To  determine the funding that Egypt should receive for completing each  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 Almost $2 Billion in Cash Transfer Program Funding and Technical Assistance

USAID disbursed about $1.8 billion in Cash Transfer Program funds to the  government of Egypt as it completed agreed-on economic reform activities,  primarily in the areas of finance and trade. In commenting on a draft of this report, USAID officials  agreed that these disbursements had occurred. 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:  Financial costs versus benefits of reform-related activities. Since fiscal year  1992, the government of Egypt requested, and USAID granted, 19  extensions to the deadlines originally agreed to in MOUs. 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. In addition, collecting reliable data is problematic  in Egypt. Beginning in 2005, USAID  will obligate Cash Transfer funds only after it is certain that the  Egyptian government will complete agreed-on activities. 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. 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.
Why GAO Did This Study

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.

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. 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.