Training: A First Step Towards a Multi-Agency CGE Modeling Team for Evidence Based Policy Advice in Egypt

Yumna Kassim (IFPRI-Egypt)

As the impact of Egypt’s macroeconomic policy reforms is being felt by people and businesses, the impacts of these reforms vary across different sectors and household groups. What we know so far from statistics by the Central Bank of Egypt (CBE 2017a) is that – likely largely driven by the flotation of the Egyptian pound –  Egyptian exports of goods and services (including tourism) and foreign direct investment have increased, leading to an improvement in Egypt’s trade deficit. Yet the 30 percent spike in inflation (CBE 2017b) that is partly associated with the floatation of the exchange rate, has also reduced the purchasing power for many Egyptians. Coupled with reductions in fuel subsidies and a 33 percent hike in the price of electricity since last August (Egyptian Electric), these impacts have been felt with varying degrees of intensity across the country’s rural versus urban, and poorer versus richer households.

Trainees from the Ministry of Planning receiving their certificates upon completion of the 5 day training course

 

But how can we measure and quantify the impact of these and future changes in policy? To build a national team of analysts that will be able to use economic tools to answer such policy relevant questions, the Ministry of Planning, Monitoring and Administrative Reform (MoPMAR), the International Food Policy Research Institute (IFPRI) and the Effective Planning and Services Project of the United States Agency for International Development (EPSP-USAID) organized a 5-day training course on the “Development and Evaluation of Evidence-based Policy Reforms in Egypt”. The course was the first in a series of three trainings aimed to create a multi-agency modeling team instructed by Manfred Wiebelt of the Kiel Institute for the World Economy, and took place between 26th-30th of March. The first modelling training introduced Social Accounting Matrices (SAM) and Computable General Equilibrium modeling (CGE).

In her opening remarks, NihalElMegharbel, Vice Minister of Monitoring at the MoPMAR stressed the importance of quantitative analysis for evidence-based policy making. Such analysis will help Egyptian policymakers to make better informed decisions for the benefit of the Egyptian people. Salwa Tobbala, Senior Governance Democracy Specialist at USAID-Egypt, Clemens Breisinger, Country Program Leader and Senior Research Fellow at IFPRI commented on the significance of SAMs and CGEs in policymaking.  Breisinger, furthermore, highlighted that “CGE models are uniquely useful tools in a sense that they link the macroeconomy, various economic sectors, institutions and markets. As such CGE models allow for simulating distributional effects of alternative policy options and can serve as powerful tools in the decision-making process”.

 

Indeed, CGE models have substantially contributed to decision-making in other countries. A 2011 study by IFPRI on the Tanzanian maize export bans in response to the food price crisis, for example, used a CGE model to evaluate the economic and social consequences of the bans. It demonstrated that they had little impact on the national food price index but other adverse effects for poorer urban consumers. As a direct result of the study, the maize bans were overturned in September 2012 (Gustafson 2016). Ethiopia also utilized a CGE model in the development of its Growth and Transformation Plan (GTP2), which sets an infrastructure government and donor investments across all sectors. Via the CGE model employment and poverty outcomes were connected to growth and investment trajectories, while consistency in how GTP2 reflected resource and market constraints was maintained. Ghana, Malawi, Rwanda, South Africa and Zambia have also likewise used CGE models in designing investment plans.

 

Similarly useful insights are expected from CGE related studies in Egypt. As a step in this direction, the first CGE training gathered twenty-three participants from various local public institutions, including the Ministry of Planning, Monitoring and Administrative Reform, the Ministry of Agriculture and Land Reclamation, the Central Agency for Public Mobilization and Statistics, Central Bank of Egypt, Ministry of Water Resources and Irrigation, and the Ministry of Petroleum. They were guided through constructing a SAM from diverse data sources, applying multiplier analysis and linkages to effects within the economy. They were also introduced to 123 CGE modelling, how to implement and run simulations of economic policies and external shocks, and how to interpret the results. For the team to be able to provide evidence-based advice, IFPRI will continue capacity building trainings. In the following months, the second and third parts of the training will progress to cover intermediate and advanced levels of CGE modelling utilizing static and dynamic Egypt CGE models.