion at the end of June 2009. Loans granted by the NIB to these authorities registered some LE 51.0 billion, up by LE 1 billion during the period. NIB’s investments in government securities (bills and bonds) reached about LE 14.3 billion, with a rise of LE 4.3 billion during the period.

4/2/5- Domestic Public Debt Service

In the first nine months of FY 2009/2010, debt service amounted to LE 63.7 billion, up by LE 19.1 billion above the level of the previous corresponding period. The increase mostly came from the rise in interest payments by some LE 14.0 billion to LE 51.2 billion, and in principal repayments by LE 5.1 billion to LE 12.5 billion. The ratios of debt service to GDP and to total revenues rose to 5.3 percent and 42.0 percent, respectively, in the reporting period (from 4.3 percent and 23.5 percent in the previous corresponding period).

Resources of the NIB at End of March 2010 (LE bn)

Dollar Dev elopment

Bonds &Others 2.0

Social Insurance Funds 54.5

Proceeds of Inv estment

Certificates & Accumulated Interest 96.8

Post Office Sav ing Account

58.0 Deposits with the Banking

System 3.4 Economic

Authorities 51.0

Treasury Bills & Bonds 14.3

Loans to Holding Companies & Affiliate Units,Concessional Lending &Others 142.6

Uses of the NIB's Resources at End of March 2010(LE bn)

- 100 -

5: External Transactions 5/1- Foreign Exchange Market

Transactions on the foreign exchange market unfolded a surplus of US$ 11.0 billion during July/March 2009/2010, against a deficit of US$ 3.6 billion in the corresponding period a year earlier. The surplus realized during the period was an outcome of the increase in resources by US$ 10.8 billion or 25.9 percent, to US$ 52.5 billion on the one hand, and the drop in uses by US$ 3.8 billion or 8.3 percent, to US$ 41.5 billion, on the other. To the said surplus, banks contributed US$ 7.4 billion, the CBE US$ 2.4 billion, and exchange dealer companies US$ 1.2 billion. The volume of transactions in the interbank market (launched on 23/12/2004) reached US$ 32.9 billion during the reporting period, down by US$ 10.8 billion or 24.8 percent as compared with the corresponding period of the preceding FY. That brings the total volume of transactions in the market to US$ 234.7 billion in the period from its commencement up to the end of March 2010. During the period under review, the sales of public banks represented 18.2 percent of the total, and their purchases 3.4 percent, while the sales of private banks accounted for 81.8 percent of the total and their purchases constituted 96.6 percent.

The weighted average of the US dollar interbank rate posted LE 5.5055 on 31 March 2010, against LE 5.5964 on 30 June 2009, with a 1.7 percent rise in the LE value in the reporting period.

Volume of Dealing and Weighted Average of US Dollar Exchange Rate in the Interbank Market

0.02.04.0

6.08.0

10.012.014.0

16.018.020.0

Q3_07/08 Q4_07/08 Q1_08/09 Q2_08/09 Q3_08/09 Q4_08/09 Q1_09/10 Q2_09/10 Q3_09/105.155.205.255.305.355.405.455.505.555.605.655.70

Volume of dealing (during Q) Exchange rate (end of Q)

LEUS$ bn

- 101 - Net international reserves (NIR) with the CBE mounted by US$ 3.2 billion or 10.2 percent during July/March 2009/2010, standing at US$ 34.5 billion (covering 8.7 months of merchandise imports) at the end of March 2010 (against US$ 31.3 billion at the end of June 2009). That was primarily due to the increase in foreign currencies by the equivalent of US$ 2.0 billion and the supplementation of Egypt's provisions of SDRs by the equivalent of US$ 1.1 billion. It is worthy to mention that Egypt’s NIR edged up - at the time of preparing this Volume - to register US$ 35.2 billion at the end of June 2010.

Net International Reserves & Months of Merchandise Imports

05

10152025303540

Jun-06 Mar-07 Jun-07 Mar-08 Jun-08 Mar-09 Jun-09 Mar-10

(US$ bn)

56789101112

NIR NIR/Months of Merchandise Imports

Months

Overall Balance

2.1

0.6 0.5

0.5

-1.0

-1.8

-1.0

-2.0

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008/2009 2009/2010

US$ bn

- 102 -

5/2- Balance of Payments∗

Egypt’s transactions with the external world shifted to an overall BOP surplus of US$ 3.1 billion during the first nine months of FY 2009/2010, (from an overall deficit of US$ 2.3 billion in the corresponding period). Consequently, international reserves at the CBE showed an equivalent increase. The current account deficit retreated by 24.0 percent to some US$ 2.6 billion (against US$ 3.4 billion in the corresponding period a year earlier). Moreover, the capital and financial account achieved a net inflow of about US$ 5.2 billion (against some US$ 679.8 million).

5/2/1- Trade Balance

The volume of trade shrank by 9.5 percent to US$ 52.5 billion (against US$ 58.0 billion). This was an outcome of the retreat in both merchandise export proceeds and merchandise import payments, influenced by the decline in world trade growth. In addition, international reports (World Economic Outlook) projected that growth rates would remain on the decline in 2010, but would take a stable trend in 2011.

∗ Compiled in accordance with the Fifth Edition of the IMF’s Balance of Payments Manual, September 1993.

- 103 -

Export proceeds contracted by 11.9 percent to US$ 17.0 billion (against

US$ 19.3 billion). This was ascribed to the fall in oil exports by 17.9 percent (constituting 41.6 percent of total exports), and non-oil exports by 7.0 percent (representing 58.4 percent of total exports).

Likewise, import payments retreated by 8.4 percent to US$ 35.5 billion, reflecting the decrease in oil imports by 41.0 percent (9.2 percent of total imports), and non-oil imports by 2.9 percent (90.8 percent of total imports).

Merchandise Foreign TradeJuly/March

-60.0

-40.0

-20.0

0.0

20.0

40.0

60.0

80.0

2007/2008 2008/2009 2009/2010

(US$ bn)

Exports Imports Trade Volume

Distribution of Oil & Non-Oil Exports and Imports July/March

-40.0-35.0-30.0-25.0-20.0-15.0-10.0-5.00.05.0

10.015.0

2007/2008 2008/2009 2009/2010

(US$ bn)

Petroleum exports Non petroleum exportsPetroleum imports Non petroleum imports

- 104 -

Structures of Export Proceeds and Import Payments 5/2/1/1-Merchandise Exports by Degree of Processing∗

Export earnings declined by 11.9 percent to US$ 17.0 billion. Such a

decline resulted from the fall in the exports of semi-finished goods by 18.4 percent; fuel, mineral oils and products by 17.3 percent and finished goods by 8.1 percent. However, exports of raw materials accelerated by 38.7 percent.

5/2/1/2 - Merchandise Import Payments by Degree of Use∗∗

Merchandise imports retreated by 8.4 percent to US$ 35.5 billion (against US$ 38.7 billion). The retreat reflected the decrease in the imports of fuel, mineral oils and products by 35.0 percent; raw materials by 22.9 percent; intermediate goods by 9.5 percent and investment goods by 7.0 percent. However, import payments for consumer goods augmented by 28.4 percent. ∗ Calculated on FOB basis, as their value is calculated at the customs borders of the Egyptian economy, i.e.

excluding the costs of shipment, freight and insurance. They include the exports of free zones to the rest of the world.

∗∗Calculated on CIF basis; i.e. including the costs of shipment, freight and insurance. They include imports of

free zones from the rest of the world.

Proceeds of Merchandise Exports by Degree of Processing

July/March

0.0

2.0

4.0

6.0

8.0

10.012.0

Fuel, Mineral oils &Products

Raw Materials Semi-finished Goods Finished Goods

(US$ bn)

2007/2008 2008/2009 2009/2010

- 105 -

5/2/1/3 - Sectoral Distribution of Commodity Transactions

The private sector enlarged its role in external trade, with a share of 66.1

percent of the total volume of trade (against 59.4 percent). The public sector came next with 24.9 percent (against 30.5 percent) and the investment sector with 9.0 percent (against 10.1 percent).

Hereunder are the main exports and imports of said sectors: Private Sector:

The volume of trade of the private sector reached US$ 34.7 billion, with a modest increase of 0.7 percent. The increase was a dual effect of the rise in imports by 1.1 percent to US$ 26.4 billion (of which, intermediate goods represented 38.5 percent and consumer goods 29.4 percent of total imports of this sector), and the marginal decline in export proceeds by 0.7 percent to US$ 8.3 billion (49.1 percent of total export proceeds). Of the total exports of this sector, finished goods accounted for 75.8 percent.

The key imports of this sector were iron and steel products; pharmaceuticals; spare parts and accessories for cars; organic and inorganic chemicals; plastic and articles thereof; cars; paper, cardboard paper and articles thereof; computers; cranes and bulldozers and parts thereof; wood and articles thereof; and ready- made clothes.

Payments for Merchandise Imports

July/March

-14.0

-12.0

-10.0

-8.0

-6.0

-4.0

-2.0

0.0

Fuel, Mineraloils &

Products

Raw Materials IntermediateGoods

InvestmentGoods

ConsumerGoods

2007/2008 2008/2009 2009/2010

(US$ bn)

- 106 - Its main exports were ready-made clothes; miscellaneous edible

preparations; iron and steel products; fertilizers; organic and inorganic chemicals; pharmaceuticals; cotton textiles; cast iron and semi-finished products and rolled iron; and cars, tractors and bicycles. Public Sector:

Trade volume of the public sector declined by 26.3 percent, to reach US$ 13.1 billion. That was ascribed to the fall in the exports of this sector by 18.0 percent to US$ 7.1 billion (fuel, mineral oils and products represented 89.8 percent of total exports of this sector). Another factor at work was the decline in the public sector's imports by 34.2 percent to US$ 6.0 billion (fuel, mineral oils and products constituted 25.9 percent and raw materials 18.5 percent of the sector's total imports).

The main exports of this sector were crude oil and products; aluminum products; fertilizers; cotton; unalloyed aluminum; soap, detergents and artificial waxes; cotton textiles; organic and inorganic chemicals; manufactured tobacco and tobacco substitutes; and iron and steel products.

Its key imports were crude oil and products; wheat; animal and vegetable

fats, greases and oils and products; motors, generators and spare parts; pharmaceuticals; pumps and fans; tobacco; and optical appliances. Investment Sector

Trade volume of investment sector shrank by 18.9 percent to some US$ 4.7 billion, caused by the drop in its exports and imports. The former fell by 30.2 percent to US$ 1.6 billion (fuel, mineral oils and products represented 48.4 percent, and finished goods 35.7 percent of total exports of this sector). Meanwhile, imports contracted by 11.9 percent to US$ 3.2 billion (intermediate and investment goods constituted 29.1 percent and 25.4 percent, respectively, of its total imports).

The chief exports of this sector were oil products; organic and inorganic chemicals; fertilizers; ready made clothes; cotton textiles; cast iron and semi-finished products and rolled iron; carpets and other floor coverings; iron and steel products; animal and vegetable fats, greases and oils and products; and pharmaceuticals.

- 107 -

The main imports were crude oil; pumps, fans and their parts; animal and vegetable fats, greases and oils and products; car spare parts and accessories; oil products; iron and steel products; cranes and bulldozers and parts thereof; pharmaceuticals; and cars.

The following chart demonstrates the sectoral distribution of imports and exports:

5/2/1/4: Geographical Distribution of Commodity Transactions

The volume of trade between Egypt and the external world declined to as

low as US$ 52.5 billion during July/March 2009/2010, as earlier stated, down by 9.5 percent, due to the fall in the volume of trade between Egypt and all groupings of trade partners. The “Arab countries” and “other European countries” were an exception.

As for merchandise exports, the European countries came first, contributing 36.0 percent of total export proceeds during the period under review, followed by the USA (20.1 percent), and the Arab countries (19.9 percent).

Turning to import payments, the European countries were also the main exporter to Egypt, with a share of 37.7 percent of total imports, followed by the Asian countries (20.7 percent), and the other European countries (12.3 percent).

Trade Volume US$ 52.2 bn

Imports US$ 35.5 bn Exports US$ 17.0 bn

Private sector 49.1%

Public sector 41.6%

Investment sector 9.3%

Private sector 74.2%

Public sector 16.9%

Investment sector 8.9%

- 108 -

The following chart illustrates the geographical distribution of the volume of external trade between Egypt and the different countries:

Trade Volume US$ 52.5 bn

European Union 37.2%

Other European countries 9.8%

Russian Federation & C.I.S 2.1%

United States of America 13.7%

Arab countries 13.2%

Asian countries (Non Arab) 18.4%

African countries (Non Arab) 1.2%

Australia & other countries 4.4%

Imports US$ 13.4 bn

Exports US$ 6.1 bn

Imports US$ 4.4 bn

Exports US$ 0.8 bn

Imports US$ 1.0 bn

Exports US$ 0.1 bn

Imports US$ 3.8 bn

Exports US$ 3.4 bn

Imports US$ 3.6 bn

Exports US$ 3.4 bn

Imports US$ 7.3 bn

Exports US$ 2.3 bn

Imports US$ 0.4 bn

Exports US$ 0.3 bn

Imports US$ 1.7 bn

Exports US$ 0.6 bn

Exports US$ 17.0 bn

Imports US$ 35.5 bn

Services Receipts Items as a Percentage of Total Services Receipts

July / March 2009/2010

Travel 49.2%

Transportation 29.5%

Other Receipts16.8%

Investment Income3.7%

Government Receipts

0.8%

Change in Travel and Suez Canal Receipts

1.1

2.7

1.21.11.0

1.31.0

1.5

2.8

3.2

2.62.2

2.5

3.3

0.0

1.0

2.0

3.0

4.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008/2009 2009/2010

US$ bn

Suez Canal Travel

- 109 - 5/2/2- Services Balance and Transfers

During the period under review, the services surplus fell by 9.0 percent to

US$ 8.8 billion (against US$ 9.6 billion) due to the following factors:

- Services receipts decreased by 3.7 percent to only US$ 17.7 billion (against US$ 18.4 billion), attributable to the decline in most items as follows:

• Transportation receipts shrank

by 10.2 percent to US$ 5.2 billion (against US$ 5.8 billion). That was traced to the decline in Suez Canal earnings by 8.4 percent, owing to the retreat in the number of transiting ships and net tonnage.

It is worth mentioning that

comparing the quarterly data of Suez Canal revenues in the period under review with those of the previous corresponding period showed signs of recovery in these revenues. After reaching a peak of 24.0 percent in the first quarter, the rate of decline improved, register-ing only 8.3 percent in the second quarter, then shifted to a rate of increase of 15.0 percent in the third quarter.

Services Payments (By Item) as a Percentage of Total Services Payments

July / March 2009/2010 Other Payments

24.6%

Government Payments

12.5%

Investment Income32.8%

Travel 19.8%

Transportation10.3%

- 110 - • Investment income plunged by 61.4 percent to US$ 661.5 million

(against US$ 1.7 billion) because of the decrease in interest rates on deposits abroad (held by the banking system or residents) and in investment income (portfolio investment).

• Government receipts decreased by 22.6 percent, due to the decline in the expenses of foreign embassies in Egypt.

• However, travel receipts (tourism revenues∗) augmented by 10.1 percent to some US$ 8.7 billion (against US$ 7.9 billion), spurred by the rise in tourist nights to 102.6 million during the period under review (against 93.3 million during the corresponding period).

It should be noted here that comparing the quarterly data of tourism revenues

in the period under review with those of the previous corresponding period showed a steady improvement in these revenues. Hence, they increased by 13.0 percent and 24.2 percent in the second and third quarters, respectively, after declining by 1.6 percent in the first quarter.

• “Other service receipts” also rose by 7.6 percent to US$ 3.0 billion,

mainly due to the rise in invisible receipts of the EGPC and the return of investment service companies in the oil sector.

- Service payments slightly rose

by 2.1 percent to US$ 9.0 billion (against US$ 8.8 billion) under the following developments:

• Investment income payments

rose to US$ 2.9 billion (against US$ 1.4 billion) fuelled by larger transfers of foreign companies operating in Egypt.

∗ Calculated on the basis of the number of tourist nights multiplied by the average tourist spending per night.

Net Unrequited Transfers & Egyptian Workers' Remittances

2.81.92.51.81.82.72.0

2.3

1.9

2.9

1.71.91.81.7

0.0

1.0

2.0

3.0

Q1 Q2 Q3 Q4 Q1 Q2 Q3

2008/2009 2009/2010

US$ bn

Net Unrequited TransfersEgyptian Workers' Remittances

- 111 - • Government expenses accelerated by 37.7 percent due to the rise in the

“other government expenses”, and in the salaries and expenses of government employees seconded abroad.

• However, “other service payments” decreased by 30.9 percent to US$ 2.2 billion (against US$ 3.2 billion), because of the fall in transfers abroad by Egyptian and foreign companies (oil and non-oil) and the lower payments for communication services.

• Transportation payments decreased by 23.7 percent to US$ 920.0 million, owing to the decline in the transfers of Egyptian navigation companies and the lower payments of SUMED pipeline and foreign aviation companies.

• Travel payments went down by 18.4 percent, reflecting the drop in visa card payments, expenses of tourism and medical treatment abroad, as well as payments of hotels and tourism companies abroad, and the expenses of pilgrimage and "omra".

- Net unrequited transfers

picked up by 11.3 percent to US$ 7.2 billion due to the following factors:

• The increase in private

transfers by 7.3 percent to US$ 6.3 billion (mainly, remittances of Egyptians working abroad that rose by 8.1 percent).

• The rise in official transfers due to the pickup in cash grants to the Egyptians government.

- 112 -

Net Unrequited Current Transfers (US$ mn)

July/March Change 2008/2009 2009/2010 Value % Net Current Transfers (Unrequited) 6439.0 7168.7 729.7 11.3 1- Official Transfers (Net) 588.2 893.1 304.9 51.8 - Inward cash grants 371.6 472.8 101.2 27.2 - Other inward grants 267.5 469.6 202.1 75.6 - Official outward grants (-) -50.9 -49.3 -1.6 -3.1 2- Private Transfers (Net) 5850.8 6275.6 424.8 7.3 - Workers' remittances 5974.0 6457.3 483.3 8.1 - Other transfers 55.7 44.7 -11.0 -19.7 - Private transfers abroad (-) -178.9 -226.4 -47.5 -26.6

In the light of the above-mentioned developments, the current account ran

a deficit of US$ 2.6 billion, due to the decline in current receipts by US$ 2.2 billion or 5.1 percent to only US$ 41.9 billion (against US$ 44.1 billion), and the fall in current payments by US$ 3.0 billion or 6.4 percent to only US$ 44.5 billion (against US$ 47.5 billion).

The following chart clarifies the current receipts and payments in both the

reporting and previous corresponding periods:

Current Receipts & PaymentsJuly/March

-38.7

6.4

18.419.3

-8.8 -8.9

-35.5

7.2

17.717.0

-57.0

-50.0

-43.0

-36.0

-29.0

-22.0

-15.0

-8.0

-1.0

6.0

13.0

20.0

27.0

Merchandise Exports Services Receipts Net UnrequitedTransfers

Merchandise Imports Services Payments

2008/2009 2009/2010

US$ bn

Net Foreign Investments in EgyptJuly/March

4.35.2

11.3

7.1

-8.9

-1.4

-10-9-8-7-6-5-4-3-2-10123456789

101112

2007/2008 2008/2009 2009/2010

US$ bn

Net FDI in EgyptNet Portfolio Investment in Egypt

- 113 -

5/2/3- Capital and Financial Account

The capital and financial account revealed net inflows of US$ 5.2 billion

during the period under review (against US$ 679.8 million during the period of comparison) due to the following developments:

1- Portfolio investment in Egypt∗ shifted to a net inflow of US$ 7.1 billion

(against a net outflow of US$ 8.9 billion). Foreigners' net transactions on Egyptian TBs reached some US$ 6.1 billion (inflow), and on shares US$ 1.2 billion (inflow). Meanwhile, net transactions on other Egyptian bonds and notes amounted to about US$ 255.8 million (outflow).

2- Foreign Direct Investment (FDI) in Egypt ∗∗ declined by 17.3 percent to US$ 4.3 billion (against US$ 5.2 billion) as an outcome of the following:

• Net Greenfield investments

declined to only US$ 1.2 billion (against US$ 2.0 billion).

• Net direct investment in the oil sector remained at the same level of the corresponding period (US$ 2.8 billion).

• Privatizations (acquisitions or selling of companies and productive assets to non-residents) recorded US$ 157.1 million (against US$ 276.3 million).

notes. Representing foreigners' net transactions in securities, and Egyptian bonds and ∗ ∗∗ FDI represents foreign investors who own 10 percent or more of the capital of any resident economic entity,

or have an effective voice in its management. In Egypt, a foreign investor's equity participation shall be at least 10 percent of the capital of any enterprise.

- 114 -

- The following chart shows the sectoral distribution and the share of each sector in total foreign direct investment in Egypt.

3- Other assets and liabilities (representing change in banks’ foreign assets and liabilities, the CBE’s non-reserve foreign assets and foreign liabilities and the counterpart of some items included in the current account) revealed a net outflow of US$ 7.2 billion (against a net inflow of US$ 5.7 billion).

4- Medium - and long-term loans and facilities remained at the same level of the corresponding period, recording net repayments of US$ 1.1 billion. That was ascribed to a fall in total repayments to US$ 1.6 billion (against US$ 2.0 billion) and total disbursements to US$ 539.1 million (against US$ 902.4 million).

Sectoral Distribution of FDI in EgyptJuly/March 2009/2010

Financing 4.2%

Tourism 3.1%

Serv ices 4.0%

Other 7.4%

Manuf acturing 2.2%

Real Estate 2.8%

Petroleum 76.3%

- 115 -

5/3 - International Finance

International finance data revealed an increase of US$ 16.1 billion in net finance, to record a net inflow of US$ 10.2 billion during the first nine months of 2009/2010; a reversal from the net outflow of US$ 5.9 billion of the previous year. The pickup was primarily ascribed to the rise in the total net resource inflows to US$ 13.2 billion in the period under review, (against a net outflow of US$ 4.5 billion). This was an outcome of a number of factors, most notably:

- The increase in net foreign investments in Egypt (direct and portfolio) by

roughly US$ 15.1 billion, as portfolio investments in Egypt shifted from a net outflow of US$ 8.9 billion during the period of comparison to a net inflow of US$ 7.1 billion in the period under review (representing foreigners' net transactions in securities, as well as Egyptian bonds and notes). By contrast, net FDI in Egypt retreated by 17.3 percent, to stand at US$ 4.3 billion during the period under review (against US$ 5.2 billion); and

- The slight decrease of US$ 23.9 million in net foreign investments abroad

(direct and portfolio), as a result of both the retreat in FDI abroad by 39.9 percent, to register only US$ 648.6 million and the rise in portfolio investment abroad by 142.8 percent, to stand at US$ 692.6 million.

The following chart illustrates the developments in net foreign

investments (direct and portfolio) in Egypt and abroad during the first nine months of the last four years.

Net Resources AbroadJuly / March

-411.2

-1079.9-929.7

-285.2-87.4 -444.5-648.6

-698.2 -461.5 -692.6(1100)

(900)(700)

(500)

(300)(100)100

300500

700900

1100

1300

2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

US$ mn

Direct Investment Abroad Net Portfolio Investment Abroad

Net Resources in EgyptJuly / March

7111.25238.9

11251.7

9045.34631.5

4332.0

-8889.8

-1350.7

228.52847.7

(9000)(7000)(5000)(3000)(1000)10003000500070009000

1100013000

2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

US$ mn

Net Direct Inv estment in Egy pt Net Portf olio Inv estment in Egy pt

- 116 - - Net disbursement of external borrowing (medium- long- and short-term

loans and facilities) amounted to some US$ 2.2 billion, (compared with a net repayment of US$ 48.0 million in the period of comparison);

- The pickup in net official grants by 51.8 percent to some US$ 893.1

million; and

- The rise in total interest payments and profit transfers abroad by US$ 1.6 billion to US$ 2.9 billion.

Finance Resources from Abroad (Net)

(US$ mn) July/March

2008/2009 2009/2010+ Change

Net International Finance from Abroad (5872.7) 10206.7 16079.4 A- Total Net Resources from Abroad (4475.8) 13155.8 17631.6 1- Official grants (net) 588.2 893.1 304.9 2- External borrowing (net) (48.0) 2160.7 2208.7 3- Direct investment in Egypt (net) 5238.9 4332.0 (906.9) 4- Portfolio investment in Egypt (net) (8889.8) 7111.2 16001.0 5- Direct investment abroad (1079.9) (648.6) 431.3 6- Portfolio investment abroad (net) (285.2) (692.6) (407.4) B- Interest Payments and Profit Transfers (Outflows) (1396.9) (2949.1) (1552.2) 1- Interest on external loans and facilities (500.2) (461.4) 38.8 2- Interest on non-residents’ deposits at Egyptian banks (26.6) (12.1) 14.5 3- Profit transfers of direct investment (629.8) (2294.7) (1664.9) 4- Profit transfers of investment in securities (240.3) (180.9) 59.4 + Provisional.

Net Flows of Official Grants and External Borrowing July / March

431.9

893.1648.3

2160.7

(500)(200)100400700

100013001600190022002500

2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

US$ mn

Of f icial grants Net external borrowing

- 117 - 5/3/1- FDI in Egypt ∗

During July/March 2009/2010, net FDI in Egypt stepped down by 17.3

percent, posting only US$ 4.3 billion, (against US$ 5.2 billion). That was an outcome of the decline in both total investment inflows by 13.7 percent to merely US$ 7.5 billion and capital repatriation by 8.4 percent to US$ 3.2 billion.

The low investment flows to Egypt were attributable to the retreat in those

from the USA by US$ 1.8 billion to US$ 1.0 billion (85.1 percent went to oil investments) and from the Arab countries by 52.7 percent to US$ 805.1 million (36.6 percent represented greenfield investments). On the other hand, flows from the EU countries rose by US$ 1.8 billion to US$ 4.9 billion, and from other countries by US$ 102.6 million to US$ 851.2 million.

The sectoral distribution of total FDI inflows showed that the petroleum

sector came in the forefront (US$ 5.6 billion or 76.3 percent of the total). Greenfield investments came next (US$ 1.4 billion or 18.8 percent), followed by real estate investments (US$ 212.8 million or 2.8 percent).

The geographical distribution of FDI showed that the bulk of these

inflows came from the European Union (71.4 percent of the total), followed by the United Kingdom (54.8 percent), Belgium (11.6 percent) and the USA (15.0 percent). The Arab countries accounted for 3.0 percent, (mostly from Jordan with 1.3 percent), followed by other countries (10.6 percent), especially Switzerland (0.9 percent) and Hong Kong (0.6 percent).

Sectoral Distribution of Total FDI Inflows in Egypt

(US$ mn) July/March

2008/2009 2009/2010 Sector

Value % Value % Total Inflows 8744.4 100.0 7542.3 100.0 Petroleum 5927.0 67.8 5755.7 76.3 Manufacturing 752.7 8.6 163.8 2.2 Finance 352.0 4.0 314.8 4.2 Services 242.2 2.8 303.8 4.0 Construction 174.3 2.0 116.4 1.5 Real Estate 112.1 1.3 212.8 2.8 Tourism 105.0 1.2 232.0 3.1 Agriculture 73.8 0.8 7.8 0.1 Communications & IT 723.2 8.3 59.6 0.8 Undistributed 282.1 3.2 375.6 5.0 ∗ FDI is a category of international investment that implies the existence of a long-term relationship (between a

resident in a given economy and an enterprise resident in another economy), in which a direct investor owns 10 percent or more of the ordinary shares or voting power (for an incorporated enterprise) or its equivalent (for an unincorporated enterprise). Source: IMF's BOP Manual, Fifth Edition.

- 118 -

The following chart illustrates net FDI distribution in Egypt by purpose:

1839.4

4631.5

9045.3

11251.7

5238.94332

(3500.0)(2000.0)(500.0)1000.02500.04000.05500.07000.08500.0

10000.011500.013000.014500.0

2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

Outflows Proceeds from selling local enitities to non-residents Petroleum sector investments Transfers for buying real estates in Egypt by non-residents Greenfield investments Net foreign direct investment in Egypt

Net Foreign Direct Investment in Egypt July / March

US$ mn

- 119 -

FDI in Egypt by Geographical Distribution (US$ mn)

July/March 2008/2009 2009/2010*

Flows of FDI in Egypt (Net) 5238.9 4332.0 Inflows 8744.4 7542.3 USA 2797.0 1016.9 EU Countries 3496.1 4869.1 Germany 81.1 83.4 France 195.9 169.6 UK 1738.1 3554.3 Italy 27.4 36.1 Greece 152.2 60.2 Spain 1.5 75.4 The Netherlands 122.3 97.6 Belgium 1116.6 678.0 Luxemburg 26.8 3.6 Denmark 7.9 6.8 Sweden 0.0 46.0 Austria 10.4 1.9 Cyprus 3.4 53.6 Estonia 0.1 0.0 Latvia 0.6 0.1 Ireland 1.5 1.6 Poland 9.2 0.8 Others 1.1 0.1

Arab Countries 1702.7 805.1 Saudi Arabia 403.6 222.4 UAE 952.7 227.9 Tunisia 0.6 0.3 Kuwait 88.0 74.1 Lebanon 66.1 3.1 Libya 1.7 68.5 Jordan 106.5 81.2 Bahrain 12.6 36.1 Qatar 34.3 46.0 Oman 10.9 7.1 Yemen 9.4 6.1 Sudan 1.1 0.9 Others 15.2 31.4

Other Countries 748.6 851.2 Switzerland 134.5 70.0 Japan 30.2 10.5 Canada 100.6 6.1 China 44.9 24.4 Australia 7.5 0.8 India 50.5 7.7 Turkey 53.2 22.5 Norway 4.5 2.1 Others 322.7 707.1

Capital Repatriation∗∗ -3505.5 -3210.3 ∗ Provisional. ∗∗ Capital repatriation means that a direct investor recovers his share in the capital of an investment enterprise - in case of a partial or full disposal - and transfers part or all of it abroad.

- 120 -

5/3/2- External Official Grants

Net transfers of official grants (cash and in-kind) as shown in the chart below, rose to some US$ 893.1 million during July/March 2009/2010, from US$ 588.2 million in the previous corresponding period, up by US$ 304.9 million. The rise was attributable to the marked increase in inward grants and the decrease in outward grants. Inflows of in-kind grants jumped by 75.6 percent to US$ 469.6 million, and so did cash grants by US$ 101.2 million, reaching US$ 472.8 million . The increase was largely in grants from the USA and Saudi Arabia (new grants), while outflows of official grants retreated by US$ 1.6 million to US$ 49.3 million

Data of the Ministry of International Cooperation showed that new grant

commitments went up by 6.0 percent to US$ 540.8 million, given the tendency to increase new grant commitments, especially with the USA and the European Commission.

360.3122.6

371.6 472.8

315.4

289.6

469.6

267.5

(49.3)(50.9)(49.3)(23.9)-200.0

0.0

200.0

400.0

600.0

800.0

1000.0

2006/2007 2007/2008 2008/2009 2009/2010

Cash inward grants In-kind inward grants Outward grants

Transfers of Official Grants during July / MarchUS$ mn

- 121 -

Official Grants: New Commitments and Net Actual Flows (US$ mn)

July/March 2008/2009 2009/2010* 2008/2009 2009/2010*

Actual Flows Commitments Net Inflows 588.2 893.1 Inflows, of which: 639.1 942.4 510.1 540.8 USA 470.9 559.6 124.5 275.4 Japan 19.4 8.8 4.7 10.8 Germany 19.5 30.6 11.2 Netherlands 0.2 6.4 Italy 0.2 1.1 11.6 United Kingdom 0.4 Switzerland 0.6 China 8.6 8.8 11.7 Canada 2.2 1.2 Saudi Arabia 200.1 UAE 1.4 Qatar 1.8 Belgium 114.2 49.0 Austria 1.1 World Bank 0.9 European Commission 86.2 236.1 US Agency for International Development 247.1 Korean International Cooperation Agency (KOICA) 6.8 Japan Social Development Fund 2.9 French Development Agency 2.1 Others 0.5 90.1 0.7 3.0 Outflows (50.9) (49.3) * Provisional

As for the sectoral distribution of grant commitments, grants for the ser-vices sector were concentrated in education and health, the general government and financial intermediaries.

- 122 -

Breakdown of Official Grant Commitments (by Beneficiary)

(US$ mn) July/March

2008/2009 % 2009/2010 %

Total 100.0 510.1 540.8 100.0 :Productive Sectors 49.0 9.6 12.3 2.3

Agriculture and irrigation 6.8 1.3 1.0 0.2 Energy & electricity 42.2 8.3 11.3 2.1

:Services Sectors 461.1 90.4 528.5 97.7 Transportation, communications and IT & Suez Canal 11.6 2.3 0.0 0.0 Financial intermediaries & supporting services 14.3 2.8 15.3 2.8 Real estate 57.0 11.2 0.0 0.0 General government 30.7 6.0 16.0 3.0 Education and health 91.0 17.8 63.3 11.7 Others 256.5 50.3 433.9 80.2

- 123 -

5/3/3- External Debt

External debt (public and private, all maturities) increased by about US$ 746.0 million or 2.4 percent, reaching US$ 32.3 billion at end of March 2010, against US$ 31.5 billion at end of June 2009. That was ascribed to the realization of net disbursements of loans and facilities in the amount of US$ 1.2 billion (as an outcome of disbursements of US$ 2.9 billion and principal repayments of US$ 1.7 billion). The rise was, however, held back by the depreciation of most currencies of borrowing versus the US dollar by the equivalent of US$ 408.3 million. The public sector was the major obligor, carrying US$ 30.3 billion or 93.9 percent of the external debt at end of March 2010. The private sector accounted for merely US$ 2.0 billion or 6.1 percent.

∗External Debt Components The breakdown of external debt by maturity indicated that medium- and long-term loans and facilities (guaranteed and non-guaranteed) accounted for 92.0 percent of the total external debt, registering US$ 29.7 billion at end of March 2010. Of this figure, long-term loans reached US$ 29.2 billion, and medium-term loans US$ 506.5 million. The short-term debt of US$ 2.6 billion accounted for the remainder (8.0 percent). Around US$ 17.3 billion∗∗ of long-term loans were owed to Paris Club members (53.5 percent of the total). Debt to countries other than Paris Club members registered around US$ 897.7 million (2.8 percent).

∗ The structure of Egypt’s external debt by currency of borrowing is one of the key indicators used by the CBE to

determine the structure of international reserves by currency. ∗∗ Representing bilateral loans (rescheduled and non-rescheduled) and suppliers' and buyers' credit.

- 124 -

Debt to international and regional organizations reached US$ 9.5 billion or 29.5 percent of the total at end of March 2010 (the public sector owed 98.1 percent). The stock of Egyptian bonds and notes (holdings of non-residents) amounted to some US$ 1.9 billion, or 6.0 percent of total external debt. That figure comprised US$ 246.0 million of dollar-denominated sovereign bonds issued by the Egyptian government in July 2001. This is in addition to US$ 1.3 billion of guaranteed government securities issued by the government in September 2005, and US$ 409.1 million of LE bonds issued in July 2007. Non-guaranteed debt of the private sector posted US$ 73.9 million or 0.2 percent of the total debt at end of March 2010. The balance of short-term external debt (8.0 percent of the total) went up by 22.5 percent to US$ 2.6 billion (65.1 percent of which was owed by the private sector). The rise resulted from the pickup in short-term trade facilities by 44.9 percent to US$ 1.4 billion, and short-term deposits of non-residents by 3.8 percent to US$ 1.2 billion.

External Debt by Debtor

The breakdown of external debt by debtor at the end of March 2010 showed an increase in the stock of debt owed by the monetary authorities to US$ 1.3 billion (including an increase of US$ 1.2 billion in long-term obligations to cover Egypt’s allocations of SDRs granted by the IMF). Debt owed by banks also rose by the equivalent of US$ 43.7 million to US$ 1.8 billion; and other sectors by US$ 469.8 million to US$ 4.2 billion. On the other hand, debt of the central and local government decreased by US$ 837.0 million to US$ 25.0 billion (77.4 percent of the total external debt).

External Debt StructureEnd of March 2010

Short-term debt8.0%

Private sector (Non-

guaranteed)0.2%

Suppliers' & buyers' credits

1.1%

Other bilateral debt

15.0%

Rescheduled bilateral debt

40.2%

International & regional

organizations29.5%

Egyptian bonds and notes

5.9%

- 125 -

Nonetheless, the aforementioned developments did not affect the structure of external debt by debtor, as the central government remained the major obligor (77.7 percent of the debt) at end of March 2010, followed by the other sectors (12.9 percent), then banks (5.7 percent) and the monetary authority or CBE (4.0 percent).

External Debt by Debtor (US$ bn)

Debt by Main Creditor

The breakdown of external debt by creditor showed that 45.7 percent, or nearly half of the total; was due to the four main Paris Club members; namely France (12.1 percent), Germany (11.4 percent), Japan (11.8 percent), and the USA (10.4 percent). Meanwhile, debt to the Arab countries combined posted 5.1 percent, mainly owed to Kuwait (2.3 percent), Saudi Arabia (1.0 percent) and the UAE (0.5 percent).

External Debt by DebtorShare in Total Increase/Decrease

End of March

3351.1

825.5

(837.0)(106.5)

1,069.528.2

(403.9) (340.7)

43.7469.8

138.3

(5853.7)

-6500.0

-4500.0

-2500.0

-500.0

1500.0

3500.0

5500.0

2007/2008 2008/2009 2009/2010

(US$ mn)

Central & Local Gov ernment Monetary Authority

Banks Other Sectors

June 2009

Central & Local

Government 25.8

Monetary Authority

0.2

Other Sectors

3.7

Banks1.8

March 2010

Central & Local

Government 25.0

MonetaryAuthority

1.3

Banks1.8

Other Sectors

4.2

- 126 -

rowingExternal Debt by Currency of Bor

The distribution of external debt by main constituent currencies revealed that the US dollar came in the lead, with a relative importance of 38.1 percent, due to outstanding obligations in US dollar to creditors other than the USA. The euro came next at 30.0 percent, the Japanese yen at 12.4 percent, the special drawing rights (SDRs) at 7.4 percent, and the Kuwaiti dinar at 6.0 percent.

Debt Service

Turning to external debt service (medium- and long-term), debt service payments went down by US$ 382.7 million, to reach some US$ 2.3 billion during July/March, 2009/2010. That was traced to the decrease in principal repayments by US$ 326.4 million to US$ 1.7 billion and interest payments by about US$ 56.3 million to some US$ 574.2 million.

External Debt by Creditor

International & regional

organizations 29.5%

Arab Countries

5.1%

Other countries 10.7%

Germany 11.4%United

Kingdom 3.0%

USA10.4%

Egyptian bonds and

notes 6.0% France

12.1%

Japan 11.8%

March2010

External Debt by Major CurrenciesEnd of March 2010

Swiss franc1.7%

Egyptian pound2.3%

Kuwaiti dinar6.0%Japanese yen

12.4%

Euro30.0%

US dollar 38.1%

Other currencies2.1%

SDRs7.4%

- 127 -

Main Indicators of External Debt

During the reporting period, the key indicators of external debt showed that debt service payments declined by US$ 382.7 million to US$ 2.3 billion as mentioned earlier. Moreover, current receipts (including transfers) retreated by 5.4 percent. Consequently, the ratio of debt service to current receipts (including transfers) fell from 6.0 percent to 5.4 percent, and its ratio to the exports of goods and services dropped from 7.0 percent to 6.5 percent. With GDP growth outpacing the rise in the balance of external debt, the indicator showing external debt/GDP ratio improved, posting 14.8 percent, down from 16.7 percent in the previous corresponding period. Moreover, the external debt per capita mounted to US$ 428.5 in the period under review, from US$ 410.0 in the period of comparison.

External Debt and Debt ServiceEnd of March

-5.0

5.0

15.0

25.0

35.0

2004 2005 2006 2007 2008 2009 2010 0.00.51.01.52.02.53.0

External Debt Debt Service (right axis)

US$ bnUS$ bn

External Debt IndicatorsJuly / March

176.893.0

14.838.3

426.8 428.5

0.050.0

100.0150.0200.0250.0300.0350.0400.0450.0500.0550.0600.0

2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

%

0.0

50.0

100.0

150.0

200.0

250.0

300.0

350.0

400.0

450.0

500.0

(US$)

External Debt / Exports of Goods and Serv ices External Debt /GDP External Debt Per Capita (US$) (right axis)

- 128 -

Though short-term debt rose by 22.5 percent, to register US$ 2.6 billion as mentioned earlier, its ratio to total debt stood at 8.0 percent during the period of comparison and the period under review. Meanwhile, its ratio to NIR retreated to 7.5 percent from 7.7 percent, due to the continued increase in NIR in the reporting period.

The Global Development Finance report for 2010 (World Bank), revealed that Egypt was the largest debtor country in the Middle East. Nevertheless, according to the same report, Egypt ranked twenty two in position among the middle-income debtor countries (a debt balance of about US$ 32 billion), while Russia came on top (US$ 402 billion) in 2008.

Source: Global Development Finance 2010 (2008 data), World Bank.

External Debt Indicators July / March

5.47.56.5

10.1

12.4

5.9

8.0

11.7

0.02.04.06.08.0

10.012.014.0

2003/2004 2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2009/2010

%

Debt Service / Current Receipts (Including Transfers)Short-Term Debt / Net International ReservesShort-Term Debt / Total External DebtDebt Service / Exports of Goods and Services

Total External Debt Stocks of Middle-Income Countries (2008)

0.050.0

100.0150.0200.0250.0300.0350.0400.0450.0

Rus

sia

Chi

na

Turk

ey

Braz

il

Indi

a

Pola

nd

Mex

ico

Indo

nesi

a

Arge

ntin

a

Kaza

khst

an

Rom

ania

Ukr

aine

Mal

aysi

a

Philip

pine

s

Thai

land

Chi

le

Vene

zuel

a

Paki

stan

Col

ombi

a

Sout

h Af

rica

Bulg

aria

Egyp

t

US$ bn

- 129 -

New Commitments on Loans and Facilities

In the first nine months of 2009/2010, new commitments on loans and facilities registered US$ 2.5 billion. Most of these loans were concluded with international and regional organizations (around US$ 1.6 billion or 62.2 percent of total commitments). Bilateral loans recorded some US$ 945.2 million or 37.3 percent, and buyers’ and suppliers’ credit amounted to US$ 12.8 million or 0.5 percent of total commitments. Consequently, total commitments scaled down by US$ 982.5 million below the level of the period of comparison, due to the decrease in the commitments concluded with international organizations, particularly the IMF, the African Development Bank and the European Investment Bank.

Annex

- 131 -

Statistical Section

(1) Indicators of Development and Economic Growth

(1/1) GDP at Factor Cost by Economic Sector (at 2006/2007 Prices) (1/2) GDP by Expenditure (1/3) Consumer Price Index (Urban) (January 2007=100) (1/4) Producer Price Index (2004/2005=100) (2) Monetary Aggregates (2/1/1) CBE Financial Position: Reserve Money and Counterpart Assets (2/1/2) Banking Survey: Domestic Liquidity and Counterpart Assets (2/1/3) Banking Survey: Deposits in Local Currency (2/1/4) Banking Survey: Deposits in Foreign Currencies (2/1/5) Banking Survey: Foreign Assets and Liabilities (2/1/6) Banking Survey: Domestic Credit and Other Items (Net) (2/1/7) Total Saving Vessels (2/1/8) Bank Lending and Discount Balances to Business Sector

Financial Sector (2/2/1) Structure of the Egyptian Banking System as at 31/3/2010 (2/2/2) Local Mutual Funds Authorized and Operating as at 31/3/2010 Activity of the Banking System

Central Bank of Egypt

(2/3/1) Note Issued by Denomination (2/3/2) Currency in Circulation outside CBE by Denomination (2/3/3) Activity of Clearing House

- 132 -

Banks

(2/4/1) Aggregate Financial Position (2/4/2) Deposits by Maturity (2/4/3) Deposits by Sector (2/4/4) Deposits by Economic Activity (2/4/5) Portfolio Investments by Sector (2/4/6) Lending and Discount Balances by Sector (2/4/7) Credit by Sector (2/4/8) Lending and Discount Balances by Economic Activity

Interest Rates

(2/5/1) Discount and Interest Rates on Deposits and Loans in Egyptian Pound (2/5/2) Domestic Interest Rates on 3-Month Deposits in Major Currencies (2/5/3) Interest Rates on Treasury Bills (Weekly Weighted Averages) (3) Non-Banking Financial Sector (3/1) Companies Listed on the Stock Exchange (3/2) Trading in Shares on the Stock Exchange (3/3) Trading in Bonds on the Stock Exchange (3/4) Foreigners’ Transactions on the Stock Exchange (3/5) Global Depository Receipts (GDRs) (3/6) Outstanding Balance of Treasury Bills (Quarterly) (3/7) Outstanding Balance of Treasury Bills (Weekly) (3/8) Outstanding Balance of Treasury Bonds

- 133 -

(4) Public Finance & Domestic Public Debt (4/1) Consolidated Fiscal Operations of the General Government (Expenditures) (4/2) Consolidated Fiscal Operations of the General Government (Revenues) (4/3) Summary of the Consolidated Fiscal Operations of the General

Government (4/4) Government Domestic Debt, Economic Authorities Debt & NIB Debt (4/5) National Investment Bank (Resources & Uses) (5) External Transactions

(5/1) Balance of Payments (US$) (5/2) Exports by Degree of Processing (5/3) Imports by Degree of Use (5/4) Regional Distribution of Exports and Imports (5/5) Average LE Exchange Rates (5/6) External Debt (5/7) Distribution of External Debt by Main Currencies

(LE mn)

Public Private Total Public Private Total Public Private TotalTotal GDP 222943.5 369772.4 592715.9 229775.4 393254.0 623029.4 3.1 6.4 5.1Agriculture, Forests & Fishing 12.6 82681.0 82693.6 13.2 85572.0 85585.2 4.8 3.5 3.5 Extractions 68629.6 14929.1 83558.7 69482.0 15642.0 85124.0 1.2 4.8 1.9

Petroleum 30107.0 5327.0 35434.0 29950.0 5222.0 35172.0 -0.5 -2.0 -0.7Gas 38241.0 7483.0 45724.0 39237.0 8181.0 47418.0 2.6 9.3 3.7Others 281.6 2119.1 2400.7 295.0 2239.0 2534.0 4.8 5.7 5.6

Manufacturing Industries 15195.5 78075.0 93270.5 15825.0 82104.0 97929.0 4.1 5.2 5.0Petroleum refining 2606.0 2057.0 4663.0 2627.0 2070.0 4697.0 0.8 0.6 0.7Others 12589.5 76018.0 88607.5 13198.0 80034.0 93232.0 4.8 5.3 5.2

Electricity 7024.0 1181.0 8205.0 7579.0 1164.0 8743.0 7.9 -1.4 6.6Water 2049.1 0.0 2049.1 2184.0 0.0 2184.0 6.6 0.0 6.6Sanitation 487.2 0.0 487.2 519.2 0.0 519.2 6.6 0.0 6.6Construction & Building 3055.1 25093.1 28148.2 3407.0 28585.0 31992.0 11.5 13.9 13.7Transportation & Storage 5421.5 18851.8 24273.3 5744.0 20183.0 25927.0 5.9 7.1 6.8Communications 7061.2 14501.8 21563.0 7729.0 16541.0 24270.0 9.5 14.1 12.6Information 441.6 827.2 1268.8 472.4 877.4 1349.8 7.0 6.1 6.4Suez Canal 20329.6 0.0 20329.6 18940.5 0.0 18940.5 -6.8 0.0 -6.8Wholesale & Retail Trade 2254.9 61163.0 63417.9 2390.0 64960.0 67350.0 6.0 6.2 6.2Finance 15306.8 8541.9 23848.7 16102.0 8946.0 25048.0 5.2 4.7 5.0Insurance 1493.6 441.2 1934.8 1571.0 466.0 2037.0 5.2 5.6 5.3Social Solidarity 20453.0 0.0 20453.0 21660.0 0.0 21660.0 5.9 0.0 5.9Restaurants & Hotels 223.5 24120.7 24344.2 239.0 27018.8 27257.8 6.9 12.0 12.0Real Estate 417.7 15511.7 15929.4 432.0 16194.0 16626.0 3.4 4.4 4.4

Real Estate Ownership 271.0 8162.0 8433.0 279.0 8524.0 8803.0 3.0 4.4 4.4Business Services 146.7 7349.7 7496.4 153.0 7670.0 7823.0 4.3 4.4 4.4

General Government 52544.0 0.0 52544.0 54918.0 0.0 54918.0 4.5 0.0 4.5Social Services 543.0 23853.9 24396.9 568.1 25000.8 25568.9 4.6 4.8 4.8

Education 0.0 6719.9 6719.9 0.0 7096.0 7096.0 0.0 4.5 4.5Health 520.1 7415.5 7935.6 544.0 7776.0 8320.0 4.6 4.9 4.8Others 22.9 9646.5 9669.4 24.1 10128.8 10152.9 5.2 5.0 5.0

Source : Ministry of Economic Development.

- 134 - (1/1) GDP at Factor Cost by Economic Sector

At 2006/2007 prices

July / Mar.

SectorsGrowth Rate %

2008/2009 2009/2010 2009/2010

2008/2009 2009/2010 2008/2009 2009/2010 2008/2009 2009/2010 1-GDP at Market Prices(2+5-6) 620.0 651.8 100.0 100.0 4.7 5.1

2- Total Domestic Expenditure (3+4) 650.2 672.5 104.9 103.2 4.5 3.4

3- Final Consumption 524.5 545.0 84.6 83.6 4.6 3.9

Final private consumption 458.0 475.6 73.9 73.0 4.6 3.8

Final government consumption 66.5 69.4 10.7 10.6 4.6 4.4

4- Gross Capital Formation 125.7 127.5 20.3 19.6 4.0 1.4

Investments 122.5 124.0 19.8 19.0 1.7 1.2

Change in stock 3.2 3.5 0.5 0.6 .. ..

5- Exports of Goods & Services 186.7 179.5 30.1 27.5 -10.4 -3.9

6- Imports of Goods & Services 216.9 200.2 35.0 30.7 -9.1 -7.7

7- Gross Domestic Saving (1-3) 95.5 106.8 15.4 16.4 5.2 11.8

.. Not available

(1/2) GDP by Expenditure July/March

( At 2006/ 2007 prices )

- 135 -

Value at LE bn Structure % Growth Rate (%)

Source : Ministry of Economic Development.

Relative Weights

June March June March

General Index 100.0 121.5 129.3 133.6 145.1 6.4 8.6

Food & Non-Alcoholic Beverages 43.9 130.3 138.4 146.2 167.9 6.2 14.8

Tobacco 2.5 112.1 121.0 121.0 121.0 7.9 0.0

Clothing & Footwear 7.9 104.3 116.8 118.3 119.0 12.0 0.6

Housing , Water, Electricity, Gas & Fuel 13.5 107.6 112.1 112.1 113.5 4.2 1.2

Furnishings, Household Equipment & Routine Maintenance of the House 4.2 110.7 121.9 125.2 126.7 10.1 1.2

Health Care 3.6 112.1 117.2 117.2 117.6 4.5 0.3

Transportation 5.2 120.1 124.7 125.0 125.5 3.8 0.4

Communications 3.6 104.0 109.4 109.4 109.3 5.2 -0.1

Recreation & Culture 3.4 121.7 133.7 139.9 140.7 9.9 0.6

Education 4.4 137.7 144.1 144.1 157.6 4.6 9.4

Restaurants,Cafes & Hotels 3.6 146.1 155.2 164.6 171.6 6.2 4.3

Miscellaneous Goods & Services 4.2 111.5 118.2 120.7 139.5 6.0 15.6

Source: Central Agency for Public Mobilization and Statistics (CAPMAS) (Monthly CPI Bulletin).

- 136 -

July/March 2008/2009 2009/2010

(1/3) Consumer Price Index (Urban) (Jan. 2007=100)

Inflation Rate (%)2008/2009 2009/2010

Relative Weights

June March June March

All Items 100.0 168.5 138.6 148.2 157.5 -17.7 6.3

Agriculture, Forestry and Fishing 25.1 179.5 178.8 188.9 197.8 -0.4 4.7

Mining and Quarrying 21.8 232.3 100.4 134.6 154.2 -56.8 14.6

Manufacturing Industries 38.9 144.4 139.5 140.0 146.0 -3.4 4.3

Electricity, Gas, Steam and Air Conditioning Supply 2.3 114.0 115.0 115.0 140.3 0.9 22.0

Water Supply, Sewerage, Waste Management and Remediation Activities 2.0 138.7 138.7 138.7 146.5 0.0 5.6

Transportation and Storage 2.8 110.9 124.2 124.2 124.8 12.0 0.5

Accommodation and Food Service Activities 5.0 117.5 125.3 114.6 109.2 6.6 -4.7

Information and Communications 2.1 107.8 112.5 112.5 112.5 4.4 0.0

Source: Central Agency for Public Mobilization and Statistics (CAPMAS), the PPI Bulletin issued every two months.

- 137 -

(1/4) Producer Price Index (2004/2005 = 100)

Inflation Rate (%)

Groups 2008/2009 2009/2010

July/March 2008/2009 2009/2010

2010Mar. June Mar. June Mar. June Mar.

Reserve Money 126474 134126 159767 169911 174016 175104 196106Currency in circulation outside CBE * 88195 92174 104350 111412 120552 126268 136438Banks' deposits in local currency 38279 41952 55417 58499 53464 48836 59668

Counterpart Assets 126474 134126 159767 169911 174016 175104 196106Net Foreign Assets + 82617 95372 114566 180333 177300 171732 179809Foreign Assets 147426 160197 181601 182021 178733 173055 188132

Gold 6429 6744 6744 8695 8695 9385 9386Foreign securities 97896 108606 164110 151175 157191 150556 163029Foreign currencies 43101 44847 10747 22151 12847 13114 15717

Foreign Liabilities ** 64809 64825 67035 1688 1433 1323 8323Net Domestic Assets 43857 38754 45201 -10422 -3284 3372 16297Net Claims on Government 113437 117254 119555 81872 88056 68613 85140

Claims; of which: 187580 192192 192509 159697 162880 146899 160335 Government securities ** 164761 166724 165438 123123 122473 121708 124559

Deposits 74143 74938 72954 77825 74824 78286 75195Net Claims on Banks 59651 59512 75017 77581 -2022 334 23841

Claims 77738 77270 94122 97828 19012 21786 43764Deposits in foreign currencies 18087 17758 19105 20247 21034 21452 19923

Other Items (Net) + -129231 -138012 -149371 -169875 -89318 -65575 -92684Assets ** 46702 39141 44939 25233 30388 28978 16296Liabilities 175933 177153 194310 195108 119706 94553 108980

Source : Central Bank of Egypt.* Including subsidiary coins & notes issued by the Ministry of Finance.

- 138 -

+ According to the updated statistical treatment adopted by the IMF, SDR allocations are to be classified as foreign liabilities rather than capital accounts, as of August 2009.

(LE mn)

(2/1/1) CBE Financial Position: Reserve Money and Counterpart Assets

2008 End of 2009

** At the end of June 2008, the CBE and the government agreed on using part of the rescheduled debts -under Paris Club agreement- which are not yet due, to settle part of the government debt to the CBE.

2007

2010Mar. June Mar. June Mar. June Mar.

1- Domestic Liquidity 610452 662688 756553 766664 808603 831211 888176

A- Money Supply 123592 131290 158134 170579 173228 182991 201868

Currency in circulation outside the banking system 83332 86860 98596 104656 112986 118146 128433

Demand deposits in local currency 40260 44430 59538 65923 60242 64845 73435

B- Quasi-Money 486860 531398 598419 596085 635375 648220 686308

Time & saving deposits in local currency 340622 377424 426952 436268 465758 481054 528844

Demand and time & saving deposits in foreign currencies 146238 153974 171467 159817 169617 167166 157464

2- Counterpart Assets

Net foreign assets 199039 218629 253506 303680 * 246338 254134 276379+

Domestic credit 522526 531314 595334 570953 * 690179 695326 750883

Other items (net) -111113 -87255 -92287 -107969 * -127914 -118249 -139086+

Source : Central Bank of Egypt.

- 139 -

+ According to the new classification of SDR allocations referred to in table (2/1/1).

End of 20082007 2009(LE mn)

(2/1/2) Banking Survey: Domestic Liquidity and Counterpart Assets

* Due to the agreement between the CBE and the government, as mentioned in the footnote of table (2/1/1).

2010Mar. June Mar. June Mar. June Mar.

Total Deposits in Local Currency 380882 421854 486490 502191 526000 545899 602279

1- Demand Deposits 40260 44430 59538 65923 60242 64845 73435

Public business sector * 4533 6278 6451 8698 5550 7145 7194

Private business sector 19148 20681 31263 34301 31208 33240 37947

Household sector 17002 18378 22628 24003 24180 25235 28852

Minus: Purchased cheques & drafts 423 907 804 1079 696 775 558

2- Time and Saving Deposits 340622 377424 426952 436268 465758 481054 528844

Public business sector * 17004 17186 21538 20736 23559 21654 24117

Private business sector 32279 56823 88308 85415 71242 71076 78548

Household sector 291339 303415 317106 330117 370957 388324 426179

Source : Central Bank of Egypt

- 140 -

2008End of

* Including all public sector companies subject or not to Law No. 203 for 1991.

2007

(2/1/3) Banking Survey: Deposits in Local Currency

(LE mn)

2009

2010Mar. June Mar. June Mar. June Mar.

Total Deposits in Foreign Currencies 146238 153974 171467 159817 169617 167166 157464

1- Demand Deposits 22689 26917 35021 26581 30340 32050 33857

Public business sector * 1012 947 1619 943 1362 1334 1122

Private business sector 13114 18452 25261 17417 19575 21104 22900

Household sector 8698 7689 8339 8404 9513 9712 9950

Minus: Purchased cheques & drafts 135 171 198 183 110 100 115

2- Time and Saving Deposits 123549 127057 136446 133236 139277 135116 123607

Public business sector * 5060 5774 7391 8202 7573 7401 5885

Private business sector 31116 30641 41640 39785 41815 37217 33768

Household sector 87373 90642 87415 85249 89889 90498 83954

Source: Central Bank of Egypt

* Including all public sector companies subject or not to Law No. 203 for 199.

- 141 -

20082007 End of

2009(LE mn)

(2/1/4) Banking Survey: Deposits in Foreign Currencies

2010Mar. June Mar. June Mar. June Mar.

Net Foreign Assets 199039 218629 253506 303680 246338 254134 276379

1- Foreign Assets 283279 304968 354616 330770 277746 282914 312163

Central Bank of Egypt 147426 160197 181601 182021 178733 173055 188132

Banks 135853 144771 173015 148749 99013 109859 124031

2- Foreign Liabilities 84240 86339 101110 27090 31408 28780 35784

Central Bank of Egypt 64809 64825 67035 1688 * 1433 1323 8323+

Banks 19431 21514 34075 25402 29975 27457 27461

Source: Central Bank of Egypt

* Due to the agreement between the CBE and the government, as mentioned in the footnote of table (2/1/1).

- 142 -

(2/1/5) Banking Survey: Foreign Assets and Liabilities

2007

+ According to the new classification of SDR allocations referred to in table (2/1/1).

2008End of 2009(LE mn)

2010Mar. June Mar. June Mar. June Mar.

1- Domestic Credit 522526 531314 595334 570953 690179 695326 750883

Net claims on the government (A+B-C) 181583 178323 206808 174005 269438 273122 320885

A-Securities* 273111 278011 311321 271788 371145 397804 437919

B-Credit facilities 48148 52151 57742 67732 72246 55939 68749

C-Government deposits 139676 151839 162255 165515 173953 180621 185783

Claims on public business sector ** 23642 24446 27050 26897 30859 33146 36708

Claims on private business sector 259277 268607 289492 291719 301592 304470 303855

Claims on household sector 58024 59938 71984 78332 88290 84588 89435

2- Other Items (Net) -111113 -87255 -92287 -107969 -127914 -118249 -139086

Capital accounts -102094 -114534 -127774 -135401 -142222 -148332 -150019+

Net unclassified assets and liabilities* -9019 27279 35487 27432 14308 30083 10933

Source: Central Bank of Egypt

* Due to the agreement between the CBE and the government, as mentioned in the footnote of table (2/1/1)** Including all public sector companies subject or not to Law No. 203 for 1991.

(2/1/6) Banking Survey: Domestic Credit and Other Items (Net)(LE mn)

- 143 -

+ According to the new classification of SDR allocations referred to in table (2/1/1).

End of 2007 20092008

2010Mar. June Mar. June Mar. June Mar.

Total Saving Vessels 603828 655376 731738 742177 781092 803063 773954

Savings at the Banking System 486860 531398 598419 596085 635375 648220 686308

Time & saving deposits in local currency 340622 377424 426952 436268 465758 481054 528844

Demand and time & saving deposits in foreign currencies 146238 153974 171467 159817 169617 167166 157464

Net Sales of Investment Certificates 67219 68311 77367 79354 80059 81262 87646

Post Office Saving Deposits 49749 55667 55952 66738 65658 73581 Not Available

Source: Central Bank of Egypt

2007

- 144 -

2008 2009(LE mn)

(2/1/7) Total Saving Vessels

End of

2010Mar. June Mar. June Mar. June Mar.

Total 23194 24188 26792 26652 30714 32881 36371

In Local Currency 17786 18097 19260 19475 21757 23725 27493

Agriculture 696 7 14 11 2 3 2

Manufacturing 8003 9071 9417 9066 10295 13167 12525

Trade 3916 3986 3400 4114 4297 4098 4722

Services 5171 5033 6429 6284 7163 6457 10244

In Foreign Currencies 5408 6091 7532 7177 8957 9156 8878

Agriculture - - - - - - -

Manufacturing 1928 2611 3611 3440 3819 4176 3832

Trade 345 880 719 709 1020 1282 1526

Services 3135 2600 3202 3028 4118 3698 3520

Source: Central Bank of Egypt

* Including all public sector companies subject or not to Law No. 203 for 1991.

(2/1/8) Bank Lending and Discount Balances to Business Sector

End of

- 145 -

2007 2008 2009(LE mn)

Public Business Sector *

2010Mar. June Mar. June Mar. June Mar.

Total 232746 239312 256561 258087 272444 267885 265154

In Local Currency 159657 163292 165461 167258 178626 177107 171165

Agriculture 8335 6922 5302 5326 4544 4718 4051

Manufacturing 56019 65453 60668 62693 71853 74053 72292

Trade 39246 33487 37625 38342 40025 39881 39105

Services 56057 57430 61866 60897 62204 58455 55717

In Foreign Currencies 73089 76020 91100 90829 93818 90778 93989

Agriculture 2684 929 1103 843 2074 2145 1607

Manufacturing 29159 34199 38460 43349 42368 41240 47755

Trade 12958 10944 14131 14599 15095 13356 13525

Services 28288 29948 37406 32038 34281 34037 31102

Source: Central Bank of Egypt

(2/1/8) Bank Lending and Discount Balances to Business Sector (Contd.)

2009

- 146 -

2007 2008End of

(LE mn)Private Business Sector

As at 31 March 2010 *

Central Bank of Egypt

Public Sector Banks 5

Branches ** 2080

Private & Joint Venture Banks 27

Branches 1318

Off-Shore Banks 7

Branches 92

Total 39 3490

* Excluding branches of Egyptian banks abroad, and two banks which were established under private

laws and are not registered with the CBE : the Arab International Bank, and Nasser Social Bank.

** Including village banks (1017 banks) which are affiliate to the Principal Bank for Development and Agricultural Credit.

(2/2/1) Structure of the Egyptian Banking System

- 147 -

Fund Name Fund Manager Par Value (LE)Document Value

(LE) at End of June 2009

Document Value (LE) at End of

March 2010

Open-end Balance FundsNational Bank of Egypt I ++ El Ahly Fund Management 10 - 38.42Banque Misr I Concord International Investments 100 94.72 102.30National Bank of Egypt II El Ahly Fund Management 100 81.82 85.20National Bank of Egypt III HC Securities 100 76.36 79.53El Watany Bank of Egypt Hermes Fund Management 100 114.75 127.34National Bank of Egypt v El Ahly Fund Management 10 8.64 9.78Al-Masi Hermes Fund Management 100 87.52 101.25

Open-end Equity FundsCredit Agricole Egypt I *** Hermes Fund Management 100 222.22 235.80Bank of Alexandria I Hermes Fund Management 100 233.55 237.41Arab Misr Insurance Group Prime Investments 100 681.53 156.87Banque Misr II Concord International Investment 66.67 56.22 53.92Banque du Caire Hermes Fund Management 10 68.23 61.94Export Development Bank I (Al-Khabeer) +++ HC Securities 33.33 70.82 80.20Suez Canal Bank I HC Securities 500 280.43 318.54Credit Agricole Egypt II *** Hermes Fund Management 100 104.92 111.01Egyptian Gulf Bank Hermes Fund Management 100 206.04 177.29Banque Misr III * HC Securities 100 371.83 437.86Shield Fund ** Arab African Investement Management 50 102.99 114.48Misr Iran Development Bank I HC Securities 100 338.36 367.21Commercial International Bank II (Istethmar) CI Asset Management 100 75.02 83.36Piraeus Bank-Egypt I Phoneix Kato Asset Management 100 83.68 99.29Housing & Development Bank (Al-Taameer) Prime Investment 100 90.94 104.42ABC Bank Delta Rasmala 100 77.07 91.79Suez Canal Bank II (Al-Agyal) Beltone Asset Management 10 9.61 11.10Blom Bank Prime Investment 100 14.22 101.20Pahros Fund I Pharos Asset Management 100 - 101.41

Open-end Fixed Income FundsAl Rabeh Fund + Prime Investment 100 101.88 101.68Credit Agricole Egypt III *** Egyptian Fund Management Group 1000 1036.88 1019.13Misr Money Market Beltone Asset Management 10 15.06 15.92Commercial International Bank I (Osoul) CI Asset Management 100 142.65 151.03Misr Iran Development Bank II HC Securities 1000 1041.55 1017.86Bank of Alexandria II EFG-Hermes 10 13.00 13.78National Bank of Egypt IV El Ahly Fund Management 100 128.08 135.15National Societe Generale Bank (Themar) EFG-Hermes 100 124.98 132.28Export Development Bank II Delta Rasmala 100 123.99 131.05ABC Bank (Mazaya) Beltone Asset Management 10 10.24 10.77HSBC Egypt Bank Fund (Kol Youm) Beltone Asset Management 100 101.56 107.16AAIB (Juman) Arab African Investement Management 100 101.28 106.78Piraeus Bank-Egypt II Phoneix Kato Asset Management 10 10.08 10.63Audi Bank Fund EFG-Hermes 10 10.07 10.62Banque du Caire II Beltone Asset Management 10 - 10.44Blom Bank Fund II C I Capital Asset Management 100 - 103.52Al Watany Bank of Egypt Fund (Eshrak) NBK Capital Asset Management Egypt 10 - 10.14Arab Bank Fund (Youmati) Beltone Asset Management 10 - 10.12Housing & Development Bank (Mawared) Prime Investment 10 - 10.07

Open-end Islamic FundsFaisal Islamic Bank EFG-Hermes 100 110.73 119.14Egyptian Saudi Finance Bank EFG-Hermes 100 78.53 84.95Faisal Islamic Bank - CIB (Al Amman) CI Asset Management 100 59.62 64.93Banque Misr IV HC Securities 100 75.04 82.67Sanabel Fund Prime Investment 100 74.69 86.07Egyptian Saudi Finance -National Bank of Egypt (Bashaer) El-Ahly Fund Management 100 74.40 78.44

Closed-end FundsOrient Trust Egyptian Investment & Finance Co. 1000 1262.51 1162.01Misr Direct Investment Fund Al Ahly Development & Investment 1000 1027.30 1035.00Arab Land Direct Prime Investment 1000 716.94 716.60

Capital Guaranteed FundsMisr Bank Capital Guaranteed Cairo Funds Management 100 211.40 216.39

Asset Allocator FundsSociete Arab Int'l Bankque I Prime Investment 100 387.12 450.41Societe Arab Int'l Bankque II Prime Investment 100 271.11 315.14

Capital Protected FundsHSBC Egypt Fund II EFG-Hermes 100 87.76 93.85

Foreign Currency FundsMisr Money Market ($) Beltone Asset Management $10 $10.61 $10.65Misr Money Market (Euro) Beltone Asset Management € 10 € 10.66 € 10.69

Fund of FundsMisr Iran Development Bank III (Wafi) El Rashad Asset Management 10 - € 10.15National Bank of Egypt VII El Rashad Asset Management 100 - € 101.32

Source: Monthly Bulletin of the Egyptian Stock Exchange* The name of Misr Exterior Bank fund has changed to Banque Misr III Fund starting from 16/9/2004 after the merger of Misr Exterior Bank with Banque Misr. The price of issuing the document has also changed from

LE 1000 to LE100 after the amendment of Article (5) of the fund's prospectus as of 27/08/2006.

** The name of Misr International Bank fund has changed to Shield Fund starting from 2/4/2006 and the document has been split into a ratio of 1:2 on the same date. The par value has also changed from LE 100 to LE 50.

+ The fund's name has changed to Al Rabeh Fund instead of Societe Arab Int'l Banque III. The price of issuing the document has also changed from LE100 to LE 10 as of 3/06/2007. ++ The fund's document has been split into a ratio of 1:5 as of 29/11/2007. The fund also changed its investment policy to become an open-end equity fund instead of an open-end balance fund during the period 12/3/2009-4/2/2010.+++ Two free documents have been distributed for each original on 28/6/2007. The fund's document has been split into a ratio of 1: 5 as of 10/11/2009.

(2/2/2) Local Mutual Funds Authorized and Operating as at 31/3/2010

*** The name of Egyptian American Bank Fund has changed to Credit Agricole Egypt starting from 03/09/2006. The fund's document has been split into a ratio of 1: 5 and the par value has also changed from LE 500 to LE 100 as of 29/03/2007.

- 148-

2010Mar. June Mar. June Mar. June Mar.

Currency By Denomination 89085 93240 106049 112430 121457 127625 138731

PT 25 150 144 160 147 169 160 189

PT 50 261 240 263 252 321 309 290

LE 1 607 565 633 608 828 772 797

LE 5 1170 1071 1204 1169 1360 1309 1646

LE 10 3807 3470 3119 2938 3108 2991 3061

LE 20 9287 8796 7716 7394 6784 6419 5926

LE 50 29156 28152 26402 25646 23855 23045 19360

LE 100 44647 47552 52447 54987 57436 61561 67161

LE 200 * - 3250 14105 19289 27596 31059 40301

Source: Central Bank of Egypt

* The LE 200 note has been in circulation as of May 2007.

End of

- 149 -

2007 2008 2009(LE mn)

(2/3/1) Note Issued by Denomination

2010Mar. June Mar. June Mar. June Mar.

Total 88196 92175 104353 111412 120553 126268 136438

Subsidiary Coins & Notes* 256 259 273 275 284 287 301

PT 25 147 142 157 145 166 158 189

PT 50 252 234 258 242 316 308 290

LE 1 588 550 621 591 820 770 795

LE 5 1075 987 1132 1105 1311 1257 1593

LE 10 3640 3323 2998 2845 3018 2911 2970

LE 20 8984 8553 7459 7194 6622 6297 5690

LE 50 28897 27967 25999 25422 23701 22898 19226

LE 100 44357 47136 51633 54529 57067 60867 65931

LE 200+ - 3024 13823 19064 27248 30515 39453

Source: Central Bank of Egypt

* Issued by the Ministry of Finance

+ The LE 200 note has been in circulation as of May 2007.

End of

- 150 -

2007 2008 2009(LE mn)

(2/3/2) Currency in Circulation Outside CBE by Denomination

2004/2005 2005/2006 2006/2007 2007/2008 2008/2009 2008/2009 2009/20101- Cairo Branch

Number of cheques (thousands) 8618

Value of cheques (LE mn) 231942

2- Alexandria Branch

Number of cheques (thousands) 593

Value of cheques (LE mn) 27875

3- Port Said Branch

Number of cheques (thousands) 110

Value of cheques (LE mn) 2606

4- All Branches *

Number of cheques (thousands) 9321 9508 10481 11724 12062 8786 9612

Value of cheques (LE mn) 262423 288715 356900 483113 548038 399905 427648

Source: Central Bank of Egypt

were transferred to Cairo Automated Clearing House.

* As of 1/1/2006, the manual Clearing Houses of Alexandria and Port-Said were cancelled, and all their activities

- 151 -

DuringFiscal Year July/March

(2/3/3) Central Bank of Egypt: Activity of Clearing House

2010Mar. June Mar. June Mar. June Mar.

A- AssetsCash 7078 7705 9309 10261 10324 11128 10926

Securities & investments in TBs; of which: 180945 176098 198745 201858 296210 332597 372284

CBE notes 31823 17617 0 0 0 0 0

Balances with banks in Egypt 161270 217363 273652 278185 195102 173482 197135

Balances with banks abroad 118042 124366 145454 122792 74116 77120 87540

Loan and discount balances 342528 353746 394494 401425 430622 429957 441370

Other assets 69742 58645 81712 68790 85257 67709 88985

Assets =Liabilities 879605 937923 1103366 1083311 1091631 1091993 1198240B- LiabilitiesCapital 29081 33037 35279 37576 40779 41550 43571

Reserves 11950 12552 14514 19763 21703 21371 27432

Provisions 58749 53469 64093 62314 71556 69748 71168

Bonds & Long-term loans 19873 26351 22291 22285 19579 22045 21360

Obligations to banks in Egypt 75245 82619 99229 98699 24940 31004 47572

Obligations to banks abroad 9075 10006 22785 13327 21617 18195 18383

Total deposits 594102 649953 743843 747199 790521 809694 867053

Other liabilities 81530 69936 101332 82148 100936 78386 101701

Source : Central Bank of Egypt

2008

- 152 -

2007 2009( LE mn )

(2/4/1) Banks: Aggregate Financial Position

End of

2010Mar. June Mar. June Mar. June Mar.

Total Deposits 594102 649953 743843 747199 790521 809694 867053

Demand deposits 70090 78758 103850 100569 95920 102852 115031

Time & saving deposits and saving accounts 497102 542983 608292 612737 661466 673048 719306

Blocked or retained deposits 26910 28212 31701 33893 33135 33794 32716

1- Local Currency Deposits 416995 463320 537493 552079 578120 598586 664902

Demand deposits 45917 50365 66850 71971 64216 69261 79911

Time & saving deposits and saving accounts 355276 396352 451797 460285 495180 509156 563845

Blocked or retained deposits 15802 16603 18846 19823 18724 20169 21146

2- Foreign Currency Deposits 177107 186633 206350 195120 212401 211108 202151

Demand deposits 24173 28393 37000 28598 31704 33591 35120

Time & saving deposits and saving accounts 141826 146631 156495 152452 166286 163892 155461

Blocked or retained deposits 11108 11609 12854 14070 14411 13625 11570

Source : Central Bank of Egypt

- 153 -

2007 2008End of

2009( LE mn )

(2/4/2) Banks: Deposits by Maturity

2010Mar. June Mar. June Mar. June Mar.

Total Deposits 594102 649953 743843 747199 790521 809694 867053

Local Currency Deposits 416995 463320 537493 552079 578120 598586 664902

Government sector 32545 37233 46541 44789 48821 49564 59471

Public business sector * 21536 23464 27989 29434 29108 28799 31311

Private business sector 51427 77504 119571 119716 102385 104250 116438

Household sector 308342 321793 339695 354119 395137 413558 455030

External sector ** 3145 3326 3697 4021 2669 2415 2652

Foreign Currency Deposits 177107 186633 206350 195120 212401 211108 202151

Government sector 29468 30329 32930 33203 40862 41481 42398

Public business sector * 6072 6721 9010 9146 8936 8736 7006

Private business sector 44230 49093 66901 57202 61389 58321 56673

Household sector 96071 98331 95624 93653 99402 100210 93899

External sector** 1266 2159 1885 1916 1812 2360 2175

Source : Central Bank of Egypt

* Including all public sector companies subject or not to Law No. 203 for 1991 .

** Including counterpart deposits of USAID .

(2/4/3) Banks: Deposits by Sector

2007 - 154 -

2008End of 2009( LE mn )

2010Mar. June Mar. June Mar. June Mar.

Total Deposits 594102 649953 743843 747199 790521 809694 867053

Local Currency Deposits 416995 463320 537493 552079 578120 598586 664902

Agriculture 4003 2531 4114 5673 6252 6323 4255

Manufacturing 20876 23819 32799 36169 38261 37537 39562

Trade 15601 18354 19937 23928 19872 20850 26353

Services 34156 40529 72811 59337 53846 53846 66373

Unclassified sectors 342359 378087 418832 426972 459889 480030 528359

Foreign Currency Deposits 177107 186633 206350 195120 212401 211108 202151

Agriculture 3257 467 1214 1002 1275 904 658

Manufacturing 18206 21208 25627 26223 29755 27757 23449

Trade 6987 11824 9203 10263 10948 12046 12298

Services 23249 23216 40031 30202 28023 25848 26746

Unclassified sectors 125408 129918 130275 127430 142400 144553 139000

Source : Central Bank of Egypt

(2/4/4) Banks: Deposits by Economic Activity

2007

- 155 -

2008End of 2009( LE mn )

2010Mar. June Mar. June Mar. June Mar.

Total 149122 158481 198745 201858 296210 332597 372284

In Local Currency 118624 125981 164687 168182 262571 297194 336297

Government sector 93640 96652 132081 135129 234504 262044 299555

Public business sector * 751 761 1427 1414 1231 1338 1350

Private business sector 24233 28568 31162 31609 26779 33755 35295

Household sector - - - - - - -

External sector - - 17 30 57 57 97

In Foreign Currencies 30498 32500 34058 33676 33639 35403 35987

Government sector 14710 14636 13802 13536 14168 14051 13804

Public business sector * - - - - - - -

Private business sector 3227 3474 4753 4914 4724 5532 6147

Household sector - - - - - - -

External sector 12561 14390 15503 15226 14747 15820 16036

Source : Central Bank of Egypt

+ Excluding CBE notes.

*Including all public sector companies subject or not to Law No. 203 for 1991.

(2/4/5) Banks: Portfolio Investments by Sector+

2007

- 156 -2008End of 2009

( LE mn )

2010Mar. June Mar. June Mar. June Mar.

Total 342528 353746 394495 401425 430622 429957 441370

In Local Currency 243450 248544 261912 267166 289912 295192 300929

Government sector 11474 10788 10522 9698 8645 12946 14011

Public business sector * 17786 18097 19260 19475 21757 23725 27493

Private business sector 159658 163292 165461 167258 178626 177107 171165

Household sector 53717 55453 65762 69838 79954 78827 86953

External sector 815 914 907 897 930 2587 1307

In Foreign Currencies 99078 105202 132583 134259 140710 134765 140441

Government sector 13856 15896 20152 21460 23194 17802 18962

Public business sector * 5608 6091 7532 7177 8957 9155 8878

Private business sector 73088 76020 91100 90829 93818 90778 93989

Household sector 4307 4485 6220 8494 8336 5762 2482

External sector 2219 2710 7579 6299 6405 11268 16130

Source : Central Bank of Egypt

*Including all public sector companies subject or not to Law No. 203 for 1991.

- 157 -

2007 2008End of 2009( LE mn )

(2/4/6) Banks: Lending and Discount Balances by Sector

2010Mar. June Mar. June Mar. June Mar.

Total 491650 512227 593240 603283 726832 762554 813654

In Local Currency 362074 374525 426599 435348 552483 592386 637226

Government sector 105114 107440 142603 144827 243149 274990 313566

Public business sector * 18537 18858 20687 20889 22988 25063 28843

Private business sector 183891 191860 196623 198867 205405 210862 206460

Household sector 53717 55453 65762 69838 79954 78827 86953

External sector 815 914 924 927 987 2644 1404

In Foreign Currencies 129576 137702 166641 167935 174349 170168 176428

Government sector 28566 30531 33954 34996 37362 31853 32766

Public business sector * 5608 6091 7532 7177 8957 9155 8878

Private business sector 76315 79495 95853 95743 98542 96310 100136

Household sector 4307 4485 6220 8494 8336 5762 2482

External sector 14780 17100 23082 21525 21152 27088 32166

Source : Central Bank of Egypt

* Including all public sector companies subject or not to Law No. 203 for 1991.

2009

- 158 -

2007 2008( LE mn )

(2/4/7) Banks: Credit by Sector

End of

2010Mar. June Mar. June Mar. June Mar.

Total 342528 353746 394495 401425 430622 429957 441370

In Local Currency 243450 248544 261912 267166 289912 295192 300929

Agriculture 9244 6986 5398 5758 4965 5137 4420

Manufacturing 65609 80497 75750 76794 86078 94674 93480

Trade 43163 37476 41025 42456 44398 44079 43843

Services 70743 67035 72855 71209 73435 69790 70805

Unclassified sectors 54691 56550 66884 70949 81036 81512 88381

In Foreign Currencies 99078 105202 132583 134259 140710 134765 140441

Agriculture 2883 929 1103 863 2094 2165 1627

Manufacturing 33178 51399 61224 67690 68313 61808 69242

Trade 13316 11837 14860 15319 16123 14646 15057

Services 43175 33842 41595 35594 39439 39117 35903

Unclassified sectors 6526 7195 13801 14793 14741 17029 18612

Source : Central Bank of Egypt

- 159 -

2007 2008End of

2009( LE mn )

(2/4/8) Banks: Lending and Discount Balances by Economic Activity

Less than three- month

deposits

Less than six- month deposits

Less than one yeardeposits

Loans of one year or

less

SimpleReturn

of increasingcertificate value

January 2007 9.00 6.10 6.80 6.90 12.60 9.50 9.00 9.50

February ,, 6.20 6.90 6.90 12.70 10.00 9.50 ,,

March ,, 6.20 6.90 6.90 12.70 ,, ,, ,,

April ,, 6.20 6.90 6.90 12.70 ,, ,, ,,

May ,, 6.20 6.90 6.90 12.70 ,, ,, ,,

June ,, 6.10 6.90 6.90 12.60 ,, ,, ,,

July ,, 6.10 6.90 6.90 12.60 ,, ,, ,,

August ,, 6.10 6.80 6.90 12.60 ,, ,, ,,

September ,, 6.00 6.80 6.90 12.30 ,, ,, ,,

October ,, 6.00 6.70 6.90 12.20 ,, ,, ,,

November ,, 6.00 6.70 7.00 12.20 ,, ,, ,,

December ,, 6.00 6.60 6.90 12.20 ,, ,, ,,

January 2008 ,, 6.00 6.50 6.80 12.10 ,, ,, ,,

February ,, 6.00 6.50 6.80 12.10 ,, ,, ,,

March ,, 6.00 6.50 6.90 12.20 ,, ,, ,,

April ,, 6.10 6.50 6.90 12.10 ,, ,, ,,

May ,, 6.30 6.60 7.10 12.00 ,, ,, ,,

June 10.00 6.50 6.70 7.10 12.00 ,, ,, ,,

July ,, 6.60 6.80 7.20 12.20 ,, ,, 9.25

August 11.00 6.80 7.00 7.30 12.30 ,, ,, ,,

September 11.50 6.90 7.10 7.40 12.40 ,, ,, ,,

October ,, 7.20 7.40 7.80 12.40 ,, ,, ,,

November ,, 7.30 7.50 7.90 12.50 ,, ,, ,,

December ,, 7.40 7.70 8.20 12.50 ,, ,, ,,

January 2009 ,, 7.30 7.60 8.30 12.60 ,, ,, ,,

February 10.50 7.30 7.60 8.30 12.60 ,, ,, ,,

March 10.00 7.10 7.50 8.30 12.40 ,, ,, ,,

April ,, 7.00 7.30 8.20 12.30 ,, ,, ,,

May 9.50 6.70 7.10 7.90 12.30 ,, ,, ,,

June 9.00 6.50 7.00 7.80 12.10 ,, ,, ,,

July ,, 6.20 6.90 7.50 12.10 ,, ,, 9.00

August 8.50 6.10 6.60 7.30 12.00 ,, ,, ,,

September ,, 6.00 6.50 7.10 11.60 9.50 9.00 ,,

October ,, 5.90 6.40 6.90 11.40 ,, ,, ,,

November ,, 5.90 6.30 6.80 11.30 ,, ,, ,,

December ,, 5.90 6.30 6.70 11.00 ,, ,, ,,

January 2010 ,, 5.90 6.40 6.70 11.10 ,, ,, ,,

February ,, 5.90 6.40 6.70 11.00 ,, ,, ,,

March ,, 6.00 6.40 6.70 11.10 ,, ,, ,,

Source: Central Bank of Egypt and the Egyptian National Post Authority

* Up till June 2008, the deposits remaining for more than one year earned an additional 0.25% interest rate, but this was abolished as of July 2008.

(2/5/1) Discount and Interest Rates on Deposits and Loans

End of Discount Rate

- 160 -

(% Annually)

Interest rate on Post Office Saving

Deposits*

Average Interest Rate in Banks Interest Rate on Investment Certificates

in Egyptian Pound

US Dollar Sterling Pound Euro

Min. Max. Min. Max. Min. Max.

January 2007 4.88 5.06 4.50 5.25 3.00 3.25February 4.88 5.06 4.44 5.19 3.06 3.31March 4.88 5.06 4.44 5.19 3.19 3.44April 4.88 5.06 4.56 5.31 3.25 3.5May 4.88 5.06 4.69 5.44 3.38 3.63June 4.88 5.06 4.81 5.56 3.44 3.69July 4.88 5.06 4.94 5.69 3.50 3.75August 5.06 5.25 5.44 6.19 4.00 4.25September 4.69 4.88 5.19 5.94 4.00 4.25October 4.56 4.75 5.13 5.88 3.88 4.13November 4.56 4.75 5.44 6.19 4.00 4.25December 4.38 4.56 5.00 5.75 4.00 4.25

January 2008 2.75 2.94 4.44 5.19 3.63 3.88February 2.56 2.75 4.56 5.31 3.63 3.88March 2.19 2.38 4.88 5.63 3.94 4.19April 2.42 2.62 4.63 4.88 3.82 4.07May 2.14 2.34 4.61 4.86 3.86 4.11June 2.46 2.66 4.70 4.95 3.96 4.21July 2.45 2.65 4.54 4.79 3.96 4.21August 2.46 2.66 4.50 4.75 3.96 4.21September 2.86 3.06 4.81 5.06 4.05 4.30October 3.12 3.32 4.69 4.94 3.85 4.10November 1.85 2.05 2.71 2.96 2.93 3.18December 1.12 1.32 1.65 1.90 2.01 2.26

January 2009 0.83 1.03 0.92 1.17 1.13 1.38February 0.90 1.10 0.82 1.07 0.86 1.11March 0.88 1.08 0.47 0.72 0.55 0.80April 0.69 0.89 0.62 0.87 0.63 1.13May 0.31 0.51 0.43 0.68 0.52 1.02June 0.41 0.61 0.62 0.87 0.66 1.16July 0.29 0.49 0.31 0.56 0.33 0.83August 0.18 0.38 0.15 0.35 0.26 0.76September 0.12 0.29 0.15 0.22 0.16 0.66October 0.13 0.28 0.15 0.41 0.20 0.54November 0.12 0.26 0.15 0.43 0.20 0.54December 0.11 0.25 0.15 0.42 0.20 0.53

January 2010 0.11 0.24 0.15 0.43 0.18 0.49February 0.11 0.25 0.16 0.45 0.18 0.48March 0.13 0.28 0.16 0.45 0.17 0.47

Source: National Bank of Egypt

End of

- 161 -

(2/5/2) Domestic Interest Rates on 3-Month Depositsin Major Currencies

( % Annually )

(%)

91 days 182 days 252 days 259 days 266 days 273 days 350 days 357 days 364 days

January 2010

The: First week (5/1) 9.987 10.941 .. .. .. 11.559 .. .. .. Second week (12/1) 9.983 10.945 .. .. 11.547 .. .. .. 11.660 Third week (19/1) .. 10.309 .. .. .. .. .. 11.467 .. Fourth week (26/1) 9.708 10.417 11.251 .. .. .. 11.330 .. ..

Monthly Average 9.893 10.653 11.251 .. 11.547 11.559 11.330 11.467 11.660

February 2010The: First week (2/2) 9.799 10.516 .. .. .. 11.232 .. .. .. Second week (9/2) 9.774 10.438 .. .. 10.871 .. .. .. 11.207

Third week (16/2) 9.700 10.252 .. .. .. .. .. 10.910 ..

Fourth week (23/2) 9.629 9.972 10.405 .. .. .. 10.714 .. ..

Monthly Average 9.726 10.295 10.405 .. 10.871 11.232 10.714 10.910 11.207

March 2010

The: First week (2/3) 9.558 9.952 .. .. .. 10.372 .. .. .. Second week (9/3) 9.597 9.967 .. .. 10.324 .. .. .. 10.565

Third week (16/3) 9.585 9.936 .. .. .. .. .. 10.370 ..

Fourth week (23/3) 9.682 10.029 10.381 .. .. .. 10.315 .. ..

(30/3) 9.707 10.03 .. .. .. 10.339 .. .. 10.436

Monthly Average 9.626 9.983 10.381 .. 10.324 10.356 10.315 10.370 10.501

Source : Central Bank of Egypt... No issuance during the week.

(2/5/3) Interest Rates on Treasury Bills (Weekly Weighted Averages)

- 162 -

2010Mar. June Mar. June Mar. June Mar.

Number of companies (in unit) 565 544 426 377 351 333 219

Listed on the Official Schedules 142 147 138 121 120 119 114

Listed on the Unofficial Schedules 420 394 287 255 230 213 105

Listed on the Temporary Schedule * 3 3 1 1 1 1 0

Number of shares (mn) 13540 14993 18356 19809 22271 22430 26570

Nominal value of capital (LE mn) 119615 121072 137984 137974 150172 149587 130661

Market value of capital (LE mn) 547945 601826 874594 813341 393735 463644 460653

The Egyptian Exchange Index **EGX 30 7191.9 7803.4 11357.4 9827.3 4193.9 5702.9 6806.1

EGX 70 524.7 623.1 715.2

EGX 100 1160.8

Source: Monthly Bulletin of the Egyptian Stock Exchange.

* Companies which have not adjusted their statuses according to the new listing rules.

constituting EGX 30 and EGX 70, as of August 2009.

End of

(3/1) Companies Listed on the Stock Exchange

2007 2008 2009

** The Egyptian Exchange CASE 30 Index was renamed EGX 30, while the EGX 70 index was introduced as of March 2009 to cover 70 companies other than the 30 constituent companies of EGX 30. EGX 100 was also introduced, encompassing those companies

- 163 -

Number of Transactions

(Unit)

Amount (Thousand)

Market Value (mn)

Number of Transactions

(Unit)

Amount (Thousand)

Market Value (mn)

In Egyptian Pound 7930324 16996458 161697 9357169 21968519 295568

Floor Transactions 7326121 13258687 138515 8761840 16876930 198057

Over the Counter Trading 604203 3737771 23182 595329 5091589 97511

In Foreign Currencies (US Dollar) 183796 542899 2236 255168 752024 1912

Floor Transactions 175172 516626 768 248259 676198 1482

Over the Counter Trading 8624 26273 1468 6909 75826 430

In Foreign Currencies (Euro) 5 4424 4 23 3386 87

Floor Transactions - - - - - -

Over the Counter Trading 5 4424 4 23 3386 87

Source : Egyptian Financial Supervisory Authority(EFSA).

- 164 -

2009/20102008/2009

During July/March

(3/2) Trading in Shares on the Stock Exchange

Number of Transactions Amount Market Value Number of

Transactions Amount Market Value

(Thousand) (Thousand)

In Egyptian Pound 23771 90369928 15117990 921 32076058 32936294

Floor Transactions 23771 90369928 15117990 921 32076058 32936294

Over the Counter Trading - - - - - -

In US Dollar 9 1300 128 - - -

Floor Transactions 9 1300 128 - - -

Over the Counter Trading - - - - - -

Source : Egyptian Financial Supervisory Authority(EFSA).

During July/March

(3/3) Trading in Bonds on the Stock Exchange

- 165 -

(Unit)

2008/2009 2009/2010

(Unit)

Egyptian Pound US Dollar

Egyptian Pound US Dollar

Net Number of Transactions (unit) -78862 -11716 110028 4375

Purchases 556080 21800 767240 33898

Sales 634942 33516 657212 29523

Net Volume of Securities (mn) -339 -76 211 1

Purchases 1792 96 2455 132

Sales 2131 172 2244 131

Net Value of Securities (mn) -1840 -99 3853 47

Purchases 37601 184 45684 337

Sales 39441 283 41831 290

Source : Egyptian Financial Supervisory Authority (EFSA)-Monthly Report

- 166 -

2009/2010During July/March

2008/2009

(3/4) Foreigners' Transactions on the Stock Exchange

Company

Jun-09 Mar-10 Jun-09 Mar-10

Commercial International Bank/Egypt (CIB) Jul-96 Bank of New York CIB / HSBC 1.00 9999 8.78 11.70 49.00 65.06Suez Cement Jul-96 Bank of New York CIB / HSBC 1.00 7310 4.55 8.25 32.82 44.28Paints & Chemicals Industries (Pachin) Oct-97 Bank of New York CIB / HSBC 3.00 6297 2.80 2.80 30.51 49.96EFG-Hermes Aug-98 Bank of New York CIB / HSBC 0.50 4324 7.90 11.52 22.73 31.76El Ezz Steel Rebars Jun-99 Bank of New York CIB / HSBC 0.33 573 32.50 32.50 12.10 21.13Holding Company for Financial Investments (Lakah Group)* Jul-99 Bank of New York CIB / HSBC 0.33 35000 0.44 0.44 - -Orascom Telecom Holding (OT)** Jul-00 Bank of New York CIB / HSBC 0.20 11713 26.60 5.42 29.91 5.63Orascom Construction Industries (OCI)*** Aug-02 Bank of New York CIB / HSBC 1.00 50 32.51 47.61 190.99 263.90Egypt Lebanon Ceramics (Lecico) Nov-04 Bank of New York CIB / HSBC 1.00 8796 4.00 3.47 15.17 22.07Telecom Egypt Dec-05 Bank of New York CIB / HSBC 0.20 8522 14.20 15.01 16.16 17.01Naeem Holding Feb-08 Bank of New York CIB / HSBC 0.25 5625 - 1.88 0.71$ -Palm Hills Development May-08 Bank of New York CIB / HSBC 0.20 5435 - 6.00 7.56 6.57GB Auto May-09 Bank of New York CIB 0.20 100 - 32.64 - 35.94Source: Monthly Bulletin of the Egyptian Stock Exchange

* Last closing price was on 3 March 2005 as no trading has occurred after this date.

** The conversion ratio has changed to be 5 shares : 1 GDR, as of 12 April 2007. *** The conversion ratio has changed to be 1 share : 1 GDR, as of 7 May 2009.

Date of Offering

GDRs Listed on Global Exchanges

- 167 -

Depository Bank Sub

CustodianBank

ConversionRatio

(3/5) Global Depository Receipts (GDRs)

Price ($) at end of Price (LE) at end ofVolume on Offering Date

(000s)

Corporate Stocks Issuedon Egyptian Exchange

End of 91 days 182 days 89 days 252 days 259 days 266 days 273 days 350 days 357 days 364 days Total

2002March 10864 10241 - - - - - - - 14457 35562June 11183 14367 - - - - - - - 14457 40007Sept. 14576 18412 - - - - - - - 14457 47445Dec. 15897 22908 - - - - - - - 14457 532632003March 15251 24260 - - - - - - - 14457 53968June 16236 24625 - - - - - - - 14457 55318Sept. 14975 26777 - - - - - - - 14457 56209Dec. 6273 28066 13001 - - - - - - 14457 617982004March 15294 30477 4081 - - - - - - 14457 64310June 18463 38853 - - - - - - - 26458 83774Sept. 11000 48196 - - - - - - - 48958 108155Dec. 8600 45467 - - - - - - - 66558 1206252005March 0 34550 - - - - - - - 82358 116908June 2750 23900 - - - - - - - 98257 124907Sept. 8900 22350 - - - - - - - 71726 102976Dec. 5500 22600 - - - - - - - 67816 959162006March 6000 24100 - - - - - - - 69016 99116June 7100 26500 - - - - - - - 69544 103144Sept. 9900 27500 - - - - - - - 69957 107357Dec. 8200 27000 - - - - - - - 71157 1063572007March 11000 26000 - - - - - - - 73657 110657June 9000 27500 - - - - - - - 82157 118657Sept. 8500 31500 - - - - - - - 90657 130657Dec. 12000 33000 - - - - - - - 100957 1459572008March 10500 32500 - - - - - - - 106457 149457June 6800 33000 - - - - - - - 106639 146439Sept. 17000 42500 - - - - - - - 105940 165440Dec. 14500 48500 - - - - 28000 - - 114940 2059402009March 9500 51500 - - - - 55500 6000 - 97940 220440June 6021 43119 - - 6000 - 77500 15000 3000 88440 239080Sept. 11000 28990 - - 6000 - 88500 18000 15000 82890 250380Dec. 8480 32767 - - 6000 10025 79442 18000 32419 64618 2517512010March 20000 47264 - 6000 - 16025 69442 19000 39419 68118 285268

Source: Central Bank of Egypt.

(3/6) Outstanding Balance of Treasury Bills (Quarterly)

- 168 -

(LE mn)

91 days 182 days 252 days 259 days 266 days 273 days 350 days 357 days 364 days Total

January 2010The:

First week (5/1) 9533 34497 0 6000 10025 82442 15000 32419 62118 252034

Second week (12/1) 11533 35764 0 3000 12025 79442 15000 32419 65118 254301

Third week (19/1) 11533 36264 0 3000 12025 79442 15000 34419 65118 256801

Fourth week (26/1) 12533 38264 2000 3000 12025 79442 17000 34419 65118 263801

End Of Month 12533 38264 2000 3000 12025 79442 17000 34419 65118 263801

February 2010The:

First week (2/2) 14533 38764 2000 3000 12025 79442 14000 34419 62118 260301

Second week (9/2) 16000 40764 2000 3000 14025 76442 14000 34419 65118 265768

Third week (16/2) 16500 40264 2000 3000 14025 73442 14000 37419 65118 265768 Fourth week (23/2) 17000 42264 4000 3000 14025 70442 17000 37419 65118 270268

End Of Month 17000 42264 4000 3000 14025 70442 17000 37419 65118 270268

March 2010The:

First week (2/3) 16500 44264 4000 3000 14025 71442 17000 37419 62118 269768

Second week (9/3) 17500 44264 4000 0 16025 68442 17000 37419 65118 269768

Third week (16/3) 19000 44264 4000 0 16025 68442 17000 39419 65118 273268 Fourth week (23/3 19500 47264 6000 0 16025 68442 19000 39419 65118 280768

End Of Month 20000 47264 6000 0 16025 69442 19000 39419 68118 285268

Source : Central Bank of Egypt.

(3/7) Outstanding Balance of Treasury Bills (Weekly)

- 169 -

Date of Value Interest Maturity & Issue (LE mn) Rate Due Date

Bonds under the Primary Dealers System **

Eleventh Tranche 26/10/2004 5000 11.500% 7 years,26/10/2011Twelveth Tranche 16/11/2004 5000 11.625% 10 years,16/11/2014 Fourteenth Tranche 1/18/2005 1000 11.400% 20 years,18/01/2025

Fifteenth Tranche 7/12/2005 2000 9.100% 5 years,12/07/2010

Seventeenth Tranche 16/8/2005 2000 9.350% 5 years,16/08/2010

Eighteenth Tranche (1) 20/9/2005 6000 9.100% 7 years,20/09/2012 Twentieth Tranche 18/10/2005 2000 9.100% 5 years,18/10/2010

Twenty First Tranche (2) 15/11/2005 5000 9.300% 10 years,15/11/2015

Twenty Third Tranche (3) 1/24/2006 6000 8.850% 7 years,24/01/2013

Twenty Fifth Tranche (4) 2/28/2006 4000 8.600% 5 years,28/02/2011Twenty Sixth Tranche 5/2/2006 2000 8.950% 4 years,02/05/2010Twenty Seventh Tranche 5/29/2007 2000 9.450% 7 years,29/05/2014Twenty Eighth Tranche 9/25/2007 2000 8.450% 7 years,25/09/2014Twenty Ninth Tranche 10/23/2007 2000 8.600% 8 years,25/10/2015

Thirtieth Tranche (5) 11/13/2007 5000 8.550% 6 years,13/11/2013Thirty First Tranche 22/01/2008 3000 8.700% 8 years,22/01/2016Thirty Second Tranche 12/02/2008 1500 9.150% 10 years,12/02/2018Thirty Third Tranche 19/02/2008 3000 9.200% 6 years,19/02/2014Thirty Fourth Tranche 27/05/2008 3000 10.650% 7 years,27/05/2015Thirty Fifth Tranche 6/10/2008 2000 10.950% 8 years,10/06/2016Thirty Sixth Tranche (6) 1/13/2009 6000 12.000% 3 years,13/01/2012Thirty Seven Tranche (7) 2/10/2009 6000 12.000% 5 years,10/02/2014Thirty Eight Tranche (8) 4/14/2009 5000 10.550% 5 years,14/04/2014Thirty Nine Tranche 4/28/2009 3000 10.350% 3 years,28/04/2012Fortieth Tranche 6/9/2009 3000 11.000% 7 years,09/06/2016

Forty First Tranche(9) 7/7/2009 3500 10.600% 2 years,07/07/2011

Forty Second Tranche (10) 8/28/2009 6000 10.800% 4 years,28/07/2013

Forty Third Tranche (11) 8/11/2009 6000 10.450% 3 years,11/08/2012

Forty Fourth Tranche(12) 9/15/2009 5100 10.900% 5 years,15/09/2014

Forty Fifth Tranche(13) 9/29/2009 6000 10.900% 4 years,29/09/2013Forty Sixth Tranche 11/24/2009 2000 12.170% 4 years,24/11/2013

Forty Seven Tranche(14) 12/8/2009 6500 12.500% 5 years,08/12/2014Forty Eight Tranche 12/15/2009 5100 12.800% 6 years,15/12/2015

Forty Nine Tranche(15) 1/5/2010 8000 12.350% 3 years,05/01/2013

Fiftieth Tranche(16) 2/16/2010 4000 12.600% 7 years,16/02/2017

Fifty First Tranche 3/2/2010 3000 12.250% 5 years,02/03/2015

Total 141700Source : Central Bank of Egypt.

* Issued by Law No. 4 /1995.** This system was put into force as of July 2004, in virtue of the Minister of Finance 's Decree No.480 for 2002 and the provisions governing

it, issued by the Minister of Finance's Decree No. 723 for 2002, in accordance with Article (7) of Law No. 92 for 2004.

( 1 ) Increased by LE 2.0 billion, due to their re-opening on 13/12/2005 on the same conditions, and by LE 2.0 billion due to their re-opening

on 27/3/2007 on the same conditions.

( 2 ) Increased by LE 2.0 billion, due to their re-opening on 13/03/2006 on the same conditions, and by LE 1.0 billion due to their re-opening

on 13/6/2006 on the same conditions.

( 3 ) Increased by LE 2.0 billion, due to their re-opening on 17/04/2006 on the same conditions, and by LE 2.0 billion due to their re-opening

on 17/4/2007 on the same conditions.

( 4 ) Increased by LE 2.0 billion, due to their re-opening on 11/12/2007 on the same conditions.

( 5 ) Increased by LE 3.0 billion, due to their re-opening on 4/3/2008 on the same conditions.

(6) Increased by LE 3.0 billion due to their re-opening on 24/2/2009 on the same conditions.

(7) Increased by LE 3.0 billion due to their re-opening on 31/3/2009 on the same conditions.

(8) Increased by LE 2.0 billion due to their re-opening on 6/5/2009 on the same conditions.

(9) Increased by LE 3.0 billion due to their re-opening on 21/7/2009 on the same conditions.

(10) Increased by LE 3.0 billion due to their re-opening on 25/8/2009 on the same conditions.

(11) Increased by LE 3.0 billion due to their re-opening on 1/9/2009 on the same conditions.

(12) Increased by LE 2.1 billion due to their re-opening on 3/11/2009 on the same conditions.

(13) Increased by LE 3.0 billion due to their re-opening on 13/10/2009 on the same conditions.

(14) Increased by LE 1.5 billion on 19/01/2010 , LE 1.5 billion on 2/2/2010 and by LE 1.5 billion on 16/2/2010 due to their re-opening on the same conditions.

(15) Increased by LE 1.5 billion on 2/2/2010 LE 1.5 billion on 2/3/2010 and by LE 2.0 billion on 16/3/2010 due to their re-opening on the same conditions.

(16) Increased by LE 2.0 billion due to their re-opening on 30/3/2010 on the same conditions.

(3/8) Outstanding Balance of Treasury Bonds*End of March 2010

- 170 -

( LE mn )

Total Expenditures 323917 347664 238928 261088Compensations of Employees 87485 88426 57962 58658

Salaries and wages 69264 70125 48572 49213Social contributions 8686 8758 5712 5757Other 9535 9543 3678 3688

Purchases of Goods and Services 27349 27504 15349 15452Goods 13347 13367 7396 7409Services 10327 10416 6878 6935Other 3675 3721 1075 1108

Interests 71066 62348 53798 45240Foreign interests 3586 3586 2570 2570Domestic interests: 67480 58762 51228 42670

To NIB & SIFs 17890 0 14288 0To others 49590 58762 36940 42670

Subsidies, Grants and Social Benefits 73480 104523 62339 92079Subsidies 59475 59475 55161 55161

To GASC 13841 13841 13502 13502

To Petroleum 33694 33694 33694 33694

To others 11940 11940 7965 7965

Grants 3916 3916 3572 3572Social Benefits 6664 37707 3408 33148Contribution to SIFs 5000 0 1779 0

Other 1664 37707 1629 33148

Other 3425 3425 198 198

Other Expenditures 28058 28290 21334 21468Defense 22649 22649 17621 17621

Other 5409 5641 3712 3846

Purchases of Non-Financial Assets(Investments) 36479 36573 28147 28192

Fixed assets 32507 32601 25341 25386

Others 3972 3972 2805 2805

Source: The Ministry of Finance .

9 Months (Actual)

(Total Expenditures)

Estimates

2009/2010

- 171 -

The Budget Sector

The Budget Sector, NIB

& SIFs

The Budget Sector

The Budget Sector, NIB

& SIFs

(4/1) Consolidated Fiscal Operations of the General Government

( The Budget Sector, NIB and SIFs )

( LE mn )

Total Revenues 224987 260124 151846 175181Tax Revenues 145544 145544 105904 105904

Taxes on income, Profits 58749 58749 41125 41125From EGPC 18453 18453 15421 15421From SCA 9029 9029 6630 6630From CBE 152 152 0 0From other units 16603 16603 8041 8041Payable by individuals 14512 14512 11033 11033

Taxes on Property 8106 8106 6044 6044Taxes on Goods and Services 61376 61376 46400 46400Taxes on International Trade 14018 14018 10194 10194Other Taxes 3295 3295 2141 2141

Grants 7700 7700 2305 2305Current 6538 6538 1774 1774

Capital 1162 1162 531 531Other Revenues 71743 106880 43637 66972Property Income 47622 56459 30664 34777

From EGPC 10802 10802 14493 14493From SCA 11830 11830 9034 9034From CBE 228 228 205 205From economic authorities 2938 2938 497 497From companies 5634 5958 1200 1200Other (from EGPC & TML*) 8350 8350 1728 1728Other 7840 16353 3506 7620

Sales of Goods and Services 13202 13202 8458 8458Financing Investment 3048 3048 2390 2390

Other 7871 34171 2126 21347Source : The Ministry of Finance .

* third mobile license

- 172 -

The Budget Sector, NIB

& SIFs

The Budget Sector

Estimates

(4/2) Consolidated Fiscal Operations of the General Government ( The Budget Sector, NIB and SIFs )

9 Months (Actual)

(Total Revenues)

2009/2010

The Budget Sector, NIB

& SIFs

The Budget Sector

( LE mn )

Total Revenues 224987 260124 151846 175181Total Expenditures 323917 347664 238928 261088Cash Deficit 98931 87541 87082 85908Net Acquisition of Financial Assets 729 4202 -151 6449Overall Fiscal Balance Finance 99660 91743 86931 92356Financing Sources 99660 91743 86931 92356Domestic Financing 106114 98197 104923 109395Banking Financing 105365 91883 45698 45506

Central Bank -17413 -17413 16284 16284Other Banks 122778 109296 29414 29222

Non-Banking Financing 749 6314 59225 63889NIB -200 0 4318 0SIFs 0 0 1659 0Other 949 949 52843 52843NIB Borrowing 0 5365 0 10641Special Accounts for Economic Authorities 0 0 405 405

Blocked Account Used in Amortizing Part of CBE Bonds 0 0 0 0Foreign Borrowing -5581 -5581 -4594 -4594Arrears 0 0 0 0Others, of which: -873 -873 -308 654

Special Accounts for Budget Entities 0 0 0 0Financing Effects for Eliminations 0 0 0 0Exchange Rate Revaluation 0 0 -1595 -1595Net Privatization Proceeds 0 0 413 413

Privatization Proceeds 0 0 793 793Treasury Contribution to the Fund 0 0 380 380

Difference between Treasury Bills Face Value & Present Value 0 0 -1126 -1126Foreign Debt Reclassification Diff. Related Fx Diff. 0 0 0 0Discrepancy 0 0 -10782 -10782Cash Deficit (surplus) as a percentage of GDP 8.4% 7.4% 7.3% 7.2%Overall fiscal balance as a percentage of GDP 8.4% 7.8% 7.3% 7.7%Revenues as a percentage of GDP 19.1% 22.0% 12.7% 14.6%Expenditures as a percentage of GDP 27.4% 29.4% 19.9% 21.8%Source : The Ministry of Finance .

- 173 -

(4/3) Summary of the Consolidated Fiscal Operations of the General Government

( The Budget Sector , NIB and SIFs )

9 Months (Actual)

2009/2010

Estimates

The Budget Sector, NIB

& SIFs

The Budget Sector

The Budget Sector, NIB

& SIFs

The Budget Sector

(LE mn)

June 2008 March 2009 June 2009 March 2010 2008/2009 2009/2010

Gross Domestic Debt (1+2+3-4) 666835 745034 755297 863297 78199 108000

1- Net Domestic Debt of Government (A+B+C) 478811 553162 562327 667249 74351 104922

A- Balances of Bonds & Bills 568960 652139 681838 780042 83179 98204

. Treasury bonds with the CBE 122378 122378 121708 124559 0 2851

. Local currency bonds with public sector banks 4000 4000 4000 4000 0 0

. Bonds offered abroad * 0 0

US$ 3750 4067 4036 4144 317 108

LE 112 3323 3773 3752 3211 (21)

. Egyptian treasury bonds 78500 83500 92500 141767 5000 49267

. Government notes to compensate for the actuarial deficit in social insurance funds 2000 2000 2000 2000 0 0

. Housing bonds 117 116 116 114 (1) (2)

. Treasury Bills 146439 220440 239080 285268 74001 46188

. Foreign currency bonds with public sector commercial banks 11126 11767 11677 11487 641 (190)

. The equivalent of the retained 5% of corporate profits to purchase government bonds 1636 1646 1700 1703 10 3

. Bonds of the Insurance Funds (against the transfer of NIB debt to the Treasury) 198902 198902 201248 201248 0 0

B- Credit Facilities from the Social Insurance Funds 2343 2343 2343 2343 0 0

C- Net Government Balances with the Banking System -92492 -101320 -121854 -115136 (8828) 6718

2- Borrowing of Economic Authorities 50123 55257 52255 53473 5134 1218

. Net balances of economic authorities with the banking system -1156 2952 2193 2424 4108 231

. Borrowing of economic authorities from NIB 51279 52305 50062 51049 1026 987

3- NIB Debt (Net) 189180 188920 200754 207918 (260) 7164

. NIB Debt 193071 192030 205560 211293 (1041) 5733

. Deposits of the NIB with the banking system (-) 3891 3110 4806 3375 (781) (1431)

4- NIB Intradebt 51279 52305 60039 65343 1026 5304

. Loans of economic authorities to NIB 51279 52305 50062 51049 1026 987

. NIB investments in government securities .. .. 9977 14294 0 4317

* Holdings of resident financial institutions in Egypt represented in the banking system and the insurance sector.

.. Not avalabile

Source: The Ministry of Finance, Central Bank of Egypt & National Investment Bank.

(4/4) Government Domestic Debt , Economic Authorities Debt & NIB Debt

Change +(-)July / MarchEnd of

- 174 -

(LE mn)

End of

June 2008 March 2009 June 2009 March 2010 2008/2009 2009/2010

Liabilities :of which 193071 192030 205560 211293 (1041) 5733

Social Insurance Fund for Gov. Employees 29076 29076 29638 29638 0 0

Social Insurance Fund for Pub. & Priv. Business Sectors Employees 22632 22632 24895 24895 0 0

Proceeds from investment certificates 79232 80056 81454 88184 824 6730

Accumulated interest on investment certificates (category A) 7509 8333 8654 8615 824 (39)

Proceeds from US dollar development bonds 152 11 11 10 (141) (1)

Post office savings 49255 49255 54487 57987 0 3500

Others* 5215 2667 6421 1964 (2548) (4457)

Assets :of which 193071 192030 205560 211293 (1041) 5733

Loans to economic authorities 51279 52305 50062 51049 1026 987

Deposits of the NIB with the banking system 3891 3110 4806 3375 (781) (1431)

Investments in securities (bills and bonds) 0 0 9977 14294 0 4317

Equity participations, concessional loans, and others(NIB debt minus its intradebt) 137901 136615 140715 142575 (1286) 1860

* Including deposits of the private insurance funds, saving certificates, and loans & deposits of various entities.

(4/5) NIB Resources and Uses

Change +(-)July / March

- 175 -

(US$mn)

Change

Value % Value % (-)

Balance of Current Account (3430.2) (2606.2) 824.0

Balance of Current Account (Excluding Transfers) (9869.2) (9774.9) 94.3

Receipts 37673.3 100.0 34709.0 100.0 (2964.3)

Export proceeds** 19254.1 51.1 16967.1 48.9 (2287.0)

Transportation, of which 5825.0 15.5 5229.7 15.1 (595.3)

Suez Canal dues 3675.8 9.8 3366.1 9.7 (309.7)

Travel 7926.3 21.0 8722.9 25.1 796.6

Investment income 1712.6 4.5 661.5 1.9 (1051.1)

Government receipts 176.9 0.5 136.9 0.4 (40.0)

Other receipts 2778.4 7.4 2990.9 8.6 212.5

Payments 47542.5 100.0 44483.9 100.0 (3058.6)

Import payments** 38747.4 81.5 35504.1 79.8 (3243.3)

Transportation 1205.2 2.5 920.0 2.1 (285.2)

Travel 2180.1 4.6 1778.3 4.0 (401.8)

Investment income, of which 1396.9 3.0 2949.1 6.6 1552.2

Interest paid 526.8 1.1 473.5 1.1 (53.3)

Government expenditures 817.7 1.7 1126.1 2.5 308.4

Other payments 3195.2 6.7 2206.3 5.0 (988.9)

Transfers 6439.0 100.0 7168.7 100.0 729.7

Private (net) 5850.8 90.9 6275.6 87.5 424.8

Official (net) 588.2 9.1 893.1 12.5 304.9

* Preliminary figures.

** Including the exports & imports of free zones.

- 176 -

(5/1) Balance of Payments

2008/2009* 2009/2010*

July/March

(US$ mn)

2008/2009* 2009/2010*Value Value

Capital & Financial Account 679.8 5163.0

Capital Account -0.1 -16.8Financial Account 679.9 5179.8 Direct Investment Abroad -1079.9 -648.6 Direct Investment in Egypt (Net) 5238.9 4332.0 Portfolio Investments Abroad (Net) -285.2 -692.6 Portfolio Investments in Egypt (Net), of which : -8889.8 7111.2 Bonds -858.3 -255.8

Other Investments (Net) 5695.9 -4922.2 Net Borrowing -48.0 2234.6

Medium and Long -Term Loans -661.6 -1058.9

Drawings 890.3 494.5

Repayments -1551.9 -1553.4

Medium-Term Suppliers' and Buyers' Credit -445.1 -10.8

Drawings 12.1 44.6

Repayments -457.2 -55.4

Short-Term Suppliers' and Buyers' Credit (Net) 1058.7 3304.3 Other Assets 5194.2 -8419.0 CBE 77.7 -34.0

Banks 10387.1 -2898.5

Other -5270.6 -5486.5

Other Liabilities 549.7 1262.2

CBE 6.5 1180.3

Banks 543.2 81.9

Net Errors & Omissions 408.1 549.2Overall Balance -2342.3 3106.0Change in Reserve Assets, Increase (-) 2342.3 -3106.0Source: CBE.

* Preliminary figures.

- 177 -

(5/1) Balance of Payments (Contd.)

July/March

(US$ mn)

Value % Value % Total *** 19254.1 100.0 16967.1 100.0 (2287.0)Fuels , Mineral Oils & Products 8886.3 46.2 7348.2 43.3 (1538.1)

Crude oil 2981.5 15.5 2842.0 16.8 (139.5)Petroleum products **** 5606.6 29.1 4208.0 24.8 (1398.6)Coal & types thereof 58.4 0.3 60.4 0.4 2.0

Raw Materials 677.6 3.5 939.8 5.5 262.2Cotton 71.9 0.4 87.7 0.5 15.8Potatoes 5.5 0.0 17.1 0.1 11.6Edible fruits & nuts 54.6 0.3 95.7 0.6 41.1Oil seeds & oleaginous fruits, medicinal plants & plants for manufacturing 31.8 0.2 35.0 0.2 3.2

Spices&vanilla 1.3 0.0 5.6 0.0 4.3Medicinal plants 9.3 0.0 15.5 0.1 6.2Citrus fruits 12.6 0.1 6.0 0.0 (6.6)Raw hides & tanned leather 19.6 0.1 10.9 0.1 (8.7)Flax, raw 1.1 0.0 11.6 0.1 10.5Edible vegetables roots & tubers 144.7 0.8 79.9 0.5 (64.8)

Semi-finished Goods 1478.1 7.7 1206.4 7.1 (271.7)Carbon 47.9 0.2 57.7 0.3 9.8Essential oils & resins 6.9 0.0 12.9 0.1 6.0

- 178 -

Change(-)

(5/2) Exports by Degree of Processing *

July/March2008/2009 2009/2010**

(US$ mn)

Value % Value % Cotton yarn 71.0 0.4 95.2 0.6 24.2Aluminium, unalloyed 45.6 0.2 33.4 0.2 (12.2)Animal & vegetable fats, greases & oils & products 101.3 0.5 95.7 0.6 (5.6)Synthetic fibers 5.7 0.0 24.7 0.1 19.0Organic & inorganic chemicals 407.2 2.1 384.0 2.3 (23.2)Cast iron & semi-finished products & rolled iron 528.2 2.7 274.0 1.6 (254.3)Leather, tanned 77.7 0.4 14.0 0.1 (63.7)Tanning or dyeing extracts 45.3 0.2 47.0 0.3 1.7Plastic & articles thereof 135.3 0.7 163.2 1.0 27.9Finished Goods 7880.3 40.9 7238.3 42.7 (642.0)Milk & condensed cream 64.7 0.3 37.9 0.2 (26.8)Dried onion 2.6 0.0 4.6 0.0 2.0Rice 41.1 0.2 135.9 0.8 94.8Vegetable & fruit preparations 24.3 0.1 12.4 0.1 (12.0)Miscellaneous edible preparations 488.2 2.5 380.3 2.2 (107.9)Manufactured tobacco and tobacco substitutes 86.7 0.5 60.0 0.4 (26.7)Sugar and its products 55.7 0.3 56.6 0.3 0.9Pharmaceuticals 354.8 1.8 313.8 1.8 (41.0)Fertilizers 579.8 3.0 534.3 3.1 (45.5)Cement***** 434.8 2.3 146.5 0.9 (288.3)

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(5/2) Exports by Degree of Processing * (Contd.)

July/MarchChange(-) 2008/2009 2009/2010**

(US$ mn)

Value % Value % Extracts of essential oils & resins 23.9 0.1 66.8 0.4 42.9Leather products 12.0 0.1 27.4 0.2 15.4Rubber & articles 16.3 0.1 30.2 0.2 13.9Paper, cardboard paper & articles thereof 156.6 0.8 158.8 0.9 2.2Ceramic products 138.2 0.7 135.6 0.8 (2.6)Cars, bicycles & tractors 256.5 1.3 207.9 1.2 (48.6)Cotton textiles 399.0 2.1 326.3 1.9 (72.7)Carpets & other floor coverings 91.6 0.5 133.6 0.8 42.0Shoes & accessories 0.6 0.0 1.3 0.0 0.7Ready-made clothes 472.1 2.5 494.9 2.9 22.8Glass & glassware 174.2 0.9 160.8 0.9 (13.4)Copper & articles 72.1 0.4 47.1 0.3 (25.0)Aluminium articles 244.6 1.3 283.7 1.7 39.1Articles of iron and steel 398.2 2.1 373.5 2.2 (24.7)Wood & articles thereof and charcoal 13.8 0.1 19.2 0.1 5.4Marble & granite 63.0 0.3 45.5 0.3 (17.5)Articles of base metals 202.3 1.1 177.9 1.0 (24.4)Optical appliances 26.8 0.1 42.1 0.2 15.3Soap & Detergents, fabricated candles 166.0 0.9 149.7 0.9 (16.3)

Miscellaneous Goods (Undistributed) 331.8 1.7 234.4 1.4 (97.4)Source: Central Bank of Egypt.* According to the Harmonized System.** Provisional.*** Include exports of free zones. **** Include natural gas, and bunker & jet fuel.

and Decree No. 604 for 2009 regarding the Continual Ban of Cement Export till Oct. , 1 , 2010.***** Taking into consideration the Ministerial Decree No. 340 for 2009 Banning Cement Export from April,13, to Sept. ,1 , 2009;

- 180 -(5/2) Exports by Degree of Processing * (Contd.)

July/MarchChange(-) 2008/2009 2009/2010**

(US$ mn)

Value % Value % Total *** 38747.4 100.0 35504.1 100.0 (3243.3)Fuels, Mineral Oils & Products 3751.6 9.7 2439.0 6.9 (1312.6)

Petroleum products **** 3430.6 8.9 2096.9 5.9 (1333.7)Coal & types thereof 154.3 0.4 46.9 0.1 (107.4)

Raw Materials 5018.6 12.9 3868.1 10.9 (1150.5)Crude oil 2100.7 5.4 1166.0 3.3 (934.7)Wheat 959.2 2.5 1020.0 2.9 60.8Maize 364.0 0.9 359.9 1.0 (4.1)Tobacco 284.6 0.7 410.7 1.2 126.1Metal ores 293.4 0.8 111.5 0.3 (181.9)Iron, ore 300.3 0.8 189.3 0.5 (111.0)Seeds & oleaginous seeds 193.0 0.5 308.0 0.9 115.0Cotton 79.0 0.2 77.2 0.2 (1.8)

Intermediate Goods 13045.0 33.7 11810.1 33.3 (1234.9)Sugar, raw 161.2 0.4 184.5 0.5 23.3Animal and vegetable fats, greases & oils and products 1130.5 2.9 899.6 2.5 (230.9)

Cement 359.7 0.9 517.3 1.5 157.6Organic & inorganic chemicals 1637.3 4.2 1242.0 3.5 (395.3)Fertilizers 151.8 0.4 174.6 0.5 22.8Tanning & dyeing extracts 195.7 0.5 221.1 0.6 25.4Essential oils & resinoids 42.4 0.1 55.7 0.2 13.3Plastic & articles thereof 898.8 2.3 1080.9 3.0 182.1

(5/3) Imports by Degree of Use * - 181 -

July/MarchChange(-) 2008/2009 2009/2010**

(US$ mn)

Value % Value % Wood & articles thereof 654.4 1.7 630.4 1.8 (24.0)Paper, cardboard paper & articles thereof 620.4 1.6 815.2 2.3 194.8Cotton textiles 130.7 0.3 171.2 0.5 40.5Synthetic fibers 284.9 0.7 344.9 1.0 60.0Ceramic products 239.2 0.6 240.2 0.7 1.0Glass & articles 140.4 0.4 193.2 0.5 52.8Iron & steel products 3302.0 8.5 2374.6 6.7 (927.4)Copper & articles 189.0 0.5 222.3 0.6 33.3Rubber & articles 264.9 0.7 331.2 0.9 66.3Aluminium & articles 230.1 0.6 260.1 0.7 30.0Articles of base metals 218.6 0.6 371.1 1.0 152.5Parts & accessories of motor vehicles 1051.8 2.7 1327.5 3.7 275.7

Investment Goods 8056.1 20.8 7488.7 21.1 (567.4)Pumps, fans & parts thereof 643.1 1.7 669.3 1.9 26.2Machines and apparatus for ginning and spinning & parts thereof 47.3 0.1 109.3 0.3 62.0

Computers 550.5 1.4 736.0 2.1 185.5Motors, generators, transformers & parts thereof 258.7 0.7 543.7 1.5 285.0Parts of railway and tramway locomotives or rolling stock equipment 152.9 0.4 81.0 0.2 (71.9)

Tractors 50.6 0.1 25.7 0.1 (24.9)Vehicles for transport of passengers 12.7 0.0 19.7 0.1 7.0Vehicles for transport of goods 62.1 0.2 57.7 0.2 (4.4)

(5/3) Imports by Degree of Use* (Contd.)

- 182-

July/MarchChange(-) 2008/2009 2009/2010**

(US$ mn)

Value % Value % Tools, implements, cuttery & spoons 156.9 0.4 223.4 0.6 66.5Air conditioners 175.6 0.5 125.9 0.4 (49.7)Cranes and bulldozers & parts thereof 930.2 2.4 843.3 2.4 (86.9)Agricultural machinery 172.0 0.4 84.0 0.2 (88.0)Printing machinery & parts 63.7 0.2 65.1 0.2 1.4Electric appliances for telephones & telegraph 629.3 1.6 580.7 1.6 (48.6)Optical appliances 326.0 0.8 476.4 1.3 150.4

Consumer Goods 6994.2 18.0 8979.1 25.2 1984.9A - Durable Goods 1599.5 4.1 2359.1 6.6 759.6

Household refrigerators & electric freezers 113.9 0.3 164.1 0.5 50.2Televisions & parts thereof 36.7 0.1 59.1 0.2 22.4Vehicles for transport of persons 779.4 2.0 909.9 2.6 130.5Household electric-motor appliances 243.5 0.6 425.2 1.2 181.7

B - Non-durable Goods 5394.7 13.9 6620.0 18.6 1225.3Meat and edible offals 378.0 1.0 459.1 1.3 81.1Fish, crustaceans, molluscs and others 142.5 0.4 221.9 0.6 79.4Dairy products, eggs, poultry and honey 282.7 0.7 283.3 0.8 0.6Edible vegetables roots & tubers 164.0 0.4 225.6 0.6 61.6Tea 127.5 0.3 125.5 0.4 (2.0)

(5/3) Imports by Degree of Use* (Contd.)

- 183 -

July/MarchChange(-) 2008/2009 2009/2010**

(US$ mn)

Value % Value % Miscellaneous edible preparations 471.4 1.2 588.4 1.7 117.0Pharmaceuticals 1171.5 3.0 1564.8 4.4 393.3Insecticides 17.6 0.0 19.7 0.1 2.1Residues of foodstuff industries & animal fodder 122.4 0.3 115.7 0.3 (6.7)Live animals 13.8 0.0 37.7 0.1 23.9Ready-made clothes 447.2 1.2 630.2 1.8 183.0Cotton textiles 237.7 0.6 329.7 0.9 92.0Sugar, refined and products 58.3 0.2 27.4 0.1 (30.9)Lentils 33.6 0.1 39.2 0.1 5.6Soap, detergents & artificial wax 140.7 0.4 97.6 0.3 (43.1)

Miscellaneous Goods (Undistributed) 1881.9 4.9 919.1 2.6 (962.8)Source: Central Bank of Egypt.* According to the Harmonized System.** Provisional.*** Including imports of free zones, and commodity grants & loans.**** Including gas, and bunker & jet fuel.

- 184-

(5/3) Imports by Degree of Use* (Contd.)

July/MarchChange(-) 2008/2009 2009/2010**

(US$ mn)

2008/2009 2009/2010 ** 2008/2009 2009/2010 ** 2008/2009 2009/2010 **Total *** 19254.1 16967.1 38747.4 35504.1 (19493.3) (18537.0)

European Union 6688.1 6113.8 14342.0 13395.6 (7653.9) (7281.8)Other European countries 701.2 763.1 4010.6 4371.5 (3309.4) (3608.4)Russian Federation & C.I.S 124.1 87.7 1256.7 999.7 (1132.6) (912.0)United States of America 5187.0 3411.1 5894.2 3803.0 (707.2) (391.9)Arab countries 2709.4 3372.7 3749.1 3562.2 (1039.7) (189.5)Asian countries (Non Arab) 2429.5 2333.1 7510.7 7343.5 (5081.2) (5010.4)African countries (Non Arab) 562.5 250.0 317.8 363.6 244.7 (113.6)Australia 12.0 13.2 161.1 162.2 (149.1) (149.0)Other countries & regions 840.3 622.4 1505.2 1502.8 (664.9) (880.4)Source: Central Bank of Egypt* Including commodity grants and loans.** Provisional.*** Including exports & imports of free zones.

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(5/4) Regional Distribution of Exports and Imports

July/MarchProceeds of Exports Payments for Imports* Trade Balance

End of

Minimum

Maximum

Weighted average

Second: Market Rates Buy Sell Buy Sell

US Dollar 558.55 561.34 549.13 551.89

Euro 788.72 793.05 741.05 744.83

Pound Sterling 926.13 931.03 832.86 837.32

Swiss Franc 516.89 519.85 518.73 521.58

100 Japanese Yens 582.67 585.70 590.84 593.87

Saudi Riyal 148.93 149.69 146.42 147.17

Kuwaiti Dinar 1943.44 1956.55 1902.60 1913.49

UAE Dirham 152.06 152.84 149.50 150.26

Chinese Yuan 81.77 82.18 80.45 80.85

Source : CBE daily exchange rates

The interbank rates started as of 23/12/2004.

560.00

559.64

June 2009 March 2010

559.40 550.40

550.70

550.55

First: Interbank US$ Rates

(In piasters per foreign currency unit)

(5/5) Average LE Exchange Rates

-186 -

(US$ mn) End of

%Value (-)%Value%Value2.4746.0100.032277.1100.031531.1Total External Debt **

0.9267.492.029674.593.229407.11- Medium & Long term debt :(7.8)(1104.8)40.212976.644.614081.4 Rescheduled bilateral debt +

(4.5)(331.5)22.07116.523.67448.0 ODA(11.7)(773.3)18.25860.121.06633.4 Non-ODA0.419.115.04843.315.34824.2 Other bilateral debt(0.8)(32.7)12.23945.612.63978.3 Paris club countries6.151.82.8897.72.7845.9 Other countries12.540.31.1363.91.0323.6 Suppliers' & buyers' Credit16.41342.929.59511.725.98168.8 International & regional organizations(1.1)(21.0)6.01905.16.21926.1 Egyptian bonds and notes(11.0)(9.1)0.273.90.283.0 Private sector (Non-guaranteed)22.5478.68.02602.66.82124.02- Short-term debt :3.844.33.71200.43.71156.1 Deposits44.9434.34.31402.23.1967.9 Other facilities

Source: Loans & External Debt Department- CBE* Provisional.** The difference from World Bank data is in short-term debt.+ According to the agreement signed with Paris club countries on 25/5/1991

(5/6) External Debt

March 2010 *June 2009 Change

- 187 -

(US$ mn)ChangeEnd of

(-)%Value%Value746.0100.032277.1100.031531.1Total(359.0)38.112311.140.212670.1US dollar **

9.00.5149.00.4140.0Canadian dollar1.00.3115.00.4114.0Australian dollar0.01.7541.01.7541.0Swiss franc

(10.0)0.6197.00.7207.0Sterling pound60.012.44009.012.53949.0Japanese yen(13.0)0.4124.00.4137.0Danish krone0.00.05.00.05.0Norwegian krone(1.0)0.127.00.128.0Swedish krona

208.06.01939.05.51731.0Kuwaiti dinar9.00.137.00.128.0Saudi riyal(2.0)0.131.00.133.0UAE dirham

(525.0)30.09692.032.410217.0Euro303.02.3727.01.4424.0Egyptain Pound1066.07.42373.04.11307.0SDRs

Source: Loans & External Debt Department- CBE* Provisional.** Including other liabilities which are due in US dollar

- 188 -

(5/7) Distribution of External Debt by Main Currencies

March 2010 *June 2009