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Egypt's economy on right track, fuel subsidy reform advancing: IMF fourth review Authorities to reform its pension system by end of June, new tax regime for SMEs to be approved by parliament
The economic programme is broadly on track, according to the staff report of the International Monetary Fund (IMF)'s fourth review of the Egyptian economy released on Saturday, affirming that the authorities' structural reform agenda aims to support inclusive growth by addressing long-standing constraints to private sector development. The authorities are committed toward reaching full cost recovery by the end of 2018/19 for all fuel products on 15 June 2019, except for Liquefied petroleum gas (LPG) and fuel oil used in bakeries and for electricity generation. The country's future reforms include measures to improve the competition policy, public procurement, management of the state-owned enterprises (SOEs), and land allocation. Sustained implementation of these reforms is essential to reduce opportunities for rent seeking and to support strong and inclusive medium-term growth and job creation, the report asserted. The continued strengthening of tourism and construction, and rising production of natural gas are projected to raise the GDP growth to 5.5% in fiscal year (FY) 2018/19. Egyptian authorities emphasised that strengthening social protection has been the authorities' priority since the start of the reform programme in November 2016, affirming that they are working on developing a comprehensive reform plan for social insurance funds and the pension system by the end of the current fiscal year (FY), based on recent presidential directions. "We intend to seek support of key international financial institutions in that regard," the authorities mentioned over the International Monetary Fund (IMF) staff report for the fourth review on Saturday, asserting that a comprehensive reform programme aims to improve the welfare of all Egyptians by creating a supportive environment for private sector development, inclusive growth, and job creation. Since product subsidies are inefficient, costly, and inequitable, the authorities have been gradually expanding better-targeted social programmes, the report noted, explaining that programmes include the ‘Takafol' and ‘Karama' cash transfer programmes to the poorest households, the coverage of which has been expanded to more than 10 million people. Social programmes also include ‘Forss' programme that helps create job opportunities; ‘Mastoura', which helps with microcredit for women; and ‘Sakan Karim' a programme that promotes access to clean drinking water and sanitation. At the same time, to create fiscal space for the needed spending in health, education, infrastructure, and social protection, they are implementing a medium-term revenue strategy, which aims to strengthen and modernise revenue mobilisation with technical support from the IMF. The social insurance fund (SIF) will benefit from a comprehensive reform to ensure its long-term financial sustainability and preserve its ability to pay adequate and equitable pensions to retirees. "We are implementing and will continue to implement sound policies to further entrench macroeconomic stabilisation by implementing durable reforms and creating additional fiscal space for investment in human development that benefits the middle class and in infrastructure to improve public services and crowd in private investments, while placing our debt on a declining path," the authorities noted over the report. Furthermore, subsidised lending by the Central Bank of Egypt (CBE) for SMEs and social housing programmes will be gradually phased out once the systemwide cumulative flow limits are exhausted, the report mentioned. "In addition to improving access to finance SMEs, we will support the development of microfinance institutions," Egyptian authorities asserted over the report. The authorities are working on a modern and effective tax regime for SMEs, to support SMEs and entrepreneurship and encourage the formalisation of the private sector, said the report, explaining that small taxpayers would pay a reduced flat tax rate on annual recorded turnover levels. The new legislation is expected to be approved by parliament before the end of 2018/2019, noted the report.
