Question

“Egypt has faced and is still facing financial challenges that are currently exacerbated by the COVID-19.” Choose one of the following policy options to help Egypt address its current challenges:

• Policy Option B: utilize domestic resources as per its own natural endowments adopting an economic strategy largely dependent on import-substitution.

Throughout our study of the economic history of the modern Middle East, we have passed through economic & financial policies that, to a large extent, resemble either of the two options.

Give a detailed description and analysis of the option you choose focusing on:

• Similar policies adopted in the Middle East, (including, for example, institutions playing similar roles to the IMF in case you choose option A).
• 800 words

Answer 1

The concept of import substitution is to establish enough domestic industries that can produce all or most of those goods that a country would otherwise import from other nations, and sell them in the domestic markets so that the dependency on the foreign countries for domestic consumption could be reduced. This will increase domestic employment and also income of the domestic economy. In this case, too, this might be a very valid option.

Seeing as the COVID-19 pandemic has slowed down the economies across the globe substantially, each country and its government would want to come up with policies that would hekp the regenration of the local and domestic markets and increase the income and purchasing power of the poeple so that the aggregate demand and aggregate supply can move back on track. At this point, the primary concern of every government is to enable its poeple to get their livelihood back by reinstating all those who have lost their jobs and incomes in the face of this pandemic. For this, job creating in the economy is important. At the same time, the government itself might not have enough revenue, having spent quite a part of it on healthcare, to be able to invest or plan enough infrastructure projects so tha jobs can be created. At this point where the incomes are already very low, revenue mobilization by increases taxes is also not a very good option as it will further depress the aggregate demand in the economy. Hence, the best way to increase incomes and jobs, is to help the private sector do so.

The government in this case has to subsidise the domestic insdustries and help the private sector to increase its production. In the face of the stalled economic activity, all the nations are facing very low international trade. It is the best time for each nation to become self sufficient and not spend too much of its funds in importing goods that it can produce at home. The government has to reduce the tax on certain goods that were taxed heavily and hence had to be imported, and it has to subsidise the domestic production of these goods. It is important that the governments substitute the international imports with similar goods that can be porduced within the country for the same or maybe even lesser cost. This will not only save a lot of income from being drained out of the country in paying for imports, it will also create a lot of jobs domestically as more and more labour is required, and hence it will give the poeple of the country more purchasing power with which the domestic economy demand can also be boosted.