Foreign Assistance: USAID's Cash Transfer Program in Egypt
Supports Economic Reform Activities, but Various Factors Have
Limited Its Influence (11-JUL-05, GAO-05-731).
Since 1992, the U.S. Agency for International Development (USAID)
has focused the Cash Transfer Program in Egypt on supporting
economic reform activities to move Egypt toward a more liberal
and market-oriented economy. USAID has provided funds to Egypt's
government as it completed agreed-on economic reform activities.
In fiscal year 2002, the Department of State and USAID conducted
a review of U.S. economic assistance in Egypt that led USAID to
renegotiate the program's terms. USAID and Egypt signed a new
agreement in March 2005. GAO's review of the Cash Transfer
Program focused on the program's disbursement of funds and
Egypt's completion of agreed-on activities, factors affecting the
program's influence on Egypt's economic reform, USAID's efforts
to evaluate the program's impact, and USAID's changes to the
program in response to the 2002 review by the Department of State
and USAID. GAO received comments on a draft of this report from
USAID. USAID stated that the draft was fair and clear but that
Egypt's completion of about 70 percent of the activities resulted
from the program's structure rather than shortcomings in Egypt's
policy reforms. USAID also stated that extending the target dates
for completing reforms increased U.S. influence in accomplishing
reforms.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-05-731
ACCNO: A29457
TITLE: Foreign Assistance: USAID's Cash Transfer Program in
Egypt Supports Economic Reform Activities, but Various Factors
Have Limited Its Influence
DATE: 07/11/2005
SUBJECT: Economic development
Economic growth
Economic policies
Foreign economic assistance
Foreign governments
Foreign policies
International economic relations
Program evaluation
Program management
AID Cash Transfer Program
Egypt
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GAO-05-731
United States Government Accountability Office
GAO Report to the Chairman, Committee on International Relations, U.S. House of
Representatives
July 2005
FOREIGN ASSISTANCE
USAID's Cash Transfer Program in Egypt Supports Economic Reform Activities, but
Various Factors Have Limited Its Influence
a
GAO-05-731
[IMG]
July 2005
FOREIGN ASSISTANCE
USAID's Cash Transfer Program in Egypt Supports Economic Reform Activities, but
Various Factors Have Limited Its Influence
What GAO Found
Since fiscal year 1992, USAID's Cash Transfer Program has provided about
$1.8 billion in economic assistance to the Egyptian government for
completing reform-related activities, such as privatizing state-owned
companies. USAID and Egypt have identified 196 reform-related activities,
and Egypt has completed 136 of them (about 70 percent), primarily in the
areas of finance and trade.
Cash Transfer Program Disbursements by Reform Area Total Disbursements:
$1.8 billion 2% Data dissemination ($30 m)
Business law/regulation ($91 m)
Macroeconomic reform plan ($100 m)
Fiscal sector ($124 m)
Environmental protection ($166 m)
Industrial sector ($270 m)
Trade sector ($436 m)
Financial sector ($585 m) Source: GAO analysis of USAID data.
Although the Cash Transfer Program supported Egypt's completion of reform
activities, several factors have limited its ability to influence the
Egyptian government to undertake certain reforms. First, the financial
costs of certain reforms affected the Egyptian government's willingness to
undertake them despite their potential benefits; although the Cash
Transfer Program offsets some of those costs, its contribution to Egypt's
overall budget is small. In addition, Egypt is cautious about undertaking
reforms that may lead to domestic instability. Finally, USAID granted
numerous extensions that allowed Egypt additional time to complete
agreed-on activities, thus weakening the conditions tied to funding
disbursement.
Despite the difficulty of determining the impact of policy reform, USAID
conducted two evaluations of Cash Transfer activities as well as a series
of opinion surveys on the impact of certain activities supported by the
program. Although these studies reported some positive results, GAO found
limitations with some of the measures used to evaluate the activities'
impact on Egypt's economy.
In response to recommendations in the 2002 Department of State and USAID
review, USAID (1) narrowed the Cash Transfer Program's focus to reforms in
the financial sector, (2) will obligate funds when it is certain that the
Egyptian government will complete activities rather than when the
government agrees to undertake them, and (3) is improving its monitoring
and evaluation system.
United States Government Accountability Office
Contents
Letter
Results in Brief
Background
USAID Provided Financial and Technical Assistance to Support Egypt's
Completion of Reform Activities
Various Factors Have Limited the Program's Ability to Influence Egypt's
Reforms
USAID Made Efforts to Evaluate Cash Transfer Program's Impact on Egypt's
Reforms, but The Assessments Had Limitations
USAID Is Taking Steps to Respond to Recommendations by State and USAID
Conclusions
Agency Comments and Our Evaluation 1 2 4
9
18
20
23 24 25
Appendixes
Appendix I: Objectives, Scope, and Methodology 27
Appendix II: Comments from the U.S. Agency for International Development
30
Appendix III: GAO Contact and Staff Acknowledgments 34
Table Table 1: Examples of Targeted Reform Activities That Egypt Did
NotComplete,or Receive Fundsfor under the Terms of the Program
Figures Figure 1: Figure 2: Cash Transfer Funding Flow Cash Transfer 8
Program Disbursements by Reform
Area 10
Figure 3: Number of Privatizations Supported by the
Cash Transfer
Program, Fiscal Years 1993-2002 14
Contents
Abbreviations
DSP Development Support Program
IPR intellectual property rights
IMF International Monetary Fund
MOU memorandum of understanding
PMP Performance Management Plan
SPR Sector Policy Reform
SDDS special data dissemination standards
State Department of State
USAID United States Agency for International Development
WB World Bank
WTO World Trade Organization
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
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separately.
A
United States Government Accountability Office Washington, D.C. 20548
July 11, 2005
The Honorable Henry Hyde Chairman Committee on International Relations
House of Representatives
Dear Mr. Chairman:
Since 1992, the U.S. Agency for International Development (USAID) has
focused the Cash Transfer Program in Egypt on supporting economic reform
activities intended to move Egypt toward a more liberal and marketoriented
economy. Under the terms of the program, USAID provides funds to the
Egyptian government as it completes specific activities related to reforms
in a range of areas, including finance, trade, and industry. USAID and
Egypt agree on these reform areas and activities in memorandums of
understanding (MOU). In addition, USAID provides technical assistance to
facilitate Egypt's completion of the reform-related activities. In 2002,
the Department of State (State) and USAID conducted a joint review of
USAID's activities in Egypt. Based on the review's recommendations, USAID
began renegotiating the terms of the program, to which Egypt assented when
it signed a new MOU in March 2005. The review by State and USAID
recommended, among other things, that USAID narrow the Cash Transfer
Program's focus, strengthen the agency's ability to enforce activity
deadlines, and improve performance monitoring.
GAO's review of USAID's Cash Transfer Program in Egypt focused on (1) the
program's disbursement of funds and Egypt's completion of agreed-on
activities, (2) factors affecting the program's influence on Egypt's
economic reform activities, (3) USAID's efforts to evaluate the program's
impact on Egypt's economic reform, and (4) USAID's changes to the program
in response to recommendations in the 2002 joint review by State and
USAID.
To achieve these objectives, we analyzed USAID's criteria for making
disbursements, as well as the total disbursements made under the Cash
Transfer Program since fiscal year 1992. We also reviewed legislation,
USAID regulations, and other relevant program documentation. We developed
a database of all activities USAID targeted under the program and, to
better understand the range of activities targeted and completed, we
further analyzed three subsets of the reform areas covering a range of
activities that had a mix of results-privatization, banking, and
intellectual property rights. To determine the monetary significance of
the Cash
Transfer Program, we calculated the program's annual share of Egypt's
foreign exchange earnings and government revenue using relevant data
provided by the Egyptian government to the International Monetary Fund
(IMF). Although we were unable to assess fully the reliability of the
Egyptian government data, we noted that Egypt recently subscribed to the
IMF's special data dissemination standards (SDDS), which were created for
nations that already meet high data quality standards. While these data
probably have some limitations, we determined that it is unlikely that
potential errors would materially impact our use of this information in
our report. To understand USAID's efforts to evaluate the program, we
reviewed USAID studies and opinion surveys that attempted to assess the
impact of reform activities on the Egyptian economy and USAID's
performance monitoring plan. We examined State's and USAID's joint 2002
review of U.S. economic assistance to Egypt and other relevant documents
related to USAID's response to the review. We interviewed officials from
USAID, the Department of State, the Department of the Treasury, the IMF,
the World Bank, and the government of Egypt, as well as representatives of
the European Union, economists, and academics. We performed our work
between August 2004 and May 2005 in accordance with generally accepted
government auditing standards. Appendix I provides a more detailed
description of our objectives, scope, and methodology.
Results in Brief Since fiscal year 1992, USAID's Cash Transfer Program has
provided about $1.8 billion in financial assistance to Egypt.
Additionally, USAID had provided about $70 million in technical assistance
to the Egyptian government to support Cash Transfer Program related reform
activities. USAID and Egypt jointly identified and agreed on 196 economic
reformrelated activities, of which Egypt has completed 136-for example,
privatizing state-owned companies and drafting and passing intellectual
property rights laws.1 Egypt did not complete or receive program funds for
60 of the 196 activities because (1) a change in the program in 1999
allowed Egypt to select from a menu of reform activities, and (2) the
United States withdrew from a 2001 MOU after the joint State and USAID
review
1We reviewed activities that were identified for reform in agreements
between USAID and the Egyptian government, and we calculated the number of
completed activities based on those for which USAID disbursed program
funds. We included activities that USAID deemed partially complete and for
which it consequently disbursed a percentage of program funds based on
activity completion criteria.
recommended renegotiating the program's terms.2 The program's disbursement
values have ranged from $0.1 million to $150 million, with a median
disbursement of $10 million per reform activity. However, Egypt had
received about $730 million, or 40 percent of the total funds disbursed,
for completing 20 activities, including $100 million for developing a
macroeconomic reform plan approved by the Egyptian government.
The Cash Transfer Program has supported Egyptian economic reforms, and
USAID has provided technical assistance that aided Egypt's completion of
reform-related activities; however, various factors have limited the
program's ability to influence Egypt to undertake certain reforms. First,
the financial costs of undertaking certain reforms have limited the
Egyptian government's willingness to implement reforms despite their
potential benefits. Second, although Cash Transfer Program payments help
offset some costs related to reform activities, its contribution relative
to Egypt's overall foreign exchange earnings and government revenue is
small. Third, the Egyptian government is cautious about undertaking
reforms that may negatively affect certain groups and lead to domestic
instability. Fourth, USAID has granted numerous deadline extensions that
allowed Egypt additional time to complete agreed-on activities, weakening
the conditions tied to funding disbursements.
USAID has attempted to assess the impact of program-supported activities
on the Egyptian economy, despite challenges involved in evaluating the
impact of policy reform; however, its measures of the program's impact had
limitations. USAID officials pointed out the difficulty of isolating the
Cash Transfer Program's influence from other factors affecting Egypt's
trade and investment environment. Nevertheless, to evaluate the impact of
the program's activities, the agency has conducted agency-funded studies
and opinion surveys of Egyptian business leaders and academics, and has
linked some activities to its performance management plan. While each of
these efforts highlighted the activities' positive impacts, they had
limitations. For example, a study on the impact of privatization
activities pointed out that the reforms helped reduce Egypt's fiscal
deficit and improved some companies' financial performance. However, the
study
2In 1999, USAID provided the government of Egypt with a "menu" of
reform-related activities from which to choose, rather than a narrowly
defined set of activities to undertake. Because the value of the total
activities targeted under the menu approach was greater than funds
available through the program, Egypt was not expected to complete all of
the activities.
acknowledged the difficulty of drawing definitive conclusions regarding
the activities' impact.
USAID has taken steps to respond to several recommendations regarding the
Cash Transfer Program made in the joint State and USAID review. To narrow
the program's focus, USAID's March 2005 MOU with the Egyptian government
targets only financial sector reform activities.3 To strengthen its
ability to ensure that the Egyptian government meets reform requirements,
USAID will now obligate funds when it is clear that Egypt will complete
the activities. To improve its measurement of program performance, USAID
signed a contract in January 2005 with Management Systems International to
revise the agency performance management plan, which assists USAID in
monitoring and evaluating how well it is meeting its strategic objectives
in Egypt. The details of the changes to the performance management plan
were not available during the time of our review.
The Acting Assistant Administrator of USAID, Bureau of Management,
provided written comments on a draft of this report which are reproduced
in appendix II. He stated that the draft was fair and clear, but that the
Egyptian government's completion of 70 percent of the 196 agreed-on
activities related substantially to the Cash Transfer Program's structure
rather than to shortcomings in Egypt's policy reforms. Additionally, USAID
stated that granting deadline extensions to permit Egypt to complete
activities increased the U.S. government's influence in accomplishing
reforms. USAID also provided technical comments as did the Department of
State, which we incorporated where appropriate.
Background Since 1975, the United States government has provided more
than $25 billion in economic assistance to Egypt. The U.S. continues to
support Egypt, in part because of its political leadership in making peace
with Israel and fostering a broader peace between Israel, the
Palestinians, and other Arab states, including its efforts in the war on
terrorism. U.S assistance to Egypt has three components. (1) The Cash
Transfer Program provides assistance conditioned on the Egyptian
government's achievement of specific reform-related activities. (2)
Traditional project assistance focuses on, among other things, economic
reform, health and education, and the environment. (3) The Commodity
Import Program supplies financing to
3The new MOU negotiated by USAID and the Egyptian government was developed
by the Department of State, the Department of the Treasury, and USAID.
Egyptian private sector importers of U.S. goods and provides funding that
is not specifically conditioned on any reforms.4 In 1998, the United
States and the Egyptian government agreed to reduce annual U.S. economic
support by $40 million per year, resulting in a reduction of total funds
from $815 million to $407 million by fiscal year 2009. Annual Cash
Transfer Program appropriations are projected to remain constant at about
$200 million annually until fiscal year 2007 and decline to $150 million
by fiscal year 2009.
In the early 1990s, USAID focused on fostering economic reforms aimed at
achieving a stable macroeconomic environment in Egypt, then shifted its
focus to encouraging economic growth and development in the mid-1990s. The
goal of USAID's program activities in Egypt is to create "a globally
competitive economy benefiting Egyptians equitably."5 Although Egypt has
made progress at the macroeconomic level, including reducing inflation and
unifying the exchange rate, USAID has stated Egypt's continued state
ownership of companies and banks and its existing laws and regulations
continue to hinder its transition to a market economy.
The Cash Transfer Program began as the Sector Policy Reform (SPR) program
and complemented Egypt's economic reform and structural adjustment
program, which began in 1991.6 In 1999, the program was renamed the
Development Support Program (DSP) and focused on improving the trade and
investment environment and increasing private sector employment.7 The Cash
Transfer Program targeted eight general
4GAO, Foreign Assistance: Observations on USAID's Commodity Import
Program, GAO-04-846T (Washington, D.C.: June 17, 2004).
5U.S. Agency for International Development, USAID/Egypt Strategic Plan
Update: FY 20002009, Advancing the Partnership (Cairo: 2000).
6The IMF and World Bank (WB) supported an economic reform and structural
adjustment program in Egypt that focused on (1) restoring macroeconomic
balance and reducing inflation, (2) adjusting economic policies to
stimulate medium-and long-term economic growth, and (3) revising social
policy to minimize the negative effects of economic reforms on the poor.
The IMF loaned Egypt approximately $221 million and WB loaned Egypt $300
million for these efforts. The IMF continues to provide Egypt technical
assistance. In addition, under its Industrial Modernization Program, the
European Union granted Egypt $124 million dollars to support policy
reforms between 1998 and 2004.
7For the purposes of this report, we refer to the program as the "Cash
Transfer Program" since different names were used during our review
period.
reform areas until the State and USAID review in 2002 recommended that it
be narrowed to a single sector. These areas include the following:
o Financial sector-reforming the banking and insurance industries;
o Trade sector-reducing trade barriers;
o Industrial sector-privatizing state-owned companies;8
o Business law and regulation-modernizing laws that affect business and
trade such as intellectual property rights laws;
o Fiscal sector-establishing tax policy and improving public access to
fiscal data;
o Monetary policy-reforming foreign exchange rate and domestic credit
policy;
o Data dissemination-improving standardization of data and statistical
transparency; and
o Environmental protection-improving environmental regulations and
conservation.
Funding for the Cash Transfer Program is provided in annual appropriations
to the Economic Support Fund.9 The annual appropriation makes this funding
available for the program with the understanding that Egypt will undertake
economic reforms in addition to those it has undertaken in previous
years.10 Grant agreements and MOUs between the U.S. and Egyptian
governments outline the ways that Egypt may use program funds and the
types of reform-related activities that it must
8USAID's definition of privatization evolved from "reducing a company's
public ownership to less than 50 percent", to "reducing a company's public
ownership to less than 20 percent."
922 U.S.C. S: 2346 (2004).
10Consolidated Appropriations Act of 2005, Pub. L. No. 108-447, div. D,
title II, 118 Stat. 2809, 2976 (2004).
undertake to receive them.11 According to the grant agreements, the
Egyptian government is authorized to use 75 percent or more of the funds
to purchase U.S. commodities, such as wheat or equipment, and up to 25
percent to repay its debt to the United States. After purchasing
commodities in U.S. dollars that the program provides, the Egyptian
government must deposit the equivalent amount of Egyptian local currency
into a special account. A separate MOU between USAID and the Egyptian
government stipulates that the government of Egypt may use funds from this
account for its general budget, sector support, or USAID activities. In
addition to providing a source of budgetary funds for the Egyptian
government, the Cash Transfer Program serves as an additional source of
foreign exchange for Egypt. Figure 1 depicts the flow and use of Cash
Transfer Program funds.
11In this report, "reform-related activities" are activities that USAID
identified for reform and the Egyptian government agreed to through MOUs.
USAID uses various terms for these activities, such as "policy measures,"
"indicators," and "benchmarks."
Figure 1: Cash Transfer Funding Flow
Source: GAO analysis of USAID data.
According to USAID officials, if the Egyptian government does not meet the
agreed-on criteria for a specific activity, USAID may withhold funding and
redirect it to support other Cash Transfer Program activities. To
determine the funding that Egypt should receive for completing each
Up to 25 percent used for debt repayments to the United States
reform activity, USAID considers the activity's significance, the cost to
the Egyptian government associated with completing it, the Egyptian
government's willingness to implement it, the U.S. government's interest
in seeing it implemented, and the contribution of the completed activity
to Egypt's economic growth.
USAID Provided Financial and Technical Assistance to Support Egypt's
Completion of Reform Activities
Since fiscal year 1992, USAID's Cash Transfer Program has provided about
$1.8 billion in financial assistance to the Egyptian government. USAID has
also provided about $70 million in technical assistance to the Egyptian
government to support Cash Transfer-related reform activities. The
Egyptian government has completed 136 of the 196 activities targeted for
reform, including financial and industrial sector reforms. The Egyptian
government did not complete 60 of the targeted activities and consequently
received no money for them, in part because of a change in the program in
1999 that allowed Egypt to choose from a menu of reform activities.
Although Egypt completed many activities, the results of some of the
targeted reform areas were mixed. USAID's disbursements per activity
ranged from $0.1 million to $150 million, with a median disbursement of
$10 million. However, Egypt received about $730 million, or 40 percent of
total funding, for 20 of the completed activities.
USAID Provided Almost USAID disbursed about $1.8 billion in Cash Transfer
Program funds to the $2 Billion in Cash Transfer government of Egypt as it
completed agreed-on economic reform activities, Program Funding and
primarily in the areas of finance and trade. Figure 2 shows the
distribution Technical Assistance of program funding among the reform
areas since 1992.
Figure 2: Cash Transfer Program Disbursements by Reform Area
Total Disbursements: $1.8 billion
2%
Data dissemination ($30 m)
Business law/regulation ($91 m)
Macroeconomic reform plana ($100 m)
Fiscal sector ($124 m)
Environmental protection ($166 m)
Industrial sector ($270 m)
Trade sector ($436 m)
Financial sector ($585 m)
Source: GAO analysis of USAID data.
aThe Macroeconomic Reform Plan was a crosscutting activity not included
under any specific reform area.
In general, the targeted activities represented the steps associated with
a major reform in agreed-on areas. For example, privatizing state-owned
companies, an aspect of industrial sector reform, required
o initial steps such as conducting a study of the social and economic
costs and the benefits of opening an industry to private investment,
o intermediate steps such as developing a national privatization plan,
and
o final steps such as privatizing a number of companies.
In addition, USAID provided approximately $70 million in technical
assistance, in part to support the Egyptian government's completion of
agreed-on activities. For example, USAID's technical assistance funding
supported the government of Egypt in formulating and implementing
policies, training government personnel, and purchasing office equipment.
USAID also used technical assistance funds to hire contractors to monitor
and verify the government of Egypt's completion of agreed-on activities.
According to Egyptian officials, USAID's technical assistance helped the
Egyptian government complete intellectual property rights (IPR) reform
activities targeted under the Cash Transfer Program, such as drafting an
IPR code, and provided technical information on the World Trade
Organization's (WTO) Trade-Related Aspects of Intellectual Property Rights
requirements. Technical assistance funds were also used to promote public
awareness of the importance of IPR and modernize the patent and copyright
offices.
Egyptian Government Completed the Majority of Agreed-on Activities, but
Results of Some Targeted Activities Were Mixed
Beginning in 1992, USAID and the Egyptian government identified 196
activities for reform. Egypt completed and received program funds for 136
of those activities (about 70 percent) and did not complete or receive
money for 60 of them. Egypt had the option of not completing some of them,
because under a new program approach initiated in 1999, USAID and the
Egyptian government agreed to a broad range of activities that allowed
Egypt to select those that best fit its reform agenda. The 60 uncompleted
activities included 3 of 25 activities targeted for reform in a 2001 MOU.
Egypt did not complete these 3 activities because the U.S. government
unilaterally withdrew from the program following the 2002 review by State
and USAID.12
Table 1 shows some of the 60 activities that the government of Egypt did
not complete or receive program funds for under the terms of the program.
We found that roughly 10 percent of the completed activities involved
conducting studies and reviews, 10 percent involved drafting laws and
issuing decrees, and about 20 percent involved adopting plans or
implementing procedures. The remaining 60 percent involved various sector
specific activities, such as reducing the number of tariffs and
12In responding to a draft of this report,USAID officials commented that
the Egyptian government subsequently completed some of the activities-such
as new regulations for customs procedures and reducing its shares in joint
venture banks-but USAID did not disburse any funds for these activities
because it was still negotiating the terms of the new MOU.
removing price controls from hotels, restaurants, and other businesses
associated with tourism.
Table 1: Examples of Targeted Reform Activities That Egypt Did Not
Complete, or Receive Funds for under the Terms of the Program
Reform area Uncompleted activities
Fiscal policy o Establishing a system to generate and publish revenue
and expenditure data on a quarterly basis with a lag of no more than 2
months
o Implementing key components of corporate tax reforms
o Creating regulations to establish and regulate margin trading
o Revising a draft competition law submitted to People's Assembly
Trade sector o Reducing the cost of Egyptian air freight
o Reducing import tariffs
o Creating new regulations to improve customs valuation
o Providing data for marketing approval of pharmaceutical products
Financial sector o Reducing state ownership in at least five joint
venture banksa
o Reducing Egyptian government share in at least one state insurance
company to achieve private sector majority ownership
o Passing legislation to facilitate a public debt law
o Amending a capital market law
Source: USAID data.
Note: These examples include activities in all program years, although the
Egyptian government may have subsequently completed some of them without
receiving a payment from USAID.
aJoint venture banks are private banks that have partial Egyptian
government ownership.
To understand the range of activities USAID targeted and the extent to
which Egypt completed them, we analyzed reform activities in three subsets
of the program's general reform areas-privatization (industrial sector),
banking (financial sector), and IPR (business law and regulation)-and
found that the results of these targeted activities were mixed. For
example, although Egypt privatized some of its state-owned companies and
its joint venture banks, less than half of its state-owned companies and
none of its public sector banks had been privatized as of May 2005.
Likewise, according to USAID, although Egypt has improved its IPR legal
framework, the country still does not fully comply with international
standards for pharmaceutical protection.
Industrial Sector: Privatization
USAID disbursed $169 million for the completion of 12 privatization
activities in fiscal years 1992-2004. Six of the activities supported
privatization of companies-for example, developing a national
privatization plan, reducing indebtedness of public companies, and
improving the process for valuing of them. The other six activities
consisted of actually privatizing public and joint venture companies.13 In
1991, the Egyptian government identified 314 companies to be privatized.
During fiscal years 1993-2002, it privatized 118 of these companies, 3 of
which were joint ventures, according to Cash Transfer Program disbursement
justifications (see fig. 3).14 Privatizations slowly increased through
fiscal year 1996, peaked in fiscal year 1998, and then declined through
fiscal year 2002. Of the 196 remaining public companies, some are
profitable but others are unprofitable, including indebted textile
companies.
13Joint venture companies are private companies with partial Egyptian
government ownership.
14Joint ventures were not included in the original list of 314 companies
identified by the Egyptian government for privatization. Over time, some
of the companies became joint ventures and remained on the list of
companies to be privatized because the Egyptian government retained
controlling ownership.
Figure 3: Number of Privatizations Supported by the Cash Transfer Program,
FiscalYears 1993-2002Number of privatizations
60 58
50
40
30
20
10
0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002
Fiscal year of disbursement
Source: GAO analysis of USAID data.
According to Egyptian government and USAID officials, as well as documents
we reviewed, three reasons contributed to the decline in privatizations
after 1998. (1) The companies remaining on the list were difficult to sell
because of unprofitability or were difficult to liquidate because of
concerns about mass layoffs.15 (2) The Egyptian government did not fully
support privatization, as demonstrated by its unwillingness to
realistically value companies. (3) The global economic environment became
less conducive to privatization, particularly in the Middle East after
September 11, 2001. According to a USAID contractor responsible for
tracking privatization progress, the best companies were sold initially
and many of the remaining companies required large investments to stay
operational.
15USAID counted liquidation as a form of privatization. Liquidation
involves selling off the assets of a company to the extent that the
company ceases to exist.
Financial Sector: Banking
In fiscal years 1992-2004, USAID disbursed $260 million for the completion
of 11 activities associated with banking reforms in Egypt. According to
USAID documents, banking activities focused on improving regulations and
strengthening banks' capital structure, including the following:
o allowing foreign banks to establish branches or gain full ownership of
local banks and deal in local currency;
o removing controls on banking service fees;
o establishing new accounting and auditing procedures for all sectors,
including insurance, based on the International Accounting Standards;
o revitalizing capital markets and improve the transparency of financial
flows;
o ratifying an anti-money-laundering law, satisfying the Organization for
Economic Cooperation and Development's Financial Action Task Force on
Money Laundering, and
o reducing Egyptian government shares in 22 of 25 joint venture banks in
Egypt.16
Additionally, the Egyptian government agreed to transfer majority
ownership of at least one of its state-owned banks under the Cash Transfer
Program in 1995 and sell its shares in the four public sector banks in
2000. Although the Egyptian government identified the first bank for
privatization in 1997, none of the four state-owned banks had been
privatized as of May 2005. In March 2005, the Egyptian government signed a
new MOU with USAID that once again made the privatization of a state bank
a priority. According to U.S. and Egyptian officials, a public sector bank
is expected to be privatized by the end of 2005, owing in part to
increased political will in Egypt's cabinet and more experienced
management in the Central Bank of Egypt. However, a Central Bank senior
16Until 1998, the government of Egypt's state banks partially owned most
of the joint venture commercial banks, which had a negative impact on the
joint venture banks' profitability and competitive position in the banking
sector. This activity reduced the Egyptian government's share of joint
venture banks to less than 20 percent in each bank.
official stated that the sale of the public sector bank depends on its
handling of nonperforming loans and finding an investor, which could prove
difficult.
Business Law/Regulation: Intellectual Property Rights
USAID disbursed about $75 million for the completion of six IPR-related
reform activities undertaken to support Egypt's commitments under the
WTO's agreement on Trade-Related Aspects of Intellectual Property Rights.
According to a USAID contractor, although the reforms that Egypt completed
moved it closer to international IPR standards, more reforms are needed
for Egypt to achieve compliance with international standards related to
data dissemination and data exclusivity for pharmaceuticals. The
activities that USAID supported included the following:
o conducting a study of the benefits of consolidating the patent,
trademark, and international design offices;
o joining the Patent Cooperation Treaty in June 2003;17 and
o enacting a new IPR law in May 2002 that incorporated both the patent
and industrial design laws.
Small Number of Activities Accounted for Large Share of Program Funds
Since 1992, USAID has disbursed between $0.1 million and $150 million to
Egypt for completed activities, with a median disbursement of $10 million
per activity;18 however, the Egyptian government received large
disbursements, totaling about $730 million (40 percent) of total program
funds, for 20 of the 136 activities that it completed. Our analysis showed
that the largest disbursements included $150 million for passing an
antimoney-laundering law and $100 million for developing a macroeconomic
reform plan approved by the government.
o Antimoney-laundering law. In 2002, Egypt received a disbursement of
$150 million for passing a law against money laundering. According to
17Although Egypt joined the Patent Cooperation Treaty, USAID did not
disburse funds for this activity because the government of Egypt missed
the activity's deadline.
18The average disbursement was about $25 million; the average was higher
than the median because of several large payments USAID made for
activities completed between 2002 and 2004.
USAID, as Egypt's economy and financial systems have opened they have
become more susceptible to use as conduits for laundering proceeds from
criminal activities such as drug trafficking and terrorism. USAID first
targeted anti-money-laundering reform in a 2001 MOU and formally specified
the requirements for passage of a law in June 2002, the same month Egypt
received a disbursement for completing the activity. According to USAID
documentation, Egypt received a large disbursement because the law
addressed the concern of the Organization for Economic Cooperation and
Development's Financial Action Task Force that Egypt was noncooperative in
addressing moneylaundering problems.
o Macroeconomic reform plan. In 2001, Egypt received a disbursement of
$100 million for developing and approving a macroeconomic reform plan.
According to USAID, this activity supported major Egyptian reforms in the
face of the economic crisis after September 11, 2001, that included
Egypt's slowed growth and loss of revenues. Among the areas the plan
addressed were Egypt's exchange rate, monetary and fiscal policy, and
legislation for issues such as IPR, labor and mortgage laws, and banking
reform. According to USAID documents, the plan was added to the program in
December 2001 and was approved by the U.S. Ambassador to Egypt, the
Egyptian Prime Minister, and several of Egypt's economic ministers before
the disbursement in January 2002.
Our review of program activities showed that USAID generally paid the
Egyptian government once for each activity. However, we identified one
instance in which USAID made disbursements twice to Egypt for the
privatization of three companies. In 1998, USAID disbursed to the Egyptian
government $20 million dollars for meeting criteria to privatize 25
companies. Egypt's privatization of three of these companies-United
Poultry Production, Ramsis Agriculture, and the Egyptian Company for Meat
and Dairy Production-were listed in subsequent documents as justification
for additional disbursements of $2.4 million in 2000 and $1.2 million in
2001.19 In commenting on a draft of this report, USAID officials agreed
that these disbursements had occurred.
19The privatization of Ramsis Agriculture and the Egyptian Company for
Meat and Dairy Products were used to justify a payment of $2.4 million in
2000 and the privatization of United Poultry Production was used to
justify a payment of $1.2 million in 2001.
Various Factors Have Limited the Program's Ability to Influence Egypt's
Reforms
Although the Cash Transfer Program provided financial and technical
assistance to support Egypt's completion of reform-related activities,
several factors have limited the program's ability to influence Egypt to
undertake certain reforms. These factors include the following:
o Financial costs versus benefits of reform-related activities. Although
the reforms are expected to generate financial benefits by correcting
inefficiencies in the economy, financial costs are also associated with
the reforms. For example, the authors of a USAID-sponsored study estimated
the financial benefit to the Egyptian government of privatizing the
remaining state-owned companies and banks would be over $17 billion.20
However, the financial benefits are not guaranteed; privatized companies
may not operate more efficiently or produce additional tax revenues. For
example, according to USAID's privatization study, some privatized
Egyptian companies failed to undertake significant restructuring and
therefore did not produce many of the expected benefits they were supposed
to bring, including improved financial performance.
o Size of program funding relative to Egypt's overall foreign exchange
earnings and revenue. Although the Cash Transfer payment provides U.S.
dollars for the purchase of U.S. commodities and repayment of debt to the
United States, the payment represents a small portion of Egypt's foreign
exchange earnings. For example, in fiscal year 2003, the program's funds
accounted for about 1 percent of Egypt's overall foreign exchange earnings
and less than 2 percent of its foreign reserves. Additionally, the
Egyptian pounds generated by the program and used by the Egyptian
government for budget support are a small portion of its revenue; in
fiscal year 2003, the program funds accounted for about 1 percent of the
government of Egypt's annual revenues and grants. According to a State
Department official, the $200 million that the program provides annually
is not sufficient by itself to persuade the Egyptian government to
undertake an unpopular reform such as privatization.
20David T. King, Bruce MacQueen, and Mack Ott, The Cost of Not
Privatizing: An Assessment for Egypt. Survey and Empirical Analysis.
Submitted to USAID/Egypt
(Bethesda, Md: IBM Business Consulting Services, 2004).
o Reforms' potential effects on domestic stability. Since IMF sponsored
economic reforms triggered protests and domestic unrest among Egypt's
populace in the 1970s, the government of Egypt has been cautious about
reforms such as liberalizing prices and lifting subsidies because of the
potential negative impact on certain groups. For example, in January 2003,
the Egyptian government introduced a more flexible and market-oriented
exchange rate regime as outlined in its macroeconomic reform plan.
However, as a result, the value of the Egyptian pound fell by about 30
percent in its initial months, raising the prices that Egyptians paid for
imported goods, including food. According to the IMF, the Ministry of
Finance partially negated this change when in September 2003, concerned
about rising food prices, it introduced a special exchange rate for
imported items such as grains.21
o Cash Transfer Program deadlines. The Cash Transfer Program was designed
to provide funding to Egypt based on its compliance with agreed on
conditions, including meeting deadlines. Since fiscal year 1992, the
government of Egypt requested, and USAID granted, 19 extensions to the
deadlines originally agreed to in MOUs. The extensions were generally for
an additional 3 to 6 months; however, certain performance periods had
multiple extensions that allowed the government of Egypt 2 or more years
from the original deadline to complete the activities.22 Although USAID
documents justified the extensions, the number and length of extensions
may have weakened the conditions tied to the funding disbursement by
assuring that Egypt continued to receive funds, in some cases well beyond
the established deadlines. For example, in March 1997, USAID extended the
Egyptian government's deadline to complete agreed-on activities for an
additional 6 months and then granted five other extensions, resulting in a
final deadline of September 1999. According to USAID documents we
reviewed, the 1997 extensions were granted to give the government of Egypt
time to negotiate a new IMF agreement, prepare for the Cairo economic
summit, and redefine reform priorities after a shift in Cabinet
members-factors that contributed to a delay in Egypt's completion of Cash
Transfer Program reform activities. USAID approved additional deadline
extensions for a separate set of activities in September 1997,
21International Monetary Fund, Arab Republic of Egypt-Staff Report for the
2004 Article IV Consultation (Washington, D.C.: 2004).
22A performance period is the period of time between the date that the
government of Egypt agreed to undertake an activity and the deadline for
completing it.
subsequently extending it four more times to June 2000. The need to
tighten conditions tied to the program's funding disbursements was
highlighted in the 2002 review by State and USAID.
USAID Made Efforts to Evaluate Cash Transfer Program's Impact on Egypt's
Reforms, but The Assessments Had Limitations
Demonstrating the impact of policy reforms is challenging, according to
USAID officials and academics studying such reforms; however, USAID
conducted two evaluations related to the Cash Transfer Program activities,
as well as a series of opinion surveys that attempted to assess the impact
of economic reform activities supported by the program. These evaluations
and opinion surveys reported that the program's activities had some
positive results, but we found limitations with the two studies. We also
reviewed USAID's performance management plan (PMP) and found that some of
its measures had limitations.
Measuring Policy Reform's Impact Is Challenging
USAID officials and academics studying policy reform pointed out the
difficulties of demonstrating the impact of policy reforms. USAID
officials stated that it is nearly impossible to isolate the impact of the
Cash Transfer program from other factors that have influenced Egypt's
trade and investment environment. In addition, collecting reliable data is
problematic in Egypt. For example, according to a USAID contractor
responsible for tracking Egypt's privatization efforts, basic data, such
as the number of privatizations completed, were not readily available from
the Egyptian government. Furthermore, the nature of policy reform often
results in delayed impacts, thus evaluations cannot take place until
sufficient time passes. For example, according to USAID's privatization
evaluation, it was difficult to draw definitive conclusions regarding
financial performance for some of the companies because of inadequate time
between the privatizations and evaluation. Although measuring the impact
of reforms is difficult, USAID continues to fund various assessments.
USAID Efforts to Evaluate To evaluate the impact of Cash Transfer Program
activities in Egypt, USAID Program's Impact Showed conducted two
agency-funded studies, twelve opinion surveys of private Positive Results
but Had sector business leaders, and linked some activities to its PMP.
However, we
found that some measures that USAID used in their performanceLimitations
management system had limitations.
o USAID-funded reform area studies
A study of USAID-supported privatization activities published in 2002
pointed out some positive impacts, such as helping to reduce Egypt's
fiscal deficit, facilitating the entrance of new companies into Egypt's
market, expanding product varieties and availability, and improving some
firms' financial performance.23 However, the study also found that
privatization did not increase Egypt's foreign direct investment relative
to other developing countries although this reform was related to USAID's
strategic objective of enhancing Egyptian business opportunities by
attracting private sector investment. In addition, the study acknowledged
some challenges in evaluating privatization's impact because access to
some of the Egyptian government's data was limited and sufficient time had
not passed to assess the financial performance of some privatized
companies.
A study of USAID technical assistance for Egypt's IPR reforms published in
2004 found that this assistance, among other factors,24 motivated the
Egyptian government to implement reforms. The study found that these
reforms led to: a legal framework that was more compliant with WTO IPR
requirements; a modernized IPR-related facilities; a reduction in the time
required to obtain a patent from 6 years in 1996 to less than 3 years in
2003; and, increased public awareness of the benefits of intellectual
property rights.25 However, the study focused on the outcomes of USAID's
technical assistance to support the completion of IPR-related activities
rather than on the impact of these activities on the Egyptian economy,
such as increasing confidence among foreign investors, with regard to
doing business in Egypt.
o Opinion surveys
23Carana Corporation, The Results and Impacts of Egypt's Privatization
Program (Cairo, Egypt: USAID Coordinating and Monitoring Services Project,
2002).
24Other factors included (1) USAID's Cash Transfer Program, (2) Egypt's
IPR-related obligations under the WTO's membership, and (3) Egypt's
placement on the U.S. Trade Representative's Priority Watch list.
25Development Associates, Inc., Assessing the Effectiveness of Technical
Assistance for Policy Reform: The Case of Intellectual Property Rights
Reform in Egypt (Cairo: USAID, 2004).
USAID conducted a series of periodic questionnaires and roundtables with
Egyptian private sector leaders and academics to gauge the progress and
impact of the Egyptian government's economic reforms and structural
adjustment program.26 Every 6 months for a 6-year period, respondents were
asked to score and give opinions on 24 policy areas in three main
categories: stabilization policies, structural adjustment policies, and
social policies. The surveys found that, in general, business leaders
agreed that the Egyptian government had taken modest steps forward in
stabilization policies. However, the survey also found that business
leaders were concerned about slow progress in many reform areas, such as
banking and privatization, exchange rates, and the growth of small and
midsize businesses. USAID recognized that the survey scores and opinions
are subjective. However, USAID pointed out that respondents' perceptions
of the behavior of the domestic and international marketplace served as a
proxy for the larger business community's opinion of Egypt's progress with
economic reform. As a result, USAID said the survey could be a useful tool
for evaluating policy initiatives.
o USAID's performance management plan
USAID uses its PMP to measure progress toward strategic goals and
objectives. Although the PMP does not directly evaluate the impact of the
Cash Transfer Program, USAID pointed us to it as a measure of the
program's progress and impact on the Egyptian economy during our
fieldwork. However, we found limitations in some of the indicators used in
the PMP in that they primarily assess outputs and do not link the outputs
to the activities' impact on Egyptian economic reform. For example, two
privatization indicators-the value of sale proceeds from privatized
state-owned and joint venture companies and the cumulative number of
qualified joint venture companies and banks divested-measured the
quantitative results of privatization rather than the activities' effects
on the companies' efficiency. Other PMP indicators were influenced by
factors outside the program. For example, USAID used the indicator trade
weighted average tariffs to show progress in reducing trade barriers;
however, other factors, such as a shift to imports with lower tariffs,
could have contributed to a
26The results of the survey cannot be viewed as representative of all
academics and or business leaders in Egypt because its population was
small and not selected randomly and had a response rate of about 50
percent.
reduction in trade barriers, and thus the change could not be attributed
only to the reform's impact.
USAID Is Taking Steps to Respond to Recommendations by State and USAID
USAID has taken several steps to address the 2002 State and USAID review's
recommendations that the agency narrow the focus of the Cash Transfer
Program, reprogram funds if deadlines for reform-related activities are
not met, and improve the USAID mission in Egypt performance monitoring
system.
1. To narrow the program's focus, USAID signed an MOU on March 20, 2005,
focused on reforming the financial sector.27 The new MOU aims to support
financial sector modernization by:
o strengthening the management of the Central Bank of Egypt;
o creating a government securities market consistent with international
standards;
o increasing the private sector's share of the banking system;
o strengthening the legal and regulatory framework of the overall
financial system; and
o implementing a code of corporate governance.
USAID and the Egyptian government agreed to 19 reform-related activities
that support these goals, including privatizing one of four state-owned
banks before the end of December 2005. According to USAID officials, if
the Egyptian government completes all 19 reformrelated activities by the
agreed-on time frames, it will receive disbursements of $800 million, or
67 percent of the $1.2 billion that USAID expects to obligate for the Cash
Transfer Program through fiscal
27The review recommended that the Cash Transfer Program focus on "no more
than two broad sets of economic reform goals at any one time," whereas
previous MOUs targeted several reform areas.
year 2009.28 USAID has not yet determined the conditions for disbursement
of the remaining funds, but a State official stated that the agency will
likely target trade reform.
2. To respond to the review's recommendation to reprogram funds if
reform-related activity deadlines are not met, USAID changed its process
for obligating Cash Transfer funds. Beginning in 2005, USAID will obligate
Cash Transfer funds only after it is certain that the Egyptian government
will complete agreed-on activities. This change is intended to ensure that
obligated funds do not accumulate and to strengthen USAID's ability to
encourage the Egyptian government to satisfy activity requirements.
3. To improve its measurement of the mission's programs' contribution to
meeting USAID strategic objectives, the agency contracted to revise its
performance monitoring system by updating its PMP.29 The review by State
and USAID indicated that the previous system did not allow USAID to
reprogram resources from programs that were not producing desired results.
According to a USAID official, the system's measures also did not provide
timely information for management purposes. However, at the time of our
review, details of PMP revisions were not available; therefore, we were
unable to determine how USAID will address the issues raised by the review
and whether the new system will improve evaluation of Cash Transfer
Program activities.
Conclusions Although the Cash Transfer Program has supported
reform-related activities since 1992, several factors have constrained its
influence and potential to be a more effective force for change in Egypt.
However, the recently signed MOU, which makes deadlines explicit for the
first time, and Egypt's renewed political support to undertake certain
reforms, such as bank privatization, offers a new opportunity to better
leverage this program. For example, by not making funds available until it
is clear that
28In addition to the $800 million that the Egyptian government may receive
for completing financial sector reform activities by the end of fiscal
year 2009, it received $100 million for signing the financial sector MOU
and developing a related matrix of time-bound reformrelated activities.
For the first time, deadlines for completing the activities were specified
in the new MOU, whereas previously deadlines were determined after an MOU
was signed.
29The Cash Transfer Program falls under USAID's strategic objective of
strengthening the environment for trade and investment.
Egypt will complete program activities, USAID is strengthening
conditionality. Given the recent program changes and Egypt's regional
importance, it is critical that policymakers continue to monitor Egypt's
progress in achieving economic reform and the Cash Transfer Program's
contribution to those reforms, especially in light of the broader
political environment in which the program operates.
Agency Comments and Our Evaluation
The Acting Assistant Administrator for USAID, Bureau of Management,
provided written comments on a draft of this report, which are reproduced
in appendix II. He stated that the draft was fair and clear, but that the
Egyptian government's completion of 70 percent of the 196 agreed-on
activities related substantially to the Cash Transfer Program's structure
rather than to shortcomings in Egypt's policy reforms. Additionally, USAID
stated that granting deadline extensions to permit Egypt to complete
activities increased the U.S. government's influence in accomplishing
reforms. USAID also provided technical comments as did the Department of
State, which we incorporated where appropriate.
As arranged with your office, we plan no further distribution of this
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announce its contents earlier. At that time, we will send copies to
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If you or your staff have any questions regarding this report, please
contact
me at 202-512-3149 or [email protected]. Contact points for our Offices of
Congressional Relations and Public Affairs may be found on the last page
of this report. GAO staff who made major contributions to this report are
listed in appendix III.
Sincerely yours,
David Gootnick
Director, International Affairs and Trade
Appendix I
Objectives, Scope, and Methodology
This review for the Chairman of the House Committee on International
Relations, focused on (1) the Cash Transfer Program's disbursement of
funds and Egypt's completion of agreed-on activities since in fiscal year
1992, (2) factors affecting the program's influence on Egypt's economic
reform activities, (3) U.S. Agency for International Development's (USAID)
efforts to evaluate the program's impact on Egypt's economic reform, and
(4) USAID's changes to the program in response to the 2002 Department of
State and USAID review.
To identify the requirements of the Cash Transfer Program and total
funding disbursed since fiscal year 1992, we reviewed legislation and
USAID's regulations, grant agreements, and memorandum of understanding. We
reviewed USAID's program documents and interviewed USAID and State
officials to learn how USAID identified reform areas and assigned values
for reform-related activities and to determine the number and types of
activities that the government of Egypt completed. We also developed a
database of all the activities targeted by USAID to identify: the number
of completed and uncompleted activities, the various types of activities,
any duplication in the activities or payments, and any changes to the
originally targeted and agreed-on activities. We developed the database
using attachments to the program's memorandum of understanding (MOU),
which included activities that USAID and the Egyptian government agreed to
undertake in support of economic reforms. To determine the number of
completed activities, we used USAID disbursement memorandums. We also
included activities for which USAID disbursed program funds although the
entire activity was not completed (in 20 instances, USAID disbursed
partial payments based on the percentage of the activity that it
determined Egypt had completed). We did not include activities that Egypt
completed outside the terms of the program because there were no
disbursement memorandums for these activities. We corroborated testimonial
evidence from USAID, State, and Egyptian officials with our analysis of
program activities by reviewing and comparing information in USAID's
program documents. We reviewed internal controls, including reports by
USAID's Office of Inspector General, as well as potential for fraud and
abuse and compliance with laws and regulations and found no significant
issues. We did not independently evaluate Egyptian laws and regulations,
and our discussion of them is based on secondary sources.
To better understand the range of activities targeted and completed under
the program, we selected three subsets of the reform areas. The three
subsets for which we conducted a more in-depth analysis were
privatization, banking, and intellectual property rights (IPR) and these
Appendix I
Objectives, Scope, and Methodology
subsets covered 29 out of 196 targeted activities (15 percent). They did
not constitute a representative sample of all the activities; however, we
consulted USAID and identified areas with varying results. For example,
USAID characterized IPR reforms as successful, whereas banking and
privatization had varied levels of success.
To determine factors affecting the program's influence on economic reform
in Egypt, we reviewed documents and interviewed U.S. and Egyptian
officials with knowledge of the Cash Transfer Program. We also met with
International Monetary Fund (IMF), World Bank, and European Union
officials, as well as an expert at the Egyptian Center for Economic
Studies. We reviewed studies on the benefits and the costs of reforms that
were published in refereed journals or completed by USAID contractors; we
also interviewed the authors of one of these studies1 and discussed their
methodology. To determine the monetary significance of the Cash Transfer
Program, we calculated the program's annual share of Egypt's foreign
exchange earnings and government revenue using relevant data provided by
the Egyptian government to the IMF. Although we were unable to fully
assess the reliability of the Egyptian government data, we noted that
Egypt recently subscribed to the IMF's special data dissemination
standards, which were created for nations that already meet high
data-quality standards. Although these data probably have some
limitations, we determined that it is unlikely that potential errors would
materially impact our use of this information in our report. To identify
other factors affecting the program's influence, we analyzed program
documents to calculate the number of times that the Egyptian government
requested, and USAID granted, deadline extensions to complete program
activities.
To assess USAID's evaluation of the program's impact on economic reform,
we reviewed studies that addressed the methodological challenges of
conducting impact evaluations. We also met with, and reviewed studies by,
contractors hired by USAID to assess the impact of two program areas, IPR
and privatization. In addition, we reviewed USAID's opinion surveys
reports and performance management plan.
To determine the steps that USAID has taken in response to the 2002 review
by State and USAID, we interviewed USAID and State officials who
participated in or had knowledge of the review, focusing only on those
recommendations that referred to the Cash Transfer Program. We
1King, MacQueen, and Ott, The Cost of Not Privatizing.
Appendix I
Objectives, Scope, and Methodology
interviewed USAID, State, Treasury, and Egyptian officials who were
involved in negotiating the new financial sector MOU, and we reviewed
funding data to determine the amount and proportion of program funds
allocated to financial sector reform. To corroborate testimonial evidence
provided by USAID, State, and Treasury officials, we also reviewed the
USAID mission in Egypt's updated strategic plan, revised in March 2004.
Further, we consulted USAID officials regarding any legal issues to
reprogramming Cash Transfer Program funds, and we reviewed documents
showing USAID's funding process. To understand how the USAID mission in
Egypt plans to improve its performance monitoring system, we interviewed
USAID officials and contractors who are responsible for developing it.
We performed our work between August 2004 and May 2005 in accordance with
generally accepted government auditing standards.
Appendix II
Comments from the U.S. Agency for International Development
Note: GAO comments supplementing those in the report text appear at the
end of this appendix.
Appendix II
Comments from the U.S. Agency for
International Development
See comment 1.
See comment 2.
See comment 3.
Appendix II
Comments from the U.S. Agency for
International Development
Appendix II
Comments from the U.S. Agency for
International Development
The following are GAO's comments on the U.S. Agency for International
Development letter dated June 15, 2005.
GAO Comments 1.
2.
3.
In our report we acknowledge the collaborative process between USAID and
the government of Egypt to identify and agree on reforms (see pages 1, 2,
11). However, in reviewing program agreements and discussing the program
with USAID officials, we found only one agreement that used the "menu
approach"-that is, targeting activities that were worth more than the
available cash transfer funds during the 12-year period of our review
(1992-2004). We explain that the scope of activities we reviewed was
limited to those targeted under the USAID program (see pages 2 and 26) and
that Egypt completed some reform activities for which they did not receive
program funds (see pages 3, 11).
USAID states that our finding that the Cash Transfer Program completed 70
percent of the targeted activities "is related in substantial part to the
structure of the Cash Transfer Program, and not entirely to shortcomings
in policy reforms." As we note in comment 1 and on pages 3, 9, and 11 of
the report, the structure that USAID refers to was in effect only from
1999 to 2003. Regarding USAID's concern that presenting the percentage of
agreed-on activities completed by Egypt suggests a shortcoming in Egypt's
progress in policy reform, our findings reflect the fact that USAID and
the Egyptian government agreed on 196 reform activities during the period
covered by our review and the Egyptian government completed 136 of those
activities.
USAID states that our findings show that the revisions of target dates
increased the U.S. government's influence in accomplishing reforms.
Although USAID's provision of extensions may have allowed the Egyptian
government to complete the reforms, we disagree that our findings show
that revising the target dates increased the U.S. government's influence,
as USAID asserts. Rather, we believe that the practice weakened one of
USAID's tools of conditionality-deadlines. Additionally, the 2002 review
by State and USAID pointed out the need to focus more tightly the
conditionality of the Cash Transfer Program and indicated that "in the
event that outcomes, benchmarks and timelines agreed with the Egyptian
government are not met within a reasonable time of the originally agreed
target dates the team agreed that DSP II funds will be reprogrammed to
fund other USAID projects in Egypt."
Appendix III
GAO Contact and Staff Acknowledgments
GAO Contact David Gootnick (202) 512-3149
Acknowledgments In addition to the individuals named above, Phillip Herr,
Julie Hirshen, Adrienne Spahr, Ming Chen, Joel Green, Eve Weisberg, Grace
Lui, Reid Lowe, and Martin de Alteriis made key contributions to this
report
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