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Egypt weighs pros and cons of IMF loan

As the IMF reform program with Egypt is set to come to an end in August, future cooperation agreements between the two sides are yet to be revealed as experts weigh the pros and cons of the program.

CAIRO — As the end of the economic reform program that the International Monetary Fund (IMF) asked Egypt to implement in exchange for a $12 billion loan draws near, Cairo has yet to officially reveal whether it intends to cooperate with the IMF once again.

Although Egyptian Finance Minister Mohamed Moeit said the country might renew cooperation with the IMF, the latter has yet to determine how such cooperation could unfold.

In an interview with Bloomberg, Moeit said that Egypt aims to conclude a nonfinancial agreement with the IMF by October to replace a three-year loan deal that expires this month — a step that may help the country remain an attractive market for foreign investors.

He said the new program could last about two years.

Tarek Amer, governor of the Central Bank of Egypt, said in remarks on the sidelines of the Seamless North Africa 2019 Conference, “the government is discussing with the IMF new forms of cooperation.”

However, on the day following Moeit’s statements, Camilla Anderson, assistant director of the IMF's communications department, denied the existence of negotiations with the Egyptian government regarding a new borrowing program.

Andersen said at a press conference held June 27 to highlight the latest developments in the IMF’s international cooperation programs that “the IMF is not currently discussing a new program with Egypt, and our first priority is to complete the current program successfully.”

In August 2016, the IMF technical mission announced from the heart of Cairo that the IMF had reached a staff-level agreement with the Egyptian government. This agreement required the Egyptian government to implement a series of reform measures and adopt radical and bold solutions.

Under the agreement, Egypt received a loan of $12 billion divided into six tranches over a period of 36 months. The value of each tranche amounted to $2 billion, and Egypt received five visits from the IMF technical mission to follow up on the implementation of the economic reform program, which Egypt began implementing in August 2016. Egypt is scheduled to receive the final tranche, which is worth $2 billion, once the program is completed this upcoming August.

As the IMF program nears completion, Standard Chartered Bank said the IMF would remain involved in Egypt’s economic reform process.

A report issued by the bank indicated that Egypt has continued to improve the macroeconomic fundamentals under the IMF’s Extended Fund Facility, which concludes in the second half of 2019.

Ziad Bahaa Eldin, an economic expert and head of the Financial Regulatory Authority, told Al-Monitor over the phone, “The program was and still is controversial. While international organizations and financial institutions consider it a huge success, the prevailing public opinion in Egypt blames it for the high cost of living and the hardships suffered by the people.”

“The program was neither a bad nor a purely good thing. I think it was a mix of both. But if we are to look on the bright side, the IMF statement was accurate regarding the macroeconomic reforms that required courage, especially the liberalization of the exchange rate regime and the reduction of the energy subsidies. The downside is that the program caused unexpected waves of inflation that Egyptians failed to cope with despite the increased expenditure on social protection programs. It is not economic reform that led to such waves of inflation but the government’s failure to accompany macro reform with policies and operational programs that encourage productive investment and create sustainable employment opportunities,” he said.

Bahaa Eldin stressed Egypt's need for a second program away from the IMF and other international actors. The country, he said, needs a social and economic reform program that focuses on citizens, gives priority to the poor, activates the idle investment potential and channels public expenditure toward what people need.

The economic reform program that the IMF required in exchange for the loan included a set of economic policies and governmental measures to achieve higher growth and reduce the budget deficit to the current 10%, public debt to 80% by June 2022. In this regard, the government has taken several measures, notably the liberalization of the exchange rate regime and the complete lifting of fuel subsidies. This led to a sharp rise in the prices of many other goods and services such as food products, real estate, transportation and agricultural products. Also, many factories and companies were forced to close after they could not afford the increase in production costs. Add to this the fact that more than 13 million citizens stopped benefiting from government subsidy cards to buy food staples amid successive increases in the prices of electricity, water and gas.

Hassan Hussein, chairman of the Banking and Stock Exchange Committee of the Egyptian Businessmen’s Association, told Al-Monitor that it is necessary for Egypt to sign a new contract with the IMF given the progress, economic stability and growth recovery achieved by the economic reform program.

He said he appealed to the government to sign a new contract with new objectives for several reasons. Chief among these are the current economic reforms, which must be sustained until growth reaches 8%.

Hussein stressed that economic reform is a long-term journey in which the state continuously aims to sustain growth in light of changing economic and political conditions.

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