Sunday,19 August, 2018
Current issue | Issue 1310, (1 - 7 September 2016)
Sunday,19 August, 2018
Issue 1310, (1 - 7 September 2016)

Ahram Weekly

The bright side of the IMF story

There is much the media is not saying about the government’s economic reform programme and the negotiations for the IMF loan, writes Hatem Ezzeldin

Al-Ahram Weekly

In the aftermath of the government’s signing of the $12 billion initial loan agreement with the IMF a few weeks ago, the media has been sending out a message to the public that the loan will eventually harm them and that the economic reform programme the government is implementing will negatively affect future generations and even push the country into a trap of dependency on the West.  

Local reports have claimed that the talks with the IMF to acquire support funding had preconditions, such as laying off two million public-sector employees to reduce the high spending bill on salaries which gulps down about 30 per cent of expenditure. This has turned out to be completely untrue. Some economic experts and MPs have also appeared on TV claiming that the IMF assistance package will result in social unrest, especially among the poorer classes who will suffer as a result of the potential reduction of energy and/or food subsidies.

This is the one-sided story the media has been spreading. It is true that the IMF loan will have some undesirable social implications, but not to the extent the media has said. It is true that lifting subsidies and introducing new tax schemes such as the value-added tax (VAT) that is shortly to be approved by parliament could trigger inflationary pressures causing prices to rise. But there are measures to control inflation that could be undertaken. Higher production and rationalising spending policies could lessen any expected inflationary pressures.

Government officials and economists need to explain to the public that the economic reform programme is urgent and that it should be implemented regardless of the IMF loan or any other external assistance. The government started the reform programme in July 2014, announcing that it would gradually introduce energy subsidy cuts and tax hikes in order to cut the budget deficit to less than eight per cent of GDP in four to five years instead of the 11.5 per cent it is currently. The austerity measures have been in effect since then, supported by the government’s determination that is not dependent on conditions imposed by any international lender.

The new loan will simply help to accelerate the reform programme. It is designed to aid policies that are already in place rather than to introduce them. It will assist the government in raising revenue and rationalising spending, and it will help to reduce the deficit and to free up fiscal room for high-priority spending. We have to remember that the economic reform programme aims to create jobs and to increase GDP.

What much of the media is not promoting is the fact that the IMF loan will also help increase international investor confidence in the country’s struggling economy and attract foreign investment. This confidence has been shaken due to the economic and political conditions the country has been facing since the 2011 uprising that ousted former president Hosni Mubarak. It is not possible to borrow to fulfil financial commitments towards development projects or debt repayments without having such investors’ confidence.

What the media is not saying is that the IMF loan package ensures that the economic reforms that are underway will go in parallel with social development. In the intense coverage about the social problems the loan might bring there has been very little about how the government is working to support social development schemes. Not many people know that the government is working to raise the number of households benefitting from the Karama social fund to 1.5 million in the first quarter of the 2017/18 financial year from the 750,000 currently. Not many know that a total of LE14 billion ($1.57 billion) will be allocated to supporting these social programmes, up from LE12.2 billion this fiscal year.

In April last year, the government started funding two main social solidarity programmes, Karama and Takaful. The programmes started in the Upper Egyptian provinces of Assiut and Sohag before being introduced elsewhere. Karama pays each elderly or disabled person LE350 per month with a maximum per family of LE1,050, while Takaful pays each family LE325 in addition to LE60 to LE100 per child on a monthly basis on condition of school attendance and regular health check-ups. The work to support these two programmes and others will be accelerated with the implementation of the reform programme to secure better standards of living for the poorer classes.  

President Abdel-Fattah Al-Sisi has said that he is determined to implement the reforms and to take tough decisions to improve the country’s economic performance. The media should support this vision by presenting the complete picture to the public and not by drawing false conclusions. Prime Minister Sherif Ismail should talk to the public directly about the reform plans in order to avoid rumours and misjudgements. The reform process is like a surgical operation the government is undertaking: there could be some pain in the immediate aftermath, but this will eventually result in a quicker recovery and a better standard of living.

The response of the patient to this operation might be fearful, but the government needs to keep him informed and to keep his spirits up while understanding his fears. Egyptians are ready to meet economic and social challenges when they feel there is transparency and equality in implementing the reform measures.

The writer is a political researcher based in Jeddah in Saudi Arabia.

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