FRA approves establishment of five new firms for investment fund management, SME financing    Sukari Gold Mine showcases successful public–private partnership: Minister of Petroleum    Egypt's Environment Minister attends AMCEN conference in Nairobi    Egypt considers launching national platform to mobilise green financing for private-sector industrial transformation    Egyptian, Belarusian officials discuss drug registration, market access    Egypt's ARC, Italy's AICS sign deal to boost wheat production    Gold prices edge higher on July 16th    Egypt stocks hit record highs in 2025 as reforms fuel rally: Cabinet    Egypt condemns Israeli strikes on Lebanon, Syria    Syria says it will defend its territory after Israeli strikes in Suwayda    Pakistan names Qatari royal as brand ambassador after 'Killer Mountain' climb    Health Ministry denies claims of meningitis-related deaths among siblings    Egypt's Health Min. discusses drug localisation with Sandoz    Egypt, Mexico explore joint action on environment, sustainability    Needle-spiking attacks in France prompt government warning, public fear    Foreign, housing ministers discuss Egypt's role in African development push    Korea Culture Week in Egypt to blend K-Pop with traditional arts    Egypt, France FMs review Gaza ceasefire efforts, reconstruction    CIB finances Giza Pyramids Sound and Light Show redevelopment with EGP 963m loan    Egypt's PM urges BRICS to prioritise peace    Greco-Roman tombs with hieroglyphic inscriptions discovered in Aswan    Egypt reveals heritage e-training portal    Three ancient rock-cut tombs discovered in Aswan    Sisi launches new support initiative for families of war, terrorism victims    Egypt's GAH, Spain's Konecta discuss digital health partnership    Egypt expands e-ticketing to 110 heritage sites, adds self-service kiosks at Saqqara    Egypt's Irrigation Minister urges scientific cooperation to tackle water scarcity    Palm Hills Squash Open debuts with 48 international stars, $250,000 prize pool    Egypt's Democratic Generation Party Evaluates 84 Candidates Ahead of Parliamentary Vote    On Sport to broadcast Pan Arab Golf Championship for Juniors and Ladies in Egypt    Golf Festival in Cairo to mark Arab Golf Federation's 50th anniversary    Germany among EU's priciest labour markets – official data    Cabinet approves establishment of national medical tourism council to boost healthcare sector    Egypt's PM follows up on Julius Nyerere dam project in Tanzania    Paris Olympic gold '24 medals hit record value    A minute of silence for Egyptian sports    Russia says it's in sync with US, China, Pakistan on Taliban    It's a bit frustrating to draw at home: Real Madrid keeper after Villarreal game    Shoukry reviews with Guterres Egypt's efforts to achieve SDGs, promote human rights    Sudan says countries must cooperate on vaccines    Johnson & Johnson: Second shot boosts antibodies and protection against COVID-19    Egypt to tax bloggers, YouTubers    Egypt's FM asserts importance of stability in Libya, holding elections as scheduled    We mustn't lose touch: Muller after Bayern win in Bundesliga    Egypt records 36 new deaths from Covid-19, highest since mid June    Egypt sells $3 bln US-dollar dominated eurobonds    Gamal Hanafy's ceramic exhibition at Gezira Arts Centre is a must go    Italian Institute Director Davide Scalmani presents activities of the Cairo Institute for ITALIANA.IT platform    







Thank you for reporting!
This image will be automatically disabled when it gets reported by several people.



IMF diagnosis
Published in Al-Ahram Weekly on 27 - 01 - 2011

Rising prices and unemployment are what regional economies, including Egypt, need to worry most about, International Monetary Fund (IMF) experts say, Niveen Wahish reports
"New developments in the region and the global economy will pressure the fiscal accounts," is how Ratna Sahay, deputy director of IMF's Middle East and Central Asia Department, summarised one of the main challenges facing oil importing regional economies, including Egypt.
These developments include the fact that oil and food prices have gone up dramatically. Sahay showed that the IMF Food Price Index rose by 30 per cent in the last two quarters of last year. Grain alone went up by 60 per cent on the Index, while oil prices have already surpassed IMF forecasts of $78 per barrel and are trading around $90 per barrel.
According to Sahay, these rising prices, coupled with regional social tensions in Tunisia and across the Arab world, will mean that spending on subsidies and social welfare will expand.
The problem is augmented by the fact that price shocks eventually feed into inflation. "Average inflation will go by one to two per cent in the region," she said pointing out that food prices alone rose by 16 per cent at the end of last year.
Sahay was addressing a seminar organised by the Egyptian Centre for Economic Studies. She was in Egypt as part of the IMF mission for the annual consultations prior to issuing the Article IV report.
The rising prices represent a "dilemma" for monetary policy, as Sahay put it. "If there are supply shocks and inflation goes up, the monetary policy should accommodate those shocks and should not be tightened." Then again, she said that "if monetary policy is not tightened inflation will be part of expectations and will seep through to all prices. Tightening monetary policy takes place by raising short-term interest rates which increases the cost of borrowing."
To tackle this dilemma, Alan MacArthur, IMF mission chief for Egypt, also speaking during the seminar, stressed the benefit of providing a clear anchor of inflation to help guide inflation expectations. "Inflation above 10 per cent has been shown to have an effect on growth," he said, "because it creates uncertainty for investors, it makes it more expensive to export and cheaper to import, and it has an impact on the poor because it means higher food prices affecting the poor where it hurts most."
Likewise, reducing the deficit is a key signal for investors. MacArthur suggested the government can help reduce deficit by working on increasing its tax revenues. Compared to other countries, Egypt tax revenues are low and there is scope for increasing revenue generation, he said. That can be achieved, he added, as the government implements its plans to convert the sales tax to a value added tax.
Additionally, the government can narrow the budget deficit by reducing expenditures and tackling spending inefficiencies. Fuel subsidies take up a quarter of all spending, representing six per cent of GDP. Reducing fuel subsidies, MacArthur said, will provide space for additional targeted support for the poor.
But reducing subsidies may be difficult in light of the escalating prices. In fact, additional subsidies may be needed. Sahay accepted such additional spending "as long as it is a temporary measure" to ease stress felt by most vulnerable until reforms bear results. "In the meantime, [policy-makers] should work towards a more permanent solution."
Another major challenge, according to Sahay, is that of job creation. She said that in 2008, 2.3 million jobs were needed. And new entrants into the job market between 2008 and 2020 will need an additional 7.1 million new jobs. "Seven per cent growth is needed to provide for the existing unemployment, but 10 per cent is needed to meet new unemployment needs," she pointed out. Currently IMF growth prospects are 5.8 per cent for the current year and six per cent next year.
With this in mind, she said that Egypt should focus on growth that is labour intensive in sectors such as services, construction and small and medium enterprises. Egypt can do it provided it takes the right measures addressing the skills mismatch through education and training. It also needs to deal with the labour market rigidities. She said that, for example, it is more costly for a firm to let go of an employee in Egypt than elsewhere since firms have to pay 132 weeks of salary compared to 53 weeks in other oil importing countries.


Clic here to read the story from its source.