Before 2003, the Central Bank of Egypt, called the CBE, had exerted little control over monetary and foreign exchange conditions. High levels of bad debt in the banking sector and erratic government policies had undermined economic growth. Without a credible and independent supervisory authority, Egypt’s economic woes deepened. In the early 2000s, political will for change grew within the ruling National Democratic Party. In June 2003, the Unified Banking Law, pushed through by the party’s economic committee, paved the way for revitalizing the central bank. To implement this law’s mandate and oversee sweeping banking sector reforms, President Hosni Mubarak appointed Farouk El Okdah in late 2003 as CBE governor. El Okdah realized that the central bank had to be overhauled before it could begin the job of cleaning up the banking sector. El Okdah and his team restructured the CBE, aggressively recruiting private sector talent by amending the Unified Banking Law to permit higher salaries, instituting performance-based promotion, expanding training programs and strengthening information-technology systems. By 2009, the results of this institution building were apparent. The CBE commanded authority in the Egyptian banking sector, engaged in independent open-market operations and issued credible monetary and foreign exchange policies. The bank’s structural changes enabled the successful management of a broader banking sector reform effort that helped lift Egypt out of a three-year recession.
Deepa Iyer drafted this case study on the basis of interviews conducted in Cairo in September 2010.
Associated Interview(s): Mahmoud Mohieldin
information & communication technology
Building a Reform Team and Staff
Reconciling Economic Policy and Institution-Building Goals
Performance management system
Salary structure reform
Principal-agent problem (delegation)
Country of Reform: