Egypt 2014 economic reforms received much praise at the IMF/World Bank annual meetings that ended earlier this week in Washington, with Christine Lagarde, managing director of the IMF, telling the Al-Arabiya news channel that she was very impressed by Egypt economic reforms, among them the partial lifting of energy subsidies and the introduction of new taxes targeted at the more affluent sections of the population. The IMF/World Bank annual meetings allow international financial policy-makers to rub shoulders with each other. Last year Egypt participation at the annual meetings was low key, but this year Egypt sent a a good and strong delegation, as Lagarde described it, which included Minister of Finance Hani Kadri, Minister of Planning Ashraf Al-Arabi, Minister of International Cooperation Naglaa Al-Ehwani, and Central Bank of Egypt Governor Hisham Ramez. While in Washington, the Egyptian delegation reviewed Egypt economic reforms and asked the IMF to send a team to assess the country economy in the framework of article IV regular annual consultations, necessary if the IMF is to underwrite future loans. The team will be arriving in November, with the last such assessment taking place in 2010. Kadri has already said that he hopes the IMF team report will be ready ahead of a major donor conference on Egypt scheduled for February 2015. The government is hoping to raise as much as $100 billion at this conference to invest in mega projects aimed at creating jobs and promoting growth. Masood Ahmed, director of the IMF Middle East and Central Asia Department, said at a press conference in Washington that if all went well the work of the team would be discussed by the Fund Executive Board and ready in time for the conference. We hope it will be a good contribution to the analysis of the economic situation of the reforms that are being undertaken, of the challenges that lie ahead, and of the way in which not just Egypt but also its partners can help it in the years to come, Ahmed said. Eman Negm, an economist at Prime Holding, told the Al-Ahram Weekly that IMF approval of Egypt economic reforms would give a signal that the country was on the right track, needed to attract investors and donors to the February conference. IMF approval is also important to improve Egypt credit rating, which affects the rate at which the country can borrow on the international markets. From 2011 to mid-2013 Egypt saw various downgrades of its credit rating, though the international rating agencies began to revise the country ratings upwards in late 2013. Egypt has twice wanted to take out a loan from the IMF since 2011, but on each occasion the government withdrew its application. The first loan request, in 2011, was for $3.2 billion, while the second, in 2013, was for $4.8 billion. According to Samir Radwan, a former finance minister, at the time of the first request Egypt could have applied for up to $9 billion in IMF loans had an IMF-approved reform programme been in place. The country needs IMF approval not only to apply for IMF loans, he told the Al-Ahram Weekly, but also to reassure other donors or investors, among them the Arab Gulf states, which have thus far made available some $12 billion in cash or petroleum products. The donor conference will not be a success without the IMF, the World Bank and the European Investment Bank, which is why the IMF assessment of the Egyptian economy is important, Radwan said. He also said that Egypt would likely eventually require an IMF loan, not so much for short-term policy support as for long-term planning and mega projects such as the new Suez Canal and Golden Triangle. This time around, he was expecting that Egypt would request no less than $6 billion from the IMF to be able to cover its financing gap, though the government has for the time being ruled out a loan from the IMF. Such a loan would add to the country external debt, which stood at around 16.5 per cent of GDP ($46 billion) in June, according to Ministry of Finance figures. It would also affect Egypt foreign reserves, which are used to pay the debt. The country Net International Reserves (NIR) stood at $16.87 billion in September. However, Negm said that Egypt external debt remained within safety limits, with some developing countries having external debt of up to 80 per cent of GDP. The Ministry of Finance monthly report also showed that peer countries in the Middle East and North Africa had recorded an average of 25.5 per cent of GDP in debt during 2013. Radwan was confident of the government abilities in managing the reforms. So far they have done things wisely and gradually, he said, adding that the government needed to keep in mind the lessons from the previous Mubarak era and ensure that social justice was also taken into account. The IMF article IV mission to Egypt had been postponed for the past three years because of the difficult transitions that Egypt had been going through, Ahmed said, adding that the IMF had throughout that time been actively supporting Egypt through technical work particularly in the area of tax reform and the reform of the value-added tax system in particular. Compared to a year ago, the Egyptian economy is in a much stronger place, he said, adding that the economy had benefitted from decisions made by the government to contain the budget deficit by taking difficult decisions on raising energy prices and reallocating resources to other more productive uses. Ahmed also said that the Egyptian economy had benefitted from more confidence and financing coming in from neighbouring countries. That the explanation why you see the improvement in the growth rate in Egypt, he said. According to IMF projections, Egypt economy will grow at 3.5 per cent in 2015. A growth rate of 2.2 per cent was registered for fiscal year 2013/14. Ahmed added that although there had been an increase in inflation this year, which would possibly also happen next year, this was temporary and in the medium term inflation levels would begin to come back down, reflecting underlying trends rather than the one-off impact of increases in prices. The IMF had long encouraged fuel subsidy cuts, he said, and it had been the failure of successive governments to take action on these that had stood in the way of former requests for IMF funding. For its part, the government said that its reforms were homegrown, with Al-Ehwani saying in Washington that the reforms were inspired by the belief that the reforms were long overdue. The World Economic Outlook, an annual report issued by the IMF and released during the annual meetings, said that Egypt recent presidential elections and substantial GCC financing had restored confidence and stabilised growth. However, continued reforms and additional external financing are critical to securing macroeconomic stability, generating inclusive growth, and creating jobs, the report added.
