Challenge and hope: analysing Egypt's loan from the IMF
- 8 years ago
Egypt has finally won International Monetary Fund approval for a three-year, $12 billion (11.16 billion euros) bailout programme aimed at reviving its struggling economy
But can it succeed in bringing down public debt and controlling inflation while also protecting the country’s poor?
For thoughts on that, Euronews Cairo correspondent Mohammed Shaikhibrahim spoke to Richard Banks, consulting editor with Euromoney for the Middle East and North Africa region and asked: “Given the current state of Egypt’s economy, is the IMF loan the last [chance] solution for Egypt”?
Banks said: “I think that the IMF package – and it is a package, one must remember – will bring, of course other multilateral, and another bilateral funds; it will bring an agreed framework for the direction of public policy [and that framework] is almost as important, because it is a way for international investors to change their perception of Egypt.”
Egypt got the go-ahead for the IMF loan in August but had to secure around $6 billion (5.58 billion euros) in bilateral financing for the deal to be completed. That money is coming from China, the United Arab Emirates, G7 countries, bank loans and bond issues.
Currency floats
On November 3 Egypt’s central bank gave up trying to peg the currency – the pound – to the US dollar, allowing it to devalue by almost half.
#Egyptian Pound Drops Almost 50% on De-pegging from U.S. Dollar; National Bank of Egypt Accepts #IMF Loan Conditions https://t.co/xLvWHV0NwH pic.twitter.com/isgPuH4WX4— RazorForex (@RazorForex) November 5, 2016
That followed a considerable period when Egypt struggled to attract dollars and revive its economy. Tourists and investors have been avoiding the country due to political instability since the 2011 uprising that ended Hosni Mubarak’s 30-year rule.
Euronews’ Mohammed Shaikhibrahim asked Richard Banks: “Do you think the Egyptian economy will be able to withstand the conditions imposed by the IMF?”
Banks’ replied: “Egypt has got deep structural problems, the whole subsidies system if not fit for what it’s meant to do. It is subsidising products, not people. You need to give the money to the poor people, you need to make sure that the poor people have a minimum level and can survive and have education and healthcare. You do not subside gasoline or bread, you subsidise the people.”
Subsidies slashed
Floating the currency was one thing the IMF encouraged Egypt to do.
Others included cutting subsidies for fuel – which happened on November 4 leading to a jump in prices – and the introduction of value-added tax to raise revenues. The programme also requires legislation to reduce Egypt’s public sector wage bill.
That is all needed to help get government spending under control. But to avoid hardship food subsidies are being increased along with direct transfers to poorer Egyptians.
However with inflation running high in the import-dependent country, everyday essentials are becoming unaffordable
But can it succeed in bringing down public debt and controlling inflation while also protecting the country’s poor?
For thoughts on that, Euronews Cairo correspondent Mohammed Shaikhibrahim spoke to Richard Banks, consulting editor with Euromoney for the Middle East and North Africa region and asked: “Given the current state of Egypt’s economy, is the IMF loan the last [chance] solution for Egypt”?
Banks said: “I think that the IMF package – and it is a package, one must remember – will bring, of course other multilateral, and another bilateral funds; it will bring an agreed framework for the direction of public policy [and that framework] is almost as important, because it is a way for international investors to change their perception of Egypt.”
Egypt got the go-ahead for the IMF loan in August but had to secure around $6 billion (5.58 billion euros) in bilateral financing for the deal to be completed. That money is coming from China, the United Arab Emirates, G7 countries, bank loans and bond issues.
Currency floats
On November 3 Egypt’s central bank gave up trying to peg the currency – the pound – to the US dollar, allowing it to devalue by almost half.
#Egyptian Pound Drops Almost 50% on De-pegging from U.S. Dollar; National Bank of Egypt Accepts #IMF Loan Conditions https://t.co/xLvWHV0NwH pic.twitter.com/isgPuH4WX4— RazorForex (@RazorForex) November 5, 2016
That followed a considerable period when Egypt struggled to attract dollars and revive its economy. Tourists and investors have been avoiding the country due to political instability since the 2011 uprising that ended Hosni Mubarak’s 30-year rule.
Euronews’ Mohammed Shaikhibrahim asked Richard Banks: “Do you think the Egyptian economy will be able to withstand the conditions imposed by the IMF?”
Banks’ replied: “Egypt has got deep structural problems, the whole subsidies system if not fit for what it’s meant to do. It is subsidising products, not people. You need to give the money to the poor people, you need to make sure that the poor people have a minimum level and can survive and have education and healthcare. You do not subside gasoline or bread, you subsidise the people.”
Subsidies slashed
Floating the currency was one thing the IMF encouraged Egypt to do.
Others included cutting subsidies for fuel – which happened on November 4 leading to a jump in prices – and the introduction of value-added tax to raise revenues. The programme also requires legislation to reduce Egypt’s public sector wage bill.
That is all needed to help get government spending under control. But to avoid hardship food subsidies are being increased along with direct transfers to poorer Egyptians.
However with inflation running high in the import-dependent country, everyday essentials are becoming unaffordable