A. Trends in Public Investment and Capital Stock

1. The recent pick-up in public investment is partially reverting a long-term decline. Total investment declined from roughly 25 percent of GDP in 1990 to 12 percent in 2014 (Figure 1). This decline was driven by public investment, which dropped steadily from over 20 percent of GDP in the early 1990s to around 5 percent of GDP in the mid-2010s. Private investment increased sharply between 1990 and 2008 as the economy became increasingly liberalized and was able to briefly compensate for the decline in public investment with total investment reaching a record high of 28 percent of GDP in 2008, thanks to strong foreign direct investment. Following the 2011 revolution, total investment dropped as both public and private investment waned. Public investment has expanded rapidly since the mid-2010s, increasing by 3 percentage points between 2014 and 2021. Private investment remained anemic and later declined substantially due to the COVID-19 pandemic. Further growth in public investment is expected as the authorities continue the construction of the new administrative capital and other new cities, the development of health infrastructure supporting the universal health insurance scheme, and the Hayah Karima initiative to provide infrastructure in rural areas. At the same time, the authorities’ ambitious bid to attract foreign investment and reduce the state footprint in the economy are expected to revitalize private investment.

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Egypt: Investment (in percent of GDP)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: WEO and staff estimates based on official data.Note: Coverage of the public sector includes general government, economic authorities, public corporations, and central projects.

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2. Egypt has large investment needs, especially in a context of rapid population growth and climate change. Compared to peers, Egypt’s stock of public capital per capita is relatively low (Figure 2). While it is higher than other countries in the region (e.g., Jordan, Morocco, and Pakistan), it represents only half the stock of capital per capita available in other emerging markets, such as Poland, Turkey, and Brazil. Egypt’s investment needs are compounded by rapid population growth, with 20 million people added during 2011-20 and another 20 million expected during 2021-2030. In addition, climate change will require sustained public investment both to mitigate its impacts and to adapt the infrastructure to new challenges, including higher temperatures, desertification, threats to water security, and coastal degradation. Providing public services to this young, growing population and reaching the Sustainable Development Goals is projected to require additional annual public spending of around 5.4 percent of GDP by 2030.1 For example, the authorities estimate that there is still a shortage of around 300,000 classrooms, although they built a record 21,000 classrooms in FY 2021/22.

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Public Capital Stock per Capita: Comparison with Peers, 2019 (2017 PPP$-adjusted, thousands)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: WEO and staff estimates based on official data.Note: Coverage of the public sector includes general government, economic authorities, public corporations, and central projects for Egypt.^{1 2} Public sector is general government for peer countries.

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3. Egypt’s limited fiscal space constrains investment and increases vulnerabilities. While investment needs are substantial, fiscal space to finance them is very limited. General government debt in Egypt increased sharply in the aftermath of the revolution, a period that also coincided with declining public investment, due to a worsening of the expenditure mix with costly energy subsidies and a high public wage bill (Figure 3). Prudent fiscal policy reversed the trend. Debt declined from a peak of almost 100 percentage points of GDP in FY 2016/17 to 80.1 by FY 2019/20. The COVID-19 pandemic and the Russian invasion of Ukraine have pushed debt upwards recently, reaching 89.2 percent of GDP in FY 2021/22, through lower revenues, higher expenditure, and below-the-line support. General government debt in Egypt is large by international standards. In FY 2021/22, it was 40 percent higher than in other emerging markets and 50 percent higher than in regional peers. The debt figures do not include guarantees for loans to public corporations, which amounted to 21 percent of GDP as of January 2022. Costly debt service results from this high level of debt. In FY 2021/22, the interest bill for the general government amounted to 7.2 percent of GDP, which diverts resources from more productive uses, and introduces a significant rigidity in the budget as it amounts to more than half of tax revenues. This vulnerability is further compounded by the very short maturity of public debt, which enhances the risk from reversals in investor sentiment. Acknowledging these challenges, the authorities have revised their Medium-Term Debt Strategy and have launched a Medium-Term Revenue Strategy, both aiming at creating fiscal space to foster provision of public services with a special focus on social sectors.

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General Government Debt: Comparison with Peers

(in percent of GDP)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: WEO and staff estimates based on official data.Note: Selected EMs include Brazil, South Africa, Turkey, Morocco, Jordan, Pakistan, Ukraine, Poland, Vietnam, Indonesia, Malaysia, and the Philippines.

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4. The use of Public-Private Partnerships (PPPs) to develop infrastructure have been limited so far. At around 2 percent of GDP in average over the last 15 years, the PPP capital stock is low compared to other countries in the region and other emerging markets (Figure 4). Most of the existing PPPs have been developed in the electricity, ports, and airports sectors. New projects are being developed in education, desalination and water treatment plants, and silos. Acknowledging the potential of PPPs but also the associated fiscal risks, the authorities are revamping the legal framework aiming at promoting the use of PPPs in a prudent way. Public corporations and economic authorities have also partnered with private sector investors through joint ventures. For instance, the Sovereign Fund of Egypt and three public financial institutions have launched the Lighthouse Education platform that aims to invest in 10-12 schools to be managed by a private sector company. The state-owned El Nasr Automotive Manufacturing Company is partnering with a Chinese company to produce electric cars in Egypt.

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Public-Private Partnerships Capital Stock: Comparison with Peers

(in percent of GDP)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: WEO and staff estimates based on official data.Note: Selected EMs include Brazil, South Africa, Turkey, Morocco, Jordan, Pakistan, Ukraine, Poland, Vietnam, Indonesia, Malaysia, and the Philippines.

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B. Composition of Public Investment

5. General government investment in real estate and transportation has risen in the last decade (Figure 5). Investment in real estate rose from being insignificant a decade ago to account for 14 percent of the investment portfolio in 2020/21 or 0.2 percent of GDP, mostly due to the social housing programs. Transportation investment reached 0.8 percent of GDP in 2020/21. Education and health investments have also expanded rapidly, accounting for 0.5 and 0.3 percent of GDP in 2020/21, respectively. Investments in water, electricity, and drainage have declined in relative importance over the past decade, although they increased in 2020/21, in part reflecting the Hayah Karima initiative.

6. Most public investment is executed outside the budget. General government spending has accounted for approximately 40 percent of public investments over the last decade (Figure 6). Economic authorities and public corporations combined contributed 48 percent of public investments. While investments by public corporations dropped from 1.9 percent of GDP in 2010/11 to 1 percent in 2020/21, the sector “central projects” emerged in 2017/18 to reflect national megaprojects implemented outside the general government and became a major contributor of public investment. For instance, megaprojects include the new administrative capital, which is being built by the Administrative Capital Company for Urban Development (ACDU), a public corporation owned 49 percent by NUCA and 51 percent by the armed forces.

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Egypt: Composition of General Government Investment

(Percent of GDP)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: Staff estimates based on official data.

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Egypt: Public Investment by Sector

(in percent of GDP)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: Staff estimates based on official data.Note: Investment by “central projects” is presented in official statistics since FY 2017/18. No data is available for previous periods.

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A. The PIMA Framework

The Public Investment Management Assessment (PIMA) framework assesses the quality of the public investment management of a country. It identifies the strengths and weaknesses of institutions and is accompanied by practical recommendations to strengthen them and increase the efficiency of public investment. The PIMA uses the term “institution” in a broad sense, to comprise public investment management laws, regulations and organizational features as well as procedures, activities and outputs. The tool evaluates 15 institutions involved in the three major stages of the public investment cycle (Figure 20). These are: (i) planning of investment levels for all public sector entities to ensure sustainable levels of public investment; (ii) allocation of investments to appropriate sectors and projects, and (iii) delivering productive and durable public assets.

For each of these 15 institutions, three indicators are analyzed and scored, according to a scale that determines whether the criterion is met in full, in part, or not met (see Appendix 2 for the PIMA Questionnaire). Each dimension is scored on three aspects: institutional design, effectiveness, and reform priority:

• Institutional design refers to the objective facts indicating that appropriate organizations, policies, rules and procedures are in place. The average score of the institutional design of three dimensions provides the score for the institution, which may be high, medium, or low.

• Effectiveness refers to the degree to which the intended purpose is being achieved or there is a clear useful impact. The average score of the effectiveness of the three dimensions provides the effectiveness score for the institution, which may be high, medium, or low.

• Reform priority refers to whether the issues contained within the institution are important to be improved in the specific conditions faced by Egypt.

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PIMA Framework Diagram

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Sources: Public Investment Management Assessment: Review and Update, April 2018, IMF. http://www.imf.orq/en/Publications/Policy-Papers/Issues/2018/05/10/pp042518public-investment-manaqement-assessment-review-and-update..

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B. Investment Planning

1. Fiscal principles and rules (Strength—Low; Effectiveness— Low; Reform Priority—Medium)

12. Fiscal institutions such as targets and rules can provide stability for investment planning. Investment projects typically extend over more than one fiscal year, so it is important to adopt a medium-term perspective to prevent excessive spending volatility undermining the quality of public investment. Fiscal targets and rules provide such perspective and help to ensure consistency between annual and medium-term plans and to guarantee debt sustainability.

13. Egypt does not have formal fiscal targets, rules, or a medium-term fiscal framework (MTFF). Egypt does not have a formal, permanent fiscal rule to ensure debt sustainability and a fully-fledged MTFF is also missing. Until the recent approval of the new Public Financial Management (PFM) law, there was also no legal basis for an MTFF. The authorities prepare medium-term projections of major macro-fiscal aggregates and usually report the projected debt level over the medium term in budget documents. However, these medium-term projections do not constitute a fully-fledged MTFF because they are not binding, they are not formally adopted by Cabinet, deviations from those projections are not monitored and explained, and disaggregated projections are not published. The budget includes a general discussion of fiscal policies towards achieving the Egypt Vision 2030 but focusing primarily on the upcoming fiscal year.

14. Egypt’s informal fiscal targets are not sufficient to ensure debt sustainability. Since 2018/19 Egypt has had an informal target of a primary balance of 2 percent of GDP, which has served as an important anchor within the MoF and across the Cabinet. Deviations from this target have been relatively minor, even in light of the COVID-19 pandemic and the Russian invasion of Ukraine (Figure 18), highlighting the authorities’ strong commitment to fiscal discipline. However, repayment of arrears to public sector corporations have been recorded “below-the-line” and constituted a major source of debt creation. In fact, between 2016/17 and 2021/22, these stock-flow adjustments have been the main driver of debt accumulation at the general government level, adding 3 percent of GDP each year on average (Figure 19).^{4 5} The informal primary balance target does not capture these transactions, and the effectiveness of this target in guiding fiscal policy is limited. Furthermore, conditions have changed significantly over the last few years and would probably require raising the numerical target.

15. Adopting a MTFF is a medium reform priority, as it could enhance credibility and ensure that the level of public investment is adequate, predictable, and sustainable over the medium term. (Box 1). Implementation of the new PFM law offers an opportunity to make progress in this direction as it modernizes the legal framework and provides a mandate for introducing medium term budgeting. The MTFF will have to be approved by Cabinet and published. Based on the approved MTFF, the MoF will develop medium-term budget ceilings consistent with it.

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Budget Sector Primary Balance

(in percent of GDP)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

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Average Contribution to Changes in General Government Debt

(2016/17-2021/22, in percent of GDP)

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: IMF staff calculations based on Egyptian authorities’ data.Note: The chart on the left uses GDP before the recent re-basement to be consistent with the measurement on the informal target of 2 percent. The chart on the right uses a standard debt decomposition equation to decompose the change in debt to GDP from one year to the next (in percentage points of GDP) into what it is attributable to its main drivers: real GDP growth, real interest rate, primary deficit, exchange rate, and a residual (stock-flow adjustment).⁶

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2. National and sectoral plans (Strength—Medium; Effectiveness—Medium; Reform Priority— Low)

16. Public investment should be guided by national and sectoral public investment strategies or plans that provide clear and realistic priorities, cost estimates, and objectives for each sector. This institution first looks at whether national and sectoral public investment strategies and plans are prepared and published by the government covering all public investment projects regardless of their financing source. It then underlines the importance of costing of public investment plans and assesses whether sector strategies identify measurable targets for outputs and outcomes of public investment and how they are used.

17. Investment allocation is guided by national and sectoral development plans that are prepared by the central government. These plans outline investment strategies and consider broad estimates of aggregate and major investment project-specific costs that are funded through the government budget. The targets set in these investment strategies are mostly focused on outputs, not outcomes. The General Planning Law no. 18 of 2022 lays out key aspects of the planning framework, which comprises the following documents, which all must be approved by the Supreme Council of Development and Urban Planning before being sent to Parliament for approval:

• Egypt’s Sustainable Development Strategy: Vision 2030 (SDS) provides the development planning vision for the economy and the public sector.

• Egypt’s Medium-Term Sustainable Development Strategy (MSDS). The MSDS planning horizon is five years and it covers key economic and public investment sectors, economic, fiscal and sectoral performance indicators, an aggregate estimate for private and public investments for the planning period as well as key sector specific investment projects and some project specific costs and several output-based indicators.

• Ministries develop sectoral plans. The sectoral plans that are available focus on performance objectives and offer analytical information about sectoral trends, gaps, and resource envelopes. However, they do not always clearly connect investment project outcomes to desired results at the sector level, nor do they provide the information to analyze if the investment plans are the most costeffective way to reach the sectoral targets.

18. The information published about the actual costs and performance of investment plans and projects is limited. The MSDS identifies examples of major investment projects at the sectoral level. The MSDS and annual investment documents disclose estimates of total costs for several major projects, providing different levels of detail for various sectors. However, the published planning related budgetary documents do not discuss significant cost deviations or project performance. These documents do not enable a meaningful comparison of initial project cost estimates, budgeted amounts, and actual spending on investment projects..

19. More concise specification of initial cost estimates, output and outcome estimates, and implementation timelines, for all sectors and sub-sectors, can support greater investment efficiency. Publishing such information in the budget would serve as a foundation for project planning and monitoring project implementation, as well as for ex-post assessments of project achievements.

3. Coordination between entities (Strength—Low; Effectiveness— Medium; Reform priority— Low)

20. Various levels of government and distinct agencies should coordinate public investment initiatives and funding to allow coherent project implementation. This will ensure that priorities are consistent and individual projects complementary between central government and local governments (LGs), flow of funds is predictable among different levels of government and contingent liabilities are contained.

21. There is no institutional requirement for systematic sharing and coordination of spending plans, and a rules-based transfer system for making capital transfers to LGs is not yet implemented. A unified legal framework governs the public sector budgeting and accounting system in Egypt and covers all public entities irrespective of whether they are at the central or local level. Some important features of the financial system at the local level are derived from the 1979 Local Administration Law (with amendments) and its executive regulations. The 2022 budget circular requires local governments to send their budget using the economic classification but there is no requirement to provide a list of planned investments. MPED and the Minister of Local Development issued a Ministerial Decree specifying the process for adopting and applying a formula-based capital allocation system for governorates and districts. A committee was established to define the formula but, at the time of the mission, this was not yet implemented...⁷ Since 2017, the authorities have taken a number of steps to improve the coordination across levels of government, including a decision from cabinet in March 2017 requiring all ministries to consult with the MoF prior to negotiating or concluding any contracts that could necessitate the issuance of sovereign guarantees, but there is no requirement to report contingent liabilities to the central government.

^{Table 3.}

Contingent Liabilities as at End-December 2021

(in EGP bn)

Source: The Financial Statement on the State’s General Budget 2022/2023. (*) There are no details on what “Other” includes.

^{Table 3.}

Contingent Liabilities as at End-December 2021

(in EGP bn)

Entities	%	Amount
Egyptian General Petroleum Corporation (EGPC)	33
Other*	20
New Urban Communities Authority (NUCA)	19
Egyptian Electricity Holding Company (EEHC)	14
National Expenditure Authorities Egypt	6
Egyptian Electricity Transmission Co. (EETC)	3
Railway Authority	3
The New and Renewable Energy Authority (NREA)	1
Middle east oil refinery (Midor) Egypt	1
Aviation Holding Company	0
TOTAL	100	1,660

Source: The Financial Statement on the State’s General Budget 2022/2023. (*) There are no details on what “Other” includes.

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^{Table 3.}

Contingent Liabilities as at End-December 2021

(in EGP bn)

Entities	%	Amount
Egyptian General Petroleum Corporation (EGPC)	33
Other*	20
New Urban Communities Authority (NUCA)	19
Egyptian Electricity Holding Company (EEHC)	14
National Expenditure Authorities Egypt	6
Egyptian Electricity Transmission Co. (EETC)	3
Railway Authority	3
The New and Renewable Energy Authority (NREA)	1
Middle east oil refinery (Midor) Egypt	1
Aviation Holding Company	0
TOTAL	100	1,660

Source: The Financial Statement on the State’s General Budget 2022/2023. (*) There are no details on what “Other” includes.

22. In practice, investment plans of LGs are managed by central government, and there is reporting on contingent liabilities. All local capital spending decisions in Egypt are taken through the State Budget (see Box 2). MPED has recently launched an Integrated System for Investment Plan Preparation and Monitoring (ISIPPM) where all government entities, including LGs are asked to enter their projects (see section IV.B). Government guarantees and on-lending to Economic Authorities (EAs) and public corporations (PCs) represent major contingent liabilities and are reported and disclosed at a highly aggregated level in budget documents (they are not reported by category i.e., SNGs, PCs, and PPPs), but formal mechanisms for central government control over and coordination with these entities are limited. At the end of December 2021, government guarantees amounted to EGP1,660bn, 21 percent of GDP out of which 8.4 percent are foreign.⁸ A sovereign guarantee policy is being implemented informally, whilst awaiting approval from the Cabinet for the establishment of the SGC. In 2022, no LG has sought loans as government provides funding for major capital projects.

23. Enhancing capital spending coordination between the central and local government is a low reform priority, but efforts to improve the comprehensiveness of contingent liabilities monitoring and reporting should also continue to ensure that fiscal risks are properly managed. While respecting the constitutionally mandated autonomy of LGs, their capital spending plans should be increasingly coordinated with the central government as soon as more responsibilities are designated to LGs to allow consistency with national strategies as well as complementarity between local and central public investment. All LG projects should continue to be included in the ISIPPM.

4. Project appraisal (Strength—Low; Effectiveness—Low; Reform Priority—High)

24. Project appraisal aims to ensure that all relevant project costs, benefits and risks from a social, economic and financial perspective are fully assessed and inform decisions on project selection and funding. Project appraisal comprises different stages that require increasing levels of analytical scope and depth. Often project appraisal stages include project concept, pre-feasibility and feasibility. Project appraisal methodologies may vary based on the type and size of project. Simple, standardized projects may be approved for funding consideration based on a concept note or prefeasibility study. Large, complex and risky projects should be subject to full appraisal incorporating detailed consideration of costs, benefits, risks and implementation issues. Common and standardized methodologies ensure consistent analysis of projects across different sectors.

25. There is a general requirement to conduct feasibility analysis for new public investment projects, but there are no specific requirements for and guidance on the scope and methodologies for appraisal, except for identifying climate-relevant projects . A Circular issued by the MPED for preparation of an annual investment plan and a Circular issued by the MoF for preparation of the state budget include a requirement that new public investment projects should be subject to feasibility analysis. However, there is no regulation that defines what constitutes feasibility analysis or what requirements and steps should be followed in the preparation and submission of project appraisal documents for funding consideration. PPPs are an exception (Box 3). There is also separate guidance on how to identify climate-relevant projects, as described in the Climate PIMA report.

26. Major capital projects are subject to appraisal, but the scope and rigor of project appraisal varies in practice due to the lack of central guidance. The recently established Department for Project Feasibility Studies in the MPED provides advisory support to sectoral ministries and entities at the appraisal stage for projects funded from the state budget. While the ministry’s focus is on review and approval of investment plans submitted by sectoral ministries for state budget entities, it receives investment plans from Economic Authorities for consolidation purposes only. The PPP Central Unit in the MoF provides support for the appraisal of PPP projects in accordance with Article 4 of the PPP Law 2010. However, the appraisal of some PPP projects is carried out by sectoral entities without support of the PPP Central Unit.

27. A key reform priority should be putting in place public investment management regulations and guidelines covering all key stages of project cycle, including project appraisal. The Public Investment Management (PIM) regulations should define the scope of project appraisal, its stages (for example. project concept, preliminary appraisal and detailed appraisal), key analyses and studies that should be undertaken depending on the size and type of project at the appraisal stage. This will ensure rigorous, in-depth appraisal of major and complex projects, while applying simplified procedures for routine, standardized projects. The PIM guidelines should provide methodologies and templates for carrying out specific analyses, including risk assessment. and studies. Strengthening coordination between the PPP Central Unit in the MoF and the recently established PPP Unit in the MPED will be important for developing a pipeline of PPP projects.

5. Alternative infrastructure financing (Strength—Low; Effectiveness— Low; Reform Priority— High)

28. Private sector participation in infrastructure financing can help to address infrastructure needs in key sector, supporting economic development while containing the burden on government finances. If private firms find a stable environment in which they can achieve a fair return on long-term investment, responsibilities for some infrastructure can shift from the public sector to the private sector, thus relieving pressure on public finances. For example, internationally, many countries dissolved the public sector monopolies in electricity and telecommunication markets, creating opportunities for the private sector to invest and develop services while making a profit. Availability of electricity and telecommunication services at market prices has boosted the competitiveness of countries as business location, inducing economic growth and social development.

29. The regulatory framework for economic infrastructure markets and the role played by public enterprises does not support competition, however a framework for involving the private sector in providing public infrastructure through PPPs is in place.

• Key economic infrastructure markets have not yet been liberalized and unbundling of utility markets is pending (see Box 4). The regulators for telecom, electricity, gas, and water and sewage are subordinated to the respective sectoral ministers⁹, who also act as the chair of their board. Consequently, the role of regulators is not separated from those of the sectoral ministries, involving regulators in policy setting, infrastructure development (e.g., universal service in telecommunication), and price setting for their respective market. In the absence of an efficient and independent regulator, persisting monopolistic structures in at least parts of the value chain of utilities markets competitors' access to infrastructure may be obstructed.

• The PPP law¹⁰ provides the legal basis for establishing and managing PPPs across all sectors, while not covering concessions for public utilities and natural resources.¹¹ It caters for a comprehensive PPP process from project selection to implementation, as well as the institutional framework. However, the PPP process handles projects largely outside the PIM and the budget process, it does not introduce a limit for the total financing contracted under PPPs, nor provide the Minister of Finance with the powers to stop a PPP project, should it be unaffordable. This limits the MoF’s ability to contain and manage fiscal costs and risks from PPPs.

• Some of the extrabudgetary entities (EBEs), PCs and EAs, undertake substantial parts of public investment in infrastructure (see Figure 6). However, formal mechanisms for central government control over and coordination with these entities are limited.¹² Government control is mostly exercised through the participation of government officials in the entities’ boards as there is no formal requirement for PCs to coordinate business and investment plans with the government.¹³

30. Involvement of the private sector in key economic infrastructure sectors, including through PPPs remains very limited, and the government (through direct controls as well as PCs and EAs remains the dominant player in most markets.

• While private sector companies have been involved in the telecommunication sector for more than two decades, the public sector plays a dominant role in the market. To date investment in the sector has been insufficient to close the gap between demand and supply in telecommunication services. Indicating potential entry barriers for private sector competitors, including through lengthy approval procedures for infrastructure construction.

• Private sector participation in electricity generation through some power purchase agreement (PPAs) and independent power producers (IPPs) are operating with contracted tariffs and regulated feed in tariffs, respectively. However, to date, private sector participation is minimal and commercial incentives for private sector participation are very limited given the monopolistic position of the transmission PC as the single off taker and seller of electricity.

• In the gas sector, the government retains a monopolistic position as two government owned companies, E-Gas and Gas Co, are the only supplier of gas and owner of the transmission network, respectively.

• Water and sewage markets are fully government controlled.

• The government has signed a limited number of PPPs (four) since the current legal and institutional framework have been introduced in 2010. The projects in the water and sewage sector (wastewater treatment) and the transport sectors (dry ports) were executed under the PPP law. Government entities mention the complexity of the PPP legal requirements and the time needed to develop projects under the PPP legal framework as obstacles for using PPPs for project implementation.

31. Strengthening the independence of regulators and unbundling services in key economic infrastructure markets are high reform priorities. Strengthening the regulatory framework for utility markets by empowering regulators to regulate prices in monopolistic markets will enable the development of competitive market structures in these markets. This must be followed by the unbundling of the service chain in these markets, allowing public and private sector companies to compete on a level playing field in production and distribution.

C. Investment Allocation

6. Multi-year budgeting (Strength—Low; Effectiveness—Low; Reform Priority—High)

32. Multi-year budgeting helps ensure that there are enough resources to fund ongoing and new projects and supports effective medium-term planning. This prevents starting work on a project for which there will be no or limited funding in the future, which would lead to delays and costs overruns. Capital projects are typically significant outlays which take time to design, plan and execute and the financial framework should reflect this.

33. Egypt does not have medium term budgeting arrangements in place. The budget process and resulting allocations relate to the current year only. Capital spending is not forecasted over a multiyear horizon and no multi-year ceilings are provided to ministries or sectors. Projections of the total construction cost of major capital projects are not published systematically.

34. Projections of the total construction cost of major capital projects are not published systematically. Aggregate information of major projects is usually disclosed in official communications and statements to the media. For instance, the cost of the New Administrative Capital was reported to amount to USD 45 bn, the Hayah Karima initiative to improve infrastructure in rural Egypt was reported to cost EGP 700 bn over 3 years, the expansion of the Suez Canal was reported to cost USD 8.5bn, the establishment of desalination plants was reported to cost EGP 435 bn, and the Ain Sokhna-New Alamein electric rail was reported to cost EGP 360 bn. The authorities have launched a mobile application (Sharek 2030) where citizens can track ongoing and completed projects by governorates and submit their own ideas for future projects. The citizen investment plans (Figure 20) by governorates also offer information on major projects. However, changes in total construction costs of major projects are not identified and explained. Systematically publishing the total construction cost of major capital projects, including a breakdown per year, and identifying changes in cost would be important for medium-term budgeting.

35. Implementation of a medium-term budget framework would improve planning and enhance the predictability of investment spending and is a high priority. The new PFM law envisages a medium-term budget framework to cover three fiscal years in addition to the year of the budget, with the ceilings prepared at the level of ministry or independent entity. The next step would be to enact executive regulations that provide for a well-sequenced medium-term budget process (starting with the MTFF) and to offer training and resources to the line ministries in the transition to the new paradigm. This could be further disaggregated with the publication of medium-term cost forecasts for major projects across each sector.

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Citizen Investment Plan. Cairo Governorate.

FY 2021/22. Transportation

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: Page 8 of the Citizen Investment Plan for the Cairo Governorate FY 2021/22.

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7. Budget comprehensiveness and unity (Strength—Medium; Effectiveness—Medium; Reform Priority—Medium)

36. Budget comprehensiveness and unity requires that all potential projects are evaluated, prioritized and presented together. By prioritizing investments from all sources - including those delivered by EBEs and irrespective of how the investment is financed - value for money is maximized. This approach will also help ensure that the collective public investment portfolio is coherent and aligned to overall national objectives. Integrated budget presentation, taking account of recurrent resource needs into the future, can help achieve targeted project benefits into the medium- and long-term.

37. The legal and regulatory framework allows for extrabudgetary public investment, but this is required to be disclosed and approved by parliament in the Annual Economic and Social Development Plan (AESDP) (Box 5). In addition to central government-funded projects, investment is delivered by Economic Authorities, public corporations (the Public Business Sector (PBS)) and designated National Projects. The majority of public investment is represented in the AESDP which is ratified by Parliament and is aligned to the overall medium-term investment strategy and vision set out in Egypt 2030. While the AESDP shows most major investments, projects are not described uniformly or in sufficient detail. The State Budget presents integrated capital and recurrent spending, decomposed by economic and functional classification, but not for PBS and Economic Authority projects.

38. In practice, extrabudgetary capital spending is significant. While central government investment ranges between 30-40 percent of total public investment, the AESDP incorporates all public investment (including PPPs, own-resource funded projects by the PBS and loan-financed projects) (Figure 21). The Plan includes detailed investment allocations to each type of delivery entity and across each sector but there is little information on funding and financing at the project level. There is particular ambiguity regarding funding for the category of “National Projects”. Recurrent expenditure associated with investment by Economic Authorities and PBS bodies is not integrated with capital investment budgets.

39. There is scope to improve budget comprehensiveness by preparing a more targeted annual investment plan. Separating out a specific annual capital budget document from the wider economic and social strategy contained in the AESDP can support more informed investment governance. The document should disclose uniform information on all major projects including total cost, allocation for the years ahead, financing source and delivery entity. There should be a clearer presentation of funding for all delivery channels - Central Government, Economic Authorities, National Projects and PBS.

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Public Investment by Agency Type and Sector, 2021

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: Staff Analysis of Central Bank of Egypt, Monthly Statistical Bulletin

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8. Budgeting for investment (Strength— Medium; Effectiveness—Medium; Reform Priority— Medium)

40. Ensuring that funds are available in line with needs for executing multi-year projects is key to the efficient implementation of projects but often poses a challenge in the context of annal budgets. Well-designed budget and commitment procedures can make it more likely that funds are available for ongoing projects, helping to deliver on time and to contain cost overruns due to delays.

41. The institutional framework prohibits virement from capital to current spending without going to parliament, but the protection of individual investment projects through budget implementation is relatively weak. Budget documents, including the investment budget, are expected to have a feasibility study, which provides information on total project cost but there is no legal requirement for including this information nor information on progress of financial implementation in the budget documents. Budget outlays are appropriated on an annual basis. While new projects cannot be started unless their financing has been identified, there is no requirement to protect ongoing projects over new projects, allowing the reallocation of funds between ongoing projects, but also to new projects. Through provisions in the annual budget law, overall allocations for investment spending are protected and cannot be vired to other Chapters of the budget, without parliamentary approval.

42. Information on the costing and resource requirements, even of the largest public investment projects are not included in the budget documents or published elsewhere and in-year reallocation between projects seem to be frequent. Budget documents do not include information on remaining resource needs through project finalization. The capital budget, also due to the allocation of responsibilities between MoF and MPED, is managed largely in isolation from the current budget. Thus, virements between the investment budget (budget Chapter 6) and other chapters do not occur but in-year reallocations of funds among projects within Chapter 6 are reportedly frequent and employed to address changes in the pace of project implementation or deviations from cost estimates. It is not clear if the government has information on whether project implementation is delayed due to lack of resources. However, it has been mentioned, e.g., by the Ministry of Education, that in case there is a of lack of budgetary resources for implementing all suggested projects, the ministry would just start all projects and resources would be allocated over coming budget years or though reallocation, once the projects are in implementation.

43. Systematically protecting budget funding for ongoing projects is a medium reform priority and could potentially be supported by the new IT system. Making information on resource needs for existing and newly suggested projects available in a consistent and comprehensive manner will allow for better-informed decision making. For this purpose, information on (i) the total initial and updated project cost,; (ii) the spending undertaken to date for any ongoing projects; and (iii) the allocation of medium-term spending projections should be included in the budget documents. This will also provide a basis for monitoring and managing investment project performance, including adherence to implementation timelines and cost overruns, in a transparent manner. This will also provide an incentive for spending entities to address challenges in project management.

9. Maintenance funding (Strength—Low; Effectiveness—Low; Reform Priority—High)

44. This institution focuses mainly on how the government assesses the maintenance needs of major infrastructure assets as it prepares the budget. Infrastructure cannot deliver long-lasting services and benefits if it is not maintained properly. It is thus important to ensure that sufficient funding is allocated to maintenance, and that funding needs are measured through systematic methodologies.

45. There is no standardized methodology for assessing routine maintenance nor major improvement needs, and reporting on maintenance costs is incomplete. Maintenance seems to be based on a mechanical approach where maintenance contracts are renewed annually. Article 68, 75 and 90 of the Unified Building Law # 119 of 2008 stipulate that maintenance of buildings is mandatory but there is no methodology for determining maintenance needs. The Minister of Electricity and NUCA mentioned that they have a standard methodology for maintenance of capital projects, but no such document is available. For medical equipment (e.g., MRI equipment), the Ministry of Health signs a three-year maintenance contract when the equipment is purchased. Only information on routine maintenance, included in Chapter 2 of the Budget (Goods and Services) is reported. Capital maintenance is identified in the ISIPPM but is not reported in the budget documents.

46. Routine maintenance and major improvements are not receiving adequate funding. While expenditures for routine maintenance can be systematically identified in the budget, major improvements are identified but not included in the budget. The maintenance allocation in previous budgets (Table 4) is not adequate as the allocation for capital expenditure increased by 240 percent between budget years 2018/2019 and 2021/22, compared to 27 percent for maintenance. There is no published information on capital maintenance. The authorities recognize the need for more analysis and potentially more funding of maintenance needs. There is currently no analysis presented in the budget or supporting documents that compares maintenance needs to maintenance funding.

^{Table 4.}

Budget Expenditure for Maintenance

Source: The Financial Statement on the State’s General Budget 2022/2023.

^{Table 4.}

Budget Expenditure for Maintenance

Budget expenditure (EGP million)	2018/2019	Actuals 2019/2020	2020/2021	Budget
				2021-2022	2022/2023
Maintenance	8,045	9,807	10,629	10,243	15,111
Total expenditure	1,369,870	1,434,723	1,578,774	1,837,723	2,070,872
Capital expenditure	143,342	191,643	249,372	343,352	376,429
Maintenance in percent of capital expenditure	5.6%	5.1%	4.3%	3.0%	4.0%

Source: The Financial Statement on the State’s General Budget 2022/2023.

View Table

^{Table 4.}

Budget Expenditure for Maintenance

Budget expenditure (EGP million)	2018/2019	Actuals 2019/2020	2020/2021	Budget
				2021-2022	2022/2023
Maintenance	8,045	9,807	10,629	10,243	15,111
Total expenditure	1,369,870	1,434,723	1,578,774	1,837,723	2,070,872
Capital expenditure	143,342	191,643	249,372	343,352	376,429
Maintenance in percent of capital expenditure	5.6%	5.1%	4.3%	3.0%	4.0%

Source: The Financial Statement on the State’s General Budget 2022/2023.

47. Developing standard methodologies for determining maintenance requirements for all types of infrastructure assets, and budgeting for them, is a high reform priority. This will ensure savings over the life cycle cost of the facility. Current practices for determining routine maintenance are not credible and may result in poorly maintained facilities. A top-down approach for capital budgeting should protect adequate minimum funding for maintenance of the stock of public infrastructure. When implementing a top-down approach to the budget, it is important to increase the share of the budget directed toward maintenance and rehabilitation expenditure to prevent degradation of the existing capital stock. In the budget process, it is important to identify the level of spending required to maintain infrastructure at a steady-state level, using a regularly updated register of infrastructure assets to determine appropriate maintenance levels.

10. Project selection (Strength—Low; Effectiveness—Low; Reform Priority—High)

48. Picking and choosing investment projects based on reliable information and through a transparent and consistent mechanism ensures that scarce public resources are used efficiently . The selection of projects is a distinct step in the project management cycle and builds on reliable project planning and appraisal. It links the project assessment with the budget process by providing a set of prioritized projects to the budget process, which aligns investment plans with the resource envelope. To ensure that resources are used efficiently, the prioritization should be done based on consistent and comprehensive information from project appraisals, and in a consistent and transparent process, according to objective selection criteria.

49. In Egypt, while the government is working to introduce a more consistent approach, there is not yet a comprehensive framework for project selection or to assure consistent and comprehensive project appraisals. There are no formal requirements for a central review of project appraisals, for creating and maintaining a pipeline of appraised projects, nor for the project selection process. The annual plan under the 2030 plan provides some very high-level criteria for project selection, including policy direction and requirements on having a feasibility study, which can be seen as minimum requirements for projects to qualify for implementation but these are not sufficiently refined to allow for a technical assessment that would lead to a ranking of projects. However, there is separate guidance on how to select among climate-relevant projects, as described in the Climate PIMA report.

50. Projects are selected in a largely ad-hoc manner during the budget process. The government does not review and revise project appraisals in a systematic way and no documents on the review of project appraisals are available. There is no project pipeline or pool of appraised projects as projects, including the appraisal documents, are mostly submitted to the MPED at the time of budget preparation. In the absence of selection criteria, projects are selected based on their readiness and policy priorities are introduced through various channels, including by identifying and perusing projects under the group of “mega” projects.

51. Formalizing the project selection process by ensuring consistent project appraisals and defining a selection process with clear selection criteria is a high reform priority. Introducing a consistent and formalized central review process for all projects will ensure that projects can be selected based on objective criteria and reliable information. This should provide the basis for creating a pipeline of assessed projects, that are ready for selection and implementation. Assessing projects and creating this pipeline through a continuous flow of project appraisals facilitates the preparation of the budget as the implementing entity can draw on a pool of reviewed projects. It also improves the quality of project assessment and selection as it forces the central ministry to take responsibility for the review without squeezing the review work into the budget preparation period. Objective technical criteria for project prioritization together with a defined process for policy related considerations will create transparency, improve coordination, reduce inefficiencies, and create accountability.

D. Investment Implementation

11. Procurement (Strength—Medium; Effectiveness—Low; Reform Priority—Medium)

52. Competitive and transparent public procurement processes can support efficiency in public investment execution. By opening up procurement opportunities to as wide a set of suppliers as possible, and by using competitive bidding, the benefits of competition, innovation and expertise are maximized. Timely and transparent reporting and established, independent procedures for dealing with procurement complaints can further support better outcomes.

53. The Public Procurement Law and associated regulations represent steps towards aligning Egypt’s public procurement system with good international practices.¹⁴ Notable developments include solidifying the scope of application of the Law by limiting informal exclusions of competitive and transparent procurement procedures, enabling the use of e-procurement, and introducing framework agreements. The Law affirms implementation of sustainable procurement policies and practices, including promoting opportunities for small and medium-size enterprises. The Law includes provisions on institutional arrangements in procuring entities, adds a code of conduct for public officials and employees and private sector participants, addresses conflicts of interest in public procurement, and establishes an office and procedures for review of complaints from bidders. The procurement framework stipulates the creation of a public portal to be managed by the General Authority of Government Services (GAGS) to advertise procurement opportunities, award decisions, and monitor procurement plans. The procurement complaints and review process provided for in the legal framework is independent. A complaints office, reporting directly to the Minister of Finance, was created by the procurement law 182/2018 (Article 5) and organized by the Prime Minister decree # 665/2021.

54. Despite the solid procurement framework, the lack of a well-functioning database to monitor the implementation of the law is an important gap. The existing database on the government procurement portal does not cover all procurement activities and does not differentiate public investments from other procurement activities. Though publication of information on procurement opportunities and award decisions is required by law, compliance could not be verified since the use of the portal by procuring authorities is not recorded nor reported on and the quality and quantity of available data in the portal is weak. GAGS does not systematically collect, maintain, and publish information and this undermines the procurement system.. The lack of data makes it impossible to verify the degree of competitive tendering or the effectiveness of the complaints process.

55. Additional procurement reforms are a medium priority and could support greater efficiency in investment execution. Routine reporting on the performance of the procurement system, supported by appropriate technology and standard methodology will support greater transparency, build trust, facilitate competition, and enable greater efficiency in public procurement.

12. Availability of funding (Strength— Medium; Effectiveness—Medium; Reform Priority— Medium)

56. This institution addresses the systems, processes, and tools in place to ensure the availability of cash when needed to make payments for public investments. Capital spending should be committed according to reliable cash-flow forecasts, and cash should be available when needed to meet contractual obligations for payment. If payments are delayed, arrears occur. Systematic accumulation of arrears can severely affect the government’s financial reputation and the costs of capital projects, and the provision of goods and services.

57. Cash flow forecasts and commitment control systems are in place, and there is a regulatory requirement for cash management. The cash management unit in the MoF prepares an annual cash plan based on the approved budget and annual projections provided by each government unit. Government units cannot commit expenditures without the approval of the MoF financial controller of the unit.¹⁵ The MoF circular no. 14 for 2022 stipulates that all entities should provide the Financing Department of the MoF with their cash flow forecast on a monthly basis and this is used to process payments although there is no legal provision to ensure timely release of funds. The Treasury Single Account (TSA) and the centralized payment systems provide adequate controls over government cash resources. The MoF oversees all bank account balances and movements in the TSA using the e-payment system. Moreover, the Unified PFM Law no. 6 of 2022 requires that the TSA be held in the CBE, while prohibiting budget entities included in the TSA from opening bank accounts outside the TSA without prior approval from the MoF.¹⁶ The MoF exercise ex ante control on all steps of the budget execution. Under the centralized model of payment implemented in Egypt, no cash is directly managed by the budget units and the ministry of finance is the sole authority allowed to process payments. Exceptions to this principle are defined by law. All commitments and obligations must be entered in the Government Financial Management Information System (GFMIS). External financing is held at the central bank but is not always part of the TSA.¹⁷

58. In practice, availability of funding does not seem to have negative impacts on capital spending. Ministries are provided commitment ceilings for capital projects on a quarterly basis but there are some cases where commitments exceeded the cash availability due to a fluctuation in the exchange rate. There is no evidence of unforeseen budget cuts imposed on government units, arrears, or delays in the availability of funds for capital outlays and no evidence of any surcharges paid by the government due to payments delays. However, the efficacy of this system mainly relies on liquidity provided by overdraft facilities at the CBE as the government maintains an overdraft facility with the CBE to cater for temporary cash shortfalls. Payment arrears are not considered as an issue by the authorities and not subject to a specific monitoring or reporting. External funding represents less than 3 percent of capital projects and all payments from donors' money are timely channeled through the CBE.

59. Efforts to improve management of cash and payments should continue as this is one of the critical aspects to ensure timely execution of projects. The MoF should compile quarterly reports on outstanding commitments and orders to pay, and the effective average delay of payments. The overdue payments should be identified as payment arrears. To strengthen cash management, the cash management unit should increase its engagement with the largest Budget Sector entities and EAs to improve the accuracy of their forecasts, as well as consider options for strengthening forecasts of smaller entities with weak forecasting capacity.

13. Portfolio Management and Oversight (Strength—Medium; Effectiveness—Medium; Reform Priority—Medium)

60. Adequate oversight of the aggregate public investment portfolio can support efficiency in investment and achievement of over-arching policy objectives. Effective portfolio management allows identification of systemic issues affecting progress in the execution of infrastructure investment, can facilitate re-allocation to expedite project delivery and can provide insights to inform improved execution in the future.

61. There are standard arrangements for monitoring project costs and physical progress. All projects are subject to desk-based oversight and more complex projects, or those which have encountered difficulty in implementation, undergo field-based monitoring by the National Investment Bank (covering both financial and physical progress). The Integrated System for Investment Plan Preparation and Monitoring (ISIPPM - see Box 6) is being developed to support monitoring in the future. The legal framework allows reallocation of funds between projects—under General Visas for the State Budget the Minister of Planning and Economic Development can authorize increased allocations for individual investments under a number of circumstances, including where some projects are progressing ahead of schedule. Transfers are limited to certain classes of expenditure and capped at 10 percent of the total appropriation for the agency. There is no formal requirement for ex-post review of major projects and there is no system-wide mechanism for capturing lessons-learned from completed projects to improve delivery of future investments.

62. Monitoring is concentrated on individual projects and does not consider overall trends in the agency, ministerial or national portfolio. This limits the understanding of systemic issues in investment execution such as patterns of cost or schedule performance, supply chain or labor market challenges and other portfolio-wide developments. It is planned to use the ISIPPM to support portfolio management and oversight at aggregate level in future. There is some evidence of reallocation between projects and budget execution as a share of planned investment has averaged over 90 percent over the last five years (Figure 22). In practice, ex-post reviews are undertaken in some sectors. For example, in the energy sector, governance procedures were recently updated to include a new commercial assessment of the preferred option prior to selection—this was a direct result of the findings of an ex-post review.

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Budget Execution as a Share of Planned Investment

Citation: Technical Assistance Reports 2024, 028; 10.5089/9798400270895.019.A001

Source: MoF data

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63. There is a clear opportunity to improve management of the aggregate public investment program through over-arching monitoring and formalized post project reviews. The full roll-out of the ISIPPM should support regular monitoring of trends in cost, schedule and benefits performance across the portfolio and should be used to identify emerging risks and opportunities for public investment execution. Post-project reviews should be considered an intrinsic part of the investment life cycle and findings should be used to enhance investment governance in the future. In addition to assessing the degree to which project outturns are delivered in line with target cost, schedule and benefits, post-project reviews can assess whether processes were followed during investment preparation and execution. It is also important to capture and document lessons learned before the project structure is dismantled and the project team is dispersed. See Box 7 for good practice in post project reviews.

14. Management of project implementation (Strength—Low; Effectiveness—Low; Reform Priority—High)

64. Effective project implementation is required to realize the full benefits of public investment. Clear guidance for project and program management and established procedures for taking action on projects in difficulty support better outcomes (see Box 8 for an example of good practice in project implementation guidance from New Zealand). Regular and independent audit provides oversight and can identify common problems and solutions in infrastructure governance and delivery.

65. There is some central guidance for project implementation but specific procedures relating to implementation plans, project adjustment and ex-post audit are lacking. There is no legal or regulatory requirement for identifying responsible project owners/managers or for establishing implementation plans prior to approval. The law governing the ASA provides for ex-post project reviews, however, there are no explicit arrangements for publication.

66. Implementation procedures vary sharply in practice. In most sectors there are no fixed arrangements for documenting implementation plans or designating the senior official responsible for delivery in advance of project approval. The energy sector is an exception where there are standard sectoral project management guidelines and accountable project managers are generally in place before project approval. Between 2019 and 2021 a cross-government committee of senior representatives was convened to resolve problems encountered by a number of major projects, but in general project adjustment proposals are not systematically documented. Line Ministries report that project cancelation is only considered in the most extreme cases. The ASA has some monitoring and review systems in place -prioritizing loan-funded projects—but reports are not published or publicly scrutinized by parliament and do not constitute ex-post audit.

67. It is a high priority to establish more standardized procedures for project implementation. MPED’s project and program management guidelines²³ can be bolstered by rules requiring the appointment of SROs and agreement of specific project implementation plans prior to approval. The Authorities should establish set procedures for triggering the review of major projects and document the steps to be taken to review and adjust projects, including major scope change or termination where warranted. The ASA should adopt a policy to undertake ex-post audit of major investment projects, publish findings and follow-up on recommendations and lessons learned. See Box 9 as an example of good practice in ex-post audit from the independent audit of public investment in Scotland.

15. Monitoring of public assets (Strength—Medium; Effectiveness—Low; Reform Priority— Medium)

68. Monitoring of public assets creates feedback loops that circle back information that are useful inputs to the various stages of the PIM cycle. While countries usually fare better in the formulation of fiscal policy and national and sectoral plans, significant gaps in monitoring physical assets may negatively affect the achievement of these fiscal targets and plans. Decisions on the selection of new capital projects and the implementation of maintenance activities on existing infrastructure require knowledge on the condition of existing assets to ensure effective and efficient use of budgetary resources. Comprehensive and regularly updated asset registers and accurate recording of nonfinancial assets in government financial accounts are particularly helpful information that give a clearer view of the status of assets and their maintenance needs.

69. Legal and regulatory requirements are established to ensure that the value of physical assets is properly accounted for and reported. As a general principle, the legal framework directs administrative entities to disclose financial and nonfinancial information, financial statements, and final accounts. Specifically, it prescribes the recording of nonfinancial assets in separate memorandum accounts at the actual cost of all supplies and works. In addition, the entities are mandated to prepare and periodically update a record of all its fixed assets, which must show the value of each asset and stock at the end of the fiscal year. Financial statements and final account are required to include an annex where the assets and stock are described.

70. Despite the relative strength of the institutional design, actual asset monitoring practices leave much room for improvement. Line ministries and local administrations are expected to be responsible for the maintenance of asset registers as owners. While this is not an uncommon practice, central oversight or guidance is inadequate to ensure the comprehensiveness, quality and accessibility of asset registers and government financial accounts. This ultimately casts doubt on the accounting and the reporting of the assets’ value.

• Information on the government's nonfinancial assets is kept in a widely decentralized network of asset registers that vary in practices. Many entities, especially those at the local administration level, manually update their respective registers at intervals of three years or more. The Ministry of Information and Communication is setting up a digital state property management system across the government, but completion may take several years to cover the numerous entities at all levels of government.

• The coverage of nonfinancial assets included in publicly available financial accounts is not comprehensive. The government's financial reports show only the purchase of nonfinancial assets, but not the stock. While the financial statements of entities outside the budgetary sector include information on the value of nonfinancial assets they hold, it is unclear whether these values consolidated in the financial accounts. Assessing comparability is infeasible due to uneven practices among dispersed asset registers that, if at all, undertake revaluation irregularly. The unavailability of audit reports of the ASA also contributes to the difficulty of ascertaining whether the nonfinancial assets' value is accurately described in the financial accounts.

• Depreciation is typically not recorded in the government's operating statements. The depreciation of some nonfinancial assets is sometimes captured when the asset is held by certain entities that follow the Egyptian Accounting Standards (EAS), which require accounting for depreciation. However, these entities are limited to Public Business Sector Companies (PBSCs) where the EAS serves as a set of standards complementary to the government's accounting framework.

71. Priority should be given to strengthening central oversight of asset registers. This is necessary to ensure comprehensiveness of coverage, periodicity of updating, and flow of information, regardless of whether the digital system is fully operational. Filling in gaps in the legal requirements may be needed to assist the oversight function, which must be either clarified or coordinated between the MoF or MPED.

A. Legal Framework

72. The legal framework compounds the confusion among legal mandates, the fragmentation of institutional arrangements and inconsistencies in the procedures. The overarching framework consists of the newly promulgated laws on PFM and State planning, which separately distribute the responsibilities among the MoF and MPED. The laws assign the functions of planning for investments to MPED and planning for all other expenditure to MoF. In practice, the division of labor between the MoF and MPED is somewhat superficial, with a sizeable portion of the public investment being planned and undertaken by economic authorities, that tend to exercise relative flexibility in adherence to the general framework due to their distinct legal personalities and own founding laws. The PFM and Planning laws do not definitively subject these entities to its scope, and even provide the possibility of exclusion from the institutional coverage. These gaps in the legal framework are mitigated by the coordination between the economic authorities on the one hand, the MoF, the MPED and, where relevant, the supervising ministry on the other. However, such coordination is not formalized at a statutory level.

73. Some key legal provisions are contained in annual budget laws or in other secondary legislation, posing risks to the robustness of the institutional design and the effectiveness of implementation. The new PFM and State planning laws reflect some recent policy developments (e.g., medium-term budget planning, more stringent requirements for contingency reserves). However, these laws left out some existing practices that have been incorporated in the general provisions of annual budget laws that are aimed at ensuring the production of planned outputs and the achievement of expected outcomes (e.g., reallocations, termination in specific circumstances). While these provisions have been consistently adopted in the annual budget laws over the past years, it would be desirable to ensure stability and certainty to these mechanisms through executive regulations, given that amendment of these newly promulgated laws might not be feasible at this stage. Relatedly, the existence of multiple committees in the planning process could lead to inadequate coordination among entities and suboptimal decisions on appraisal and financing. These committees are created by governmental decisions that are mostly unpublished. To reduce the opacity of the legal framework and foster accountability, decisions to create committees should be publicly accessible. This would also facilitate the identification of the universe of these committees, which could then be used to guide the streamlining of the institutional and governance framework.

74. The adoption of executive regulations and other guidelines are necessary to implement some provisions of the new PFM and State planning laws. Although the new laws have been enacted only in the current year, the formalistic legal tradition of Egypt reveals the urgency of establishing secondary legislation to define roles, standardize criteria, and streamline procedures. Another specific aspect that could benefit from the issuance of rules and other legal documents relates to the maintenance of physical assets. For example, technical guidance on maintenance methodologies of road infrastructure appears to be absent, merely relying on the intuition of project managers.

B. It Systems and Data Management

75. IT systems for PFM consist of two systems managed by MoF. The GFMIS, and the TSA/e-Payment.

• The GFMIS is an electronic system (Oracle) connecting all public government agencies and containing all the functions of PFM from the financial and accounting operations that take place in all stages of budget preparation and implementation, starting from the strategic planning stage and ending with the accounting and reporting stage.

• The TSA bank account system is mirrored by a treasury ledger system (e-payment system) with ‘virtual’ accounts for all TSA entities at the level of accounting units. Data in the e-payment system is automatically reconciled daily to bank data. The e-payment system has electronic links to both the GFMIS and the CBE.

76. The Integrated System for Investment Plan Preparation and Monitoring (ISIPPM) has been recently developed by MPED and is specific to public investment management. The ISIPPM, as described in Box 6, is an online platform where units of the government are requested to enter their capital projects. It consists of three main modules: social and development plan preparation, investment funds reallocation, and monitoring and evaluation (including field and desk monitoring components). A process flow was prepared with the support of the USAID on how to link this system with the GFMIS, and an interface has been developed.

77. The ISIPPM does not currently provide full information required for managerial decisions in a number of key areas, and in particular in public investment management (PIM). The full cost of the project and the requested budget for the next fiscal year have to be entered, however there is no requirement to enter the estimated budget for the outer years (e.g., year 2 to year 5). This will undermine the effectiveness of the MTBF that will have to be implemented as required in the unified PFM Law. There is no centralized asset register, which would include information on the condition of the asset and thus guide maintenance planning. In addition, an asset register would be the basis for generating balance sheets as part of the financial statements.

78. Other PIM modules and application were recently developed. The Government Program Performance Monitoring System (GPPMS) used to monitor the government program using KPIs; and Sharek 2030, a mobile application launched in December 2019 to raise public awareness about development programmes and to collect proposals from citizens on the local needs.

C. Capacity

79. Significant gaps in capacity are contributing to the identified weaknesses in institutional strength and effectiveness of Public Investment Management in Egypt. While capacity is available across all relevant government entities and considered relatively strong at the MoF and MPED, it is more heterogeneous across line ministries and other budget entities. The core areas for future development fall into three clusters:

• project preparation and assessment by line ministries and for review by MPED;

• costing, selection, and budgeting processes for major projects by the MPED and MoF; and

• project management, execution control, and ex-post review by all entities involved (MPED and line ministries).

80. Improvements in capacity in the above areas could be supported by the following activities: (1) establishing guidelines for the appropriate methodologies and techniques wherever they are lacking; (2) adopting standardized practices and procedures across the project cycle; and (3) undertaking thorough project appraisals, particularly in the case of large, complex projects where specialist knowledge is needed or innovative financing methods, are proposed. Capacity in these areas can be provided by engaging external experts/consultants to provide technical support for conducting studies, quality assurance, and ex post evaluation, with a clear aim to build and consolidate this type of expertise within relevant government entities. .

81. Further capacity development efforts will be needed for Egypt’s transition to medium-term budgeting, as well as new arrangements strengthening coordination between MoF and MPED. The Macro Fiscal Policy Unit (MFPU) would need to be strengthened to produce and publish a MTFF, on the basis of which the Budget Department can build the MTBF, and its associated documentation. This would require developing skills such as macro-fiscal forecasting, analysis of forecasting errors, and report writing. It would also require stronger coordination between the budget department and the MFPU, and more broadly between the MoF and MPED. Line ministries will also need to be trained in the new framework and so, the development of standardized methodologies would prove particularly valuable at this stage.