IMF pointers THE INTERNATIONAL Monetary Fund (IMF) has advised Egypt's Central Bank (CBE) to maintain a tight monetary policy to contain the effects of recent hikes in energy and fuel prices on the back of subsidy cuts. “The Central Bank of Egypt should maintain its restrictive stance to contain second-round effects of fuel and electricity price increases,” said David Lipton, first deputy managing director and acting chair of the IMF, in a press statement following the completion by the organisation's executive board of the third review of Egypt's programme. With this third review, Egypt should soon receive $2 billion from the fund. Once disbursed, Egypt will have received $8 billion of a total of $12 billion under a three-year Extended Fund Facility (EFF) with the IMF. The CBE's Monetary Policy Committee last Thursday maintained stable interest rates to counter the expected rise in inflation following last month's cuts in fuel subsides. In its review, the IMF commended the government's reforms. “Strong programme implementation and generally positive performance has been instrumental in achieving macroeconomic stabilisation, with external and fiscal deficits narrowing, inflation and unemployment declining, and growth accelerating. The near-term growth outlook is favourable, supported by a recovery in tourism and rising natural gas production, while the current account deficit is expected to remain below three per cent of GDP and the public debt ratio to decline markedly by 2023,” Lipton said. He added that the ongoing energy subsidy reforms were critical to support fiscal consolidation and encourage more efficient energy use as well as replace poorly targeted energy subsidies with programmes that support poorer households. However, Lipton stressed that “a more-inclusive private-sector led growth model is essential to absorb the significant increase in the labour force expected over the next five years.” He also pointed out that external risks have increased in recent months, with a shift to capital outflows as tightening global financial conditions have contributed to a pullback by investors from emerging markets. “The healthy level of foreign reserves and flexible exchange rates leaves Egypt well positioned to manage any acceleration in outflows, but this reinforces the importance of a sound macroeconomic framework and consistent policy implementation,” he said. Improved accounts EGYPT'S balance of payments achieved an overall surplus of $11 billion in the nine months from July 2017 to March 2018, according to a statement from the Central Bank of Egypt (CBE). This is attributed to an improvement in the current account on the back of improved services balance and net current transfers. The services surplus surged to $7.8 billion compared to $3.3 billion driven by improved tourism receipts of $5.5 billion. Suez Canal receipts also increased by 11.9 per cent to register $4.2 billion. Net current transfers grew by 23.2 per cent to $19.5 billion led mainly by the increase in workers' remittances. There was also a 1.3 per cent narrowing of the trade deficit to reach $28 billion on the back of improved merchandise exports. The latter increased by 17.6 per cent to $18.8 billion owing to the rise in oil exports by around 29 per cent to $6 billion due to the increase in the quantities of oil products exported and the rise in world prices of crude oil, the CBE statement said. Non-oil exports grew by 12.9 per cent to $12.8 billion. Exports of electrical appliances, phosphate fertilisers, and medicines saw the highest increase. However, merchandise imports also went up by 5.5 per cent to $46.8 billion on the back of the increase in oil imports by 10.2 per cent, to register $9.4 billion “influenced by the rise in world prices of oil products, despite the decline in the quantities imported,” according to the CBE. Non-oil imports increased by 4.4 per cent to $37.4 billion largely because of the increase in the import bills of intermediate goods required for production. Meanwhile, total foreign investment inflows into Egypt recorded $10.2 billion, while total outflows reached $4.2 billion. Accordingly, “net investment inflows to Egypt amounted to $6 billion, mainly due to the net investment of $3.4 billion in the oil sector,” the CBE said. Portfolio investment in Egypt almost doubled, registering a net inflow of $14.9 billion. This was largely ascribed to the rise in foreign investment in Egyptian treasury bills, recording net purchases of $11.5 billion, and to the $3.3 billion in bonds offered abroad by the government in January and March 2018.
