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What comes after the IMF?
Published in Al-Ahram Weekly on 16 - 05 - 2019

Egypt is nearing completion of its agreement with the International Monetary Fund (IMF), while on Friday a staff team from the international financial institution completed their fifth and final review of Egypt's economic reform programme supported by the IMF's Extended Fund Facility (EFF) arrangement.
Once approved by the IMF's Executive Board, Egypt will receive around $2 billion, the final tranche of a $12 billion package signed in November 2016.
“Prudent monetary and fiscal policies and a flexible exchange rate have underpinned macroeconomic stabilisation and strengthened Egypt's resilience to external shocks, while social protection measures have helped ease the burden of adjustment on the population,” an IMF press release said at the end of the team's visit.
It added that the IMF welcomes “the authorities' focus on structural reforms, as they need to be deepened to facilitate inclusive growth and job creation for all.”
Meanwhile, the government has said it does not intend to sign another agreement with the IMF. In April, the governor of the Central Bank of Egypt (CBE) told the Middle East News Agency (MENA) that Cairo was not in need of a new loan programme with the international financial institution.
The government has said that it will continue to receive technical institution from the organisation, nonetheless.
“The authorities' efforts have been successful in achieving macroeconomic stabilisation, a recovery in growth, and an improvement in the business climate,” the IMF's mission chief in Egypt Subir Lall said in a press statement.
According to the statement, gross general government debt is expected to decline to about 85 per cent of GDP in 2018-19 from 103 per cent in 2016-17. It said that the international reserves had increased from $17 billion in June 2016 to $44 billion in March 2019.
“As a result, Egypt has become more resilient to the elevated uncertainty in the external environment,” Lall said.
Egypt's GDP also accelerated from 2.3 per cent in the summer of 2016 to 5.3 per cent in 2017-18, and unemployment declined from 12 per cent to below nine per cent.
With these indicators, “the economy seems to have stabilised,” one economist, who preferred to remain anonymous, told Al-Ahram Weekly, arguing that Egypt did not need a new agreement with the IMF though many structural reforms were still needed.
“The credibility of such reforms will be enhanced in a government-owned programme to signal commitments to the reforms and that there is the political will to press ahead with reforms not necessarily mandated by the IMF. The IMF may not have the expertise to follow through many of these reforms, and the public's perceptions and reception of them will be better without IMF involvement,” she added.
She refuted the argument that Egypt should go for another agreement with the IMF to ensure its commitment to reform and avoid policy slippage, saying that this would “undermine credibility in government-owned economic management and Egypt's capacity to stay the course of what is in its own best interest.”
Nonetheless, she said that the success of a country in following on with reforms after an IMF agreement was over “depends on the political will and ability to design the necessary reforms and get the public's buy-in to support the reforms.”
On a similar note, Zahabia Gupta, S&P Global's associate director of sovereign ratings, told investors she did not see the need for Egypt to return to the IMF for post-programme funding given its improved liquidity position, Enterprise, an online news service reported.
She said the situation in Egypt was “gradually improving”, citing the government's falling current account deficit, rising gas production, a recovery in tourism, and stabilising remittances.
According to the IMF press release, the current account deficit has narrowed from 5.6 per cent of GDP to 2.4 per cent. In 2018, approximately 11.3 million tourists visited Egypt, a huge improvement on the around five million in 2016. Remittances came in to around $26 billion, around 40 per cent higher than the year before.
But things are not all rosy, Gupta said, as the country's fiscal position remains weak and substantial debt-servicing costs present challenges.
Mohamed Abed, a professor of economics at Alexandria University, agreed that debt levels were worrying. He said that there was a need for growth at a much higher rate if Egypt's debt was to be put on a sustainable track. Debt-servicing alone now consumes around 40 per cent of government expenditure, he said.
Egypt's external debt stood at 36.8 per cent of GDP in June 2018 and is targeted to drop to 34 per cent by June 2019. Minister of Finance Mohamed Maait said that according to these numbers Egypt's external debt was starting to fall within the safe range of between 30 and 50 per cent of GDP.
Abed said that while efforts to improve macroeconomic indicators had so far succeeded, there needed to be more attention paid to the real economy. He lamented the performance of foreign direct investment (FDI), for example, saying that this had come to below $8 billion in 2017-18, less than the government target of $10 billion.
Moreover, he said, FDI continued to be concentrated in the petro-chemicals sector.
Abed called for a more export-oriented vision to achieve growth and job creation. The government should address obstacles to exports in each sector individually, he said, pointing to the example of Morocco, which had facilitated the entry of foreign direct investment to achieve that purpose.
Although Egyptian fruit and agricultural exports were making strides on international markets, this was not enough, he said. There was a need to export manufactured goods because these created more jobs, he added.
Another area with great potential is information and communications technology, and Abed said the Suez Canal Special Economic Zone could help develop local industries as well as attract foreign investors looking to export to Egypt's domestic market.
The government is well aware of such factors, however. In a recent interview with Enterprise, Minister of Investment Sahar Nasr said the government was “committed to policies that cater to value-added and technology-oriented sectors that contribute to both economic growth and job creation.”
The economist who spoke to the Weekly reiterated a similar point of view, pointing to the need for reform in areas such as education and the labour market and reforms to enhance the private sector and boost competitiveness and the ease of doing business.
These reforms must be orchestrated by the government, she said, adding that the IMF was not the right organisation to follow through on reforms needed to boost the private sector, increase jobs, reduce the cost of living, target more support for the vulnerable groups, and attract long-term investments based on competitive indicators and international reputation.
The only guarantees that all this could be achieved would be the government's accountability to the public through a medium-term plan that targeted growth and job creation and was based on solid indicators of competitiveness and improved rankings in international competitiveness and ease of doing business.
If the government did not commit to such a plan, Abed worried, Egypt might have to go back to rescheduling its debt with the Paris Club of international creditors.


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