Agricultural production and credit project (APCP) : a final assessment

The project succeeded in moving the agricultural sector to the forefront of Egyptian economic reforms, and has achieved a remarkable transformation of Egypt"s agricultural policies, introducing sweeping reforms that have substantially liberalized agricultural production, pricing, and trade and led to significant increases in both production of major food crops and real farm income. At the same time, however, the liberalization of output and input markets has exposed farmers, processors, and consumers to price instability in the international markets. Little has been done to develop a system for collecting and disseminating the price and market outlook information that is needed to help Egyptian producers and consumers adjust to external market shocks. Despite this good record, some policy reversals and setbacks occurred during 1995-96 and have damaged public confidence in the continuity of the Government of Egypt"s (GOE"s) policies and created uncertainty about the security of private investment and agribusiness operations. The GOE should give high priority to reestablishing its credibility; perceived market failures should be addressed only through limited interventions that disrupt private sector activity as little as possible. Also, with the broadening of the new reform program, continuing to treat studies and policy formulation as benchmarks and giving equal weight to all benchmarks runs the risk of dissipating resources and diminishing the incentive effects of policy conditionality. Conditionality should be assigned in proportion to the expected impacts and strategic importance of the policy actions required. Largely as a result of additions to its equity capital under the project, PBDAC"s equity has risen from LE 100 million to LE 900 million, enabling expansion of its loan portfolio. PBDAC has and will continue to have a crucial role in supplying rural credit; it is evolving from its previous role as a supplier of in-kind credit and provider of distribution and marketing services into a bank that provides credit and financial services to Egypt"s small farmers, agricultural businesses, and, increasingly, the entire rural community. The Bank Improvement Program initiated in the last 2 years of the project is moving in very promising directions as far as the village and branch banks and the subsidiary BDACs are concerned. The program has successfully tested credit-worthy lending methods, promoted deposit mobilization, and extended lending to women and non-farm businesses, clearly showing that such changes are both possible and productive. This approach, which should be extended system-wide, would benefit from additional donor assistance in improving bank incentive systems, loan performance appraisal and reporting, and staff training. Considerable progress has been made in establishing a computer-based management information system. To date, the system has emphasized accounting, payrolls, and deposits to the neglect of data on loan performance and portfolio risk. As shown by its recent forced forays into cotton marketing and fertilizer distribution, PBDAC has not completely changed its image within the Ministry of Agriculture and Land Reclamation and the GOE to that of a broad and autonomous financial institution. Complete divestiture of excess staff and facilities would enable PBDAC to make that transition as well as to clean its books so as to reflect its true profitability. PBDAC can operate as a development bank as long as the costs of unprofitable services and loans are covered by outside grant funds and PBDAC has autonomy in borrower selection, interest rates for deposits and loans, credit supervision, and loan collection for its regular clientele and for all the types of businesses it finances. For long-range viability, PBDAC needs a further expansion of staff experienced in modern banking techniques, a reduction in the number of BDACs, and a management reorganization. (Author abstract, modified)