Saturday,17 November, 2018
Current issue | Issue 1417, (8 - 14 November 2018)
Saturday,17 November, 2018
Issue 1417, (8 - 14 November 2018)

Ahram Weekly

A nod from the IMF

Egypt has passed the International Monetary Fund’s fourth review successfully, paving the way to receive the fifth tranche of the country’s $12 billion loan, reports Nesma Nowar

 

photo: Reuters
photo: Reuters

The International Monetary Fund (IMF) has reached a staff-level agreement with Egypt to disburse another $2 billion from the country’s $12 billion loan clinched in late 2016.

This came after an IMF mission concluded its fourth review of Egypt’s economic reform programme. The disbursement, however, is still subject to approval by the IMF’s executive board. If approved, it will be the fifth payment, bringing total disbursements under the country’s Extended Fund Facility (EFF) to about $10 billion.

Finance Minister Mohamed Maait said in July that Egypt was expected to receive the fifth tranche in early 2019.

The mission, led by Subir Lall, IMF mission chief for Egypt, visited the country from 18 to 31 October. It praised the performance of the Egyptian economy, saying that it continued to perform well, despite less favourable global conditions, supported by the authorities’ strong implementation of the reform programme, according to an IMF press release.

It said that GDP growth had accelerated from 4.2 per cent in fiscal year 2016/2017 to 5.3 per cent in 2017/2018, while unemployment had declined to below 10 per cent.

Additionally, the current account deficit had narrowed to 2.4 per cent of GDP in 2017/2018 from 5.6 per cent the year before, primarily driven by strong remittances and a recovery in tourism, the review said.

Gross general government debt had also declined from 103 per cent of GDP in 2016/2017 to about 93 per cent of GDP in 2017/2018, supported by fiscal consolidation and higher growth, the mission said.

It hailed the Central Bank of Egypt’s (CBE) prudent monetary policy that had helped bring down annual inflation from a peak of 33 per cent in July 2017 to 11.4 per cent in May 2018.

Inflation increased again to about 16 per cent in September 2018, however, reflecting the pass-through from energy price increases in June and a stronger than expected increase in volatile food prices in September.

The mission said that in the current external environment of tighter financing conditions for emerging markets, the CBE’s commitment to a flexible exchange rate policy would help enhance competitiveness, protect Egypt’s foreign reserves, and cushion against external shocks.

On the way forward, the mission said that Egypt’s fiscal policy in 2018/2019 and beyond should continue to aim at keeping general government debt on a clearly declining path and achieving a primary surplus of two per cent of GDP.

“The government also remains committed to continuing energy subsidy reforms and raising revenues, which will help create fiscal savings to invest in a well-targeted social safety net, human development including health and education, and infrastructure,” the mission said.

It further welcomed Egypt’s efforts to improve the living standards of the most vulnerable, including the Takaful and Karama cash-transfer programmes, which have expanded coverage to around 10 million people, Forsa, which has created job opportunities for graduates of the Takaful programme, and Mastoura, which provides microfinancing to women for sustainable income generation.

This is in addition to the Sakan Karim programme that provides clean drinking water and sanitation to rural areas.

The mission also highlighted government efforts in implementing reforms that aim to help the private sector invest and create the jobs needed to achieve more inclusive and sustainable growth for the country’s young and growing population.

These include improving access to industrial land, promoting competition, improving transparency and accountability of state-owned enterprises, and fighting corruption, it said.

Nonetheless, a recent report by the Egyptian Initiative for Personal Rights (EIPR), an NGO, noted that the government had failed to achieve inclusive, sustainable growth capable of creating jobs. It said that despite the marked improvement in growth rates and several macroeconomic indicators, the growth was unhealthy and could be temporary.

It added that the growth had had no impact on indicators that reflect better living conditions for Egyptians, such as creating decent jobs and spending on public services, education, and health.

The report, entitled “Eye on Debt III”, assesses the performance of the government during the third IMF review period from December 2017 to April 2018. It found that in the period the government was obligated to move ahead with 14 measures, only two of which had had a beneficial socioeconomic impact.

Eight of the measures, including the continued application of contractionary monetary policy and budgetary tightening through an inequitable fiscal policy, were judged to have a broadly adverse impact on citizens and economic development, according to the report.

“The government implemented only four of the required 14 measures, all of which had a negative socioeconomic impact,” it said.

It added that the IMF continued to treat risks as potentialities, rather than as concrete facts. Investors in Egypt’s public debt as “hot money” had already begun to pull out of Egypt, making it increasingly difficult for Egypt to borrow in dollars through local and foreign bonds and increasing the likelihood of a further devaluation of the pound, the report said.

The report further noted that the IMF was offering no proposals to deal with the global crisis, save for advising Egypt to let the pound depreciate.

Egypt received the fourth $2 billion loan tranche in July 2018 after passing the third review to much praise from the IMF’s executive board.

In its recently released “World Economic Outlook” report, the IMF expected growth rates in Egypt to reach six per cent in 2023. On inflation, the fund expected it to decline to 20.9 per cent in 2018, compared to 23.5 per cent in 2017, and to reach 14 per cent in 2019 and seven per cent in 2023.

Regarding unemployment, it predicted it would drop to 10.9 per cent in 2018 from 12.2 per cent in the previous year, continuing to fall to 9.9 per cent in 2019.

Egypt embarked on a bold economic reform programme in 2016 that included the introduction of taxes such as the value-added tax (VAT) and cutting energy subsidies, with the aim of trimming the budget deficit. The country floated its currency in November 2016, after which it clinched the $12 billion loan from the IMF.

Egypt has passed the International Monetary Fund’s fourth review successfully, paving the way to receive the fifth tranche of the country’s $12 billion loan, reports Nesma Nowar

The International Monetary Fund (IMF) has reached a staff-level agreement with Egypt to disburse another $2 billion from the country’s $12 billion loan clinched in late 2016.

This came after an IMF mission concluded its fourth review of Egypt’s economic reform programme. The disbursement, however, is still subject to approval by the IMF’s executive board. If approved, it will be the fifth payment, bringing total disbursements under the country’s Extended Fund Facility (EFF) to about $10 billion.

Finance Minister Mohamed Maait said in July that Egypt was expected to receive the fifth tranche in early 2019.

The mission, led by Subir Lall, IMF mission chief for Egypt, visited the country from 18 to 31 October. It praised the performance of the Egyptian economy, saying that it continued to perform well, despite less favourable global conditions, supported by the authorities’ strong implementation of the reform programme, according to an IMF press release.

It said that GDP growth had accelerated from 4.2 per cent in fiscal year 2016/2017 to 5.3 per cent in 2017/2018, while unemployment had declined to below 10 per cent.

Additionally, the current account deficit had narrowed to 2.4 per cent of GDP in 2017/2018 from 5.6 per cent the year before, primarily driven by strong remittances and a recovery in tourism, the review said.

Gross general government debt had also declined from 103 per cent of GDP in 2016/2017 to about 93 per cent of GDP in 2017/2018, supported by fiscal consolidation and higher growth, the mission said.

It hailed the Central Bank of Egypt’s (CBE) prudent monetary policy that had helped bring down annual inflation from a peak of 33 per cent in July 2017 to 11.4 per cent in May 2018.

Inflation increased again to about 16 per cent in September 2018, however, reflecting the pass-through from energy price increases in June and a stronger than expected increase in volatile food prices in September.

The mission said that in the current external environment of tighter financing conditions for emerging markets, the CBE’s commitment to a flexible exchange rate policy would help enhance competitiveness, protect Egypt’s foreign reserves, and cushion against external shocks.

On the way forward, the mission said that Egypt’s fiscal policy in 2018/2019 and beyond should continue to aim at keeping general government debt on a clearly declining path and achieving a primary surplus of two per cent of GDP.

“The government also remains committed to continuing energy subsidy reforms and raising revenues, which will help create fiscal savings to invest in a well-targeted social safety net, human development including health and education, and infrastructure,” the mission said.

It further welcomed Egypt’s efforts to improve the living standards of the most vulnerable, including the Takaful and Karama cash-transfer programmes, which have expanded coverage to around 10 million people, Forsa, which has created job opportunities for graduates of the Takaful programme, and Mastoura, which provides microfinancing to women for sustainable income generation.

This is in addition to the Sakan Karim programme that provides clean drinking water and sanitation to rural areas.

The mission also highlighted government efforts in implementing reforms that aim to help the private sector invest and create the jobs needed to achieve more inclusive and sustainable growth for the country’s young and growing population.

These include improving access to industrial land, promoting competition, improving transparency and accountability of state-owned enterprises, and fighting corruption, it said.

 

Nonetheless, a recent report by the Egyptian Initiative for Personal Rights (EIPR), an NGO, noted that the government had failed to achieve inclusive, sustainable growth capable of creating jobs. It said that despite the marked improvement in growth rates and several macroeconomic indicators, the growth was unhealthy and could be temporary.

It added that the growth had had no impact on indicators that reflect better living conditions for Egyptians, such as creating decent jobs and spending on public services, education, and health.

The report, entitled “Eye on Debt III”, assesses the performance of the government during the third IMF review period from December 2017 to April 2018. It found that in the period the government was obligated to move ahead with 14 measures, only two of which had had a beneficial socioeconomic impact.

Eight of the measures, including the continued application of contractionary monetary policy and budgetary tightening through an inequitable fiscal policy, were judged to have a broadly adverse impact on citizens and economic development, according to the report.

“The government implemented only four of the required 14 measures, all of which had a negative socioeconomic impact,” it said.

It added that the IMF continued to treat risks as potentialities, rather than as concrete facts. Investors in Egypt’s public debt as “hot money” had already begun to pull out of Egypt, making it increasingly difficult for Egypt to borrow in dollars through local and foreign bonds and increasing the likelihood of a further devaluation of the pound, the report said.

The report further noted that the IMF was offering no proposals to deal with the global crisis, save for advising Egypt to let the pound depreciate.

Egypt received the fourth $2 billion loan tranche in July 2018 after passing the third review to much praise from the IMF’s executive board.

In its recently released “World Economic Outlook” report, the IMF expected growth rates in Egypt to reach six per cent in 2023. On inflation, the fund expected it to decline to 20.9 per cent in 2018, compared to 23.5 per cent in 2017, and to reach 14 per cent in 2019 and seven per cent in 2023.

Regarding unemployment, it predicted it would drop to 10.9 per cent in 2018 from 12.2 per cent in the previous year, continuing to fall to 9.9 per cent in 2019.

Egypt embarked on a bold economic reform programme in 2016 that included the introduction of taxes such as the value-added tax (VAT) and cutting energy subsidies, with the aim of trimming the budget deficit. The country floated its currency in November 2016, after which it clinched the $12 billion loan from the IMF.

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