Neither rosy nor grim
Egypt tries to keep the economy afloat until its engines kick off, writes Niveen Wahish
"We are not broke," Minister of Finance Samir Radwan told a group of journalists in Washington last week, "we are able to pay our debts right on time," he said. But things are not rosy either. He estimates that to make ends meet to the end of the current fiscal year and during the next, the budget will need some $10-12 billion in support. That has come about as a result of the post-revolution decline in tourism revenues and capital flows and increased social spending to calm the crowds. And it has been augmented by the fact that food and fuel prices have been on the rise thus raising the tab that the government has to pick on subsidised food items.
Radwan seeks to bridge that gap through Arab and international loans and grants. He is scheduled to embark on a tour to Saudi Arabia and the Gulf next week to present them with the situation. And Last week he, together with the minister of international cooperation, and the Central Bank of Egypt governor, presented Egypt's case to the international community and to the group of seven industrialised nations during the spring meetings of the International Monetary Fund (IMF) and the World Bank (WB) in Washington.
Since the outset of the revolution the economy has slowed down to around one to two per cent, according to initial data collected by an IMF fact- finding mission that was in Cairo last week.
Radwan, however, has not yet officially asked for help from neither financial institution. Seeking help from the IMF will not go down easy with the public opinion. The IMF is perceived as the reason behind many of Egypt's economic problems. Wael Ghoneim, the Google executive and Internet activist, went so far as to say the IMF was "partner in crime", with the oppressive regimes for promoting policies that widened the income gap for the benefit of a few. Ghoneim was speaking in a panel on events in the Middle East and North Africa (MENA) region organised on the sidelines of the IMF/WB spring meetings.
One of the much controversial policies pushed for by the IMF had been privatisation of state- owned assets. It was part of Egypt's Economic Reform and Structural Adjustment Programme with the IMF back in 1991.
But this time around Radwan says things are going to be different. He stressed that if there is a programme it will completely be homegrown with no unwanted conditions as was the case in the past. But this is something that the IMF itself acknowledges. And in fact, as Ratna Sahay, deputy director of the Middle East and Central Asia department at the International Monetary Fund told Al-Ahram Weekly, "it is the government that must come up with its programme; it is not for the IMF to say what they should do."
Egypt may not have another option. Borrowing to cover its needs on the international market has become costly since Egypt's credit ratings were cut by several credit agencies as a result of the uncertainty following the revolution. And Sahay said when there is an agreement with the IMF it reassures the market and other bilateral and multilateral donors who may otherwise be reluctant to extend their lending.
The exact amount that Egypt could borrow from the IMF remains unknown. It will all depend on what the Egyptian government can mobilise from other donors. And judging by intentions Egypt will not have difficulty procuring its funding needs, Radwan said. "They [the donor community] were very supportive of Egypt in its transition to a democracy and were keen on the success of the revolution." He also told reporters the G7 promised they would guarantee Egypt's debt which means the market would charge a lower interest rate, he explained. In addition, the European Bank for Reconstruction and Development has modified its mandate to allow it to lend to Egypt and Tunisia.
The money is not only needed to cover the government's deficit in expenditure but also kick-start programmes aimed at job creation through public works and housing programmes, boosting the small and medium enterprise sector and reforming wages. "Unless we have the resources we will not be able to achieve the goals of the revolution," Radwan had said.
The IMF team said that the downturn in growth and the effect on tourism and capital flows will be temporary. It forecast growth of four per cent unless it's subject to more sever shocks such as higher food and fuel prices.
In the meantime as Robert Zoellick, president of the World Bank has said, Egypt and other countries in the region need to create a more transparent system. Mustafa Nabli, governor of the Central Bank of Tunis reiterated a similar point of view. "Domestic institutions need to act as watchdogs," to insure there is no interference by the donors in the policy-making and to keep the government's actions in check so that it does not deviate from the growth targets it sets. These institutions need to make sure growth generates jobs and is not only about the macroeconomic indicators. In fact, this was the underlying theme at this year's spring meetings. It was reiterated by Dominique Strauss Kahn, the IMF managing director who said that growth alone is not enough. The challenge, he said "is to preserve social cohesion without undermining the macroeconomic stability." And he said that this especially so in the Middle East where it is "more urgent" than in other countries. Kahn estimates the IMF is likely to lend some $35 billion to oil importing countries in the region. This money, he said "may help bridge the situation until those countries come back to a more sustainable path". (see p.5)