Egypt's 4th econmic review for next IMF-loan tranche scheduled for 19 Dec. not ready

We lack information on fuel price indexation mechanism, says EFG Hermes' research department

The International Monetary Fund (IMF) has previously announced that its executive board has scheduled Egypt's fourth economic review for the approval of Egypt's loan tranche worth $2bn for 12-19 December, however, the discussion was removed from the board's online calendar. Many economic experts considered this change normal due to frequent updates of the board's busy agenda.
The Director of Communications Department at the IMF, Gerry Rice, said at a press conference last Thursday that the IMF is still discussing some details with the Egyptian authorities before presenting the review to the board for final approval of the next loan tranche.
"There was a technical problem with our calendar. I apologize for that. We are still finalising some details with the Egyptian authorities as to when exactly that review will go forward to the board. But we will communicate the exact date in due course, and we will endeavour to get that right," said Rice.
Before the IMF board's approval, the fund and the Egyptian authorities usually agree on certain future economic measures and asses the previously agreed procedures, which are always discussed during the IMF-staff visit as well, but all the details will be revealed in the staff report following the board's approval.
The latest staff report mentioned that the authorities will implement an automatic fuel price indexation mechanism for most fuel products by the end of December 2018, adding that the mechanism will adjust fuel prices to changes in global oil prices, the exchange rate, and the share of imported fuel in domestic consumption.
The mechanism is designed to maintain the cost-recovery ratios for fuel products and safeguard the budget from unexpected changes in the exchange rate and global oil prices, mentioned the report.
"We lack information about implementing the agreed automatic fuel price indexation mechanism. The authorities have not revealed anything about activating it or how it will be implemented," Mohamed Abo–Basha, MENA economist at EFG Hermes' research department, told Daily News Egypt.
However, the Egyptian authorities announced in the latest IMF-staff report that they will also launch a communication campaign to familiarise the population with the fuel indexation mechanism and process, adding, "Since the adjustment formula includes a smoothing mechanism to prevent sharp moves in fuel prices in the event of major changes in the oil price or the exchange rate, and may therefore occasionally cause temporary re-emergence of subsidies, we will be prepared to take necessary fiscal measures to achieve the primary balance target."
Abo-Basha added that the Egyptian authorities were very committed to implementing the agreed measures with the IMF regarding lifting fuel subsidy, noting that the next six months will be critical due to the governmental plans for fully liberalising fuel prices by June 2019.
"We will consider introducing indexation for Gasoline 95 earlier than this date (end-December) depending on developments in international oil markets. Meanwhile, we will continue to publish quarterly information on the evolution of unit costs and subsidies of fuel products and the impact on the overall subsidy bill in the budget," commented the Egyptian authorities on the report.
Daily News Egypt tried to contact any of the ministry of finance's officials, but they denied commenting about the issue.
Following the latest IMF-staff report, Egypt announced it will establish a transparency and public participation unit within the ministry of finance by the end of December 2018, aiming at improving transparency of public finances.
The Central Bank of Egypt's (CBE) foreign exchange deposits at foreign branches of the Egyptian banks are planned not to exceed $1.5bn by the end of December, before it will be eliminated by mid-June, aiming at improving foreign exchange reserve management.
The authorities will publish a report on all state-owned enterprises defined as enterprises, where the state has a significant control through full, majority, or significant minority ownership by 31 December, aiming at improving transparency and accountability of public enterprises.
The Egyptian authorities will finalise the reform plan for industrial land allocation by mid-December, said the report, adding that new guidelines for industrial land allocation will be published and approved by ministerial decree by the end of March 2019.
"We will establish a Transparency and Public Participation Unit within the Ministry of Finance by December 2018 and will create a citizen follow-up mechanism and an online platform to strengthen accountability," acknowledged that report, noting that partnership protocols will be signed with various public and private entities to build public awareness and monitoring.