Political uncertainty in Egypt will hamper fiscal situation: IMF

Official expects short-term deterioration and calls for targeted subsidies and a safety net for the poor funded by increased domestic revenues

An IMG official has said political uncertainty in Egypt and the Middle East and North Africa is bound to affect the fiscal situation.
Carlo Cottarelli, Director of the Fiscal Affairs Department at the International Monetary Fund (IMF) said Wednesday morning at a press briefing in Washington that there is a lot of uncertainty regarding the fiscal situation in the Middle East and North Africa region (MENA) because of political upheaval.
Cottarelli was speaking at the launch of the April 2011 version of the Fiscal Monitor report.
“The situation in Egypt is very uncertain,” said Cottarelli, explaining why this new version of the Fiscal Monitor does not include figures on Egypt. An IMF staff team has just visited Egypt to reassess economic and fiscal developments.
Cottarelli said there will be short-term deterioration related to political developments and a food price shock that will be felt throughout the region.
He said that in the short-term “it may have been inevitable to increase subsidies,” but over the medium-term there is a “need for better targeting of these subsidies.”
Cottarelli said this applies not only to the MENA region, but to all developing countries suffering from escalating food prices.
As remedies, he recommended maintaining a strong safety net for the poor and finding ways to finance the increased cost for the government via domestic revenues.
“In many of these developing countries there is still a lot of tax evasion from those who can actually afford [to pay],” he said.