‘With or without IMF' Egypt needs economic reform: PM spokesman

The upcoming programme of economic reforms includes cuts to subsidies and increases in taxes on some commodities

With or without the International Monetary Fund (IMF) loan, Egypt would have had to pursue a programme for economic reform, argues Alaa El-Hadidi, official spokesman for the prime minister.
El-Hadidi spoke as the ministry of finance was finalising the details of the programme that will be sent to the IMF, to start a process that will eventually lead to the signing of a deal to grant Egypt a $4.8 billion loan.
According to sources who had contributed to the drafting of the reform programme "the final draft of the programme" that will be sent to the IMF before the end of this week offers clear guidelines for increasing taxes on some commodities, to expand the volume of tax revenues by integrating the informal economy into the formal economy, and to cut down on subsidies.
Like the authors of the economic reform programme, El-Hadidi argues that it has “simply become unsustainable” to keep subsidies the way they are and to keep the current "unrealistic" separation between formal and informal economy.
“I know this may sound too much like the [ruling] party line but really the way subsidisation is conducted is firmly inefficient, if not outright harmful, to the cause of social justice as it wastes state money on subsidising commodities for a sector of society that is not eligible to receive subsidised commodities in the first place,” El-Hadidi said.
One source who contributed to the making of the reform programme had suggested that out of the 80 percent of the Egyptian population that receives "some form of subsidised goods, ranging from bread to petrol to water" only half of these truly deserve the full subsidisation, but only 20 percent would be denied the current level of subsidisation by virtue of the new reform scheme.
The source also admitted that the new programme is not very different from plans that were drawn up by the last government of ousted president Hosni Mubarak.
El-Hadidi for his part argues that “one real reason why it has become inevitable to promptly pursue economic reform is the almost hesitant – maybe deliberately hesitant - management of the economy during the last years of the Mubarak regime."
"Funds were spent on other issues than the obvious priorities of, say, sustaining the infrastructure which is now in desperate need of immediate upgrades, and obviously this means that funds have to be provided for this purpose.”
He added that as continued political upheavals have impaired the chances for a prosperous investment atmosphere, “it became inevitable to pursue a structural change.”
Structural change, El-Hadidi added, is also necessary to help create at least a part of the required 700,000 new jobs per year.
“Today, around 25 percent of the budget is allocated to subsidies; this percentage will be reduced,” El-Hadidi stated.
According to El-Hadidi other elements of the economic reform plan include better anti-corruption laws and regulations.
Also in the works is a scheme for “proper legal settlement of financial disputes with some businessmen.”
El-Hadidi argued that the signing of the loan deal with the IMF would automatically enhance confidence in the Egyptian economy, thus encouraging foreign investments as well as the expansion of investments from some of the key multinationals that are already operating in Egypt.
The official spokesman for the prime minister refuted arguments suggesting that the current government is designing its economic plans around getting loans and aid.
“This is not true at all. The current government is attending to a serious economic challenge that is coupled with a critical political situation.”
El-Hadidi acknowledges that the shortages of diesel fuel and electricity will be problematic. “But it is not the doomsday scenario that some have been trying to suggest.”
The government, El-Hadidi said, is “working on providing solutions for all of the anticipated problems."
“We know the situation is critical but we also know that it is manageable.”
El-Hadidi argues that calls to boycott the upcoming parliamentary elections by the National Salvation Front (NSF) and other calls by opposition forces for civil disobedience campaigns are not helpful for stabilising the economy.
Still, he said that the “demonstrations that take place now and then and the attempts to enforce a suspension of services are unlikely to turn into a full revolution.”
“Let us say that history tells us that there are no two consecutive revolutions in the span of a few years; and let us agree that despite the noise made to re-introduce the army into the political scene the army is not set to contemplate a coup; so let us work on making ends meet,” El-Hadidi said.
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