- IMF’s Christine Lagarde says the fund is already talking with Egyptian officials about its economic outlook and value-added tax policy.
- Reuters
The International Monetary Fund may soon take a thorough look at Egypt’s economy for the first time since its revolution in 2011, potentially paving the way for greater cooperation on President Abdel Fattah Al Sisi’s reform agenda and renewing talks about long-delayed IMF financing.
The IMF is already talking with Egyptian officials about its economic outlook and value-added tax policy, the fund’s Managing Director Christine Lagarde said in a recent interview with Asharq Al-Awsat.
Egypt’s government prepared a draft law to overhaul its tax system early this year in order to bring in badly needed revenues, but it has yet to be put into place.
The IMF also hopes to resume more important comprehensive annual reviews of Egypt’s economy “in the foreseeable future,” Ms. Lagarde said.
The IMF suspended the reviews – a cornerstone of its policy consultations with member states – in 2011 when a revolution unseated president Hosni Mubarak. While continuous political upheaval has prevented a resumption since then, the election last year of Mr. Sisi, a former army chief, may lay the foundations for closer economic surveillance by the IMF.
Mr. Sisi has already put in place economic reforms the IMF and other advisors have long argued for by rolling back fuel subsidies, raising prices for petrol and natural gas by over 70%. This was a major political risk because it dramatically increased living costs for the poor, but the changes went into effect without causing serious unrest.
Lifting subsidies was “a good start toward restoring fiscal sustainability,” Ms. Lagarde said, though the poor needed to be protected.
“Looking ahead, a plan for continued subsidy reform with measures to protect the poor, as well as policies to accelerate growth and job creation will also be needed,” she said.
Egypt’s economic ills are many. The country’s currency is unstable, economic growth has suffered amid political change, and foreign investment has yet to return aside from large grants from Gulf Arab countries supportive of Mr. Sisi’s government.
Government revenues have been hit by Egypt’s lax tax regime, while subsidies have eaten up over a fifth of government spending, leading to persistent deficits that have prevented Egypt from investing in domestic infrastructure and hampered its ability to secure external financing.
In the absence of conventional financing avenues, Egypt recently turned to its own population to raise $8.5 billion to upgrade the Suez Canal. The government bond sale was a success, and Ms. Lagarde said the project was a good one as long as it helped raise government revenues.
Egypt hasn’t yet asked the IMF for a loan, Ms. Lagarde said, but the government invited the fund to a donors’ conference planned for February. Successive Egyptian governments have been in talks with the IMF to secure large financing packages to support economic reform, but none has so far materialized.
“The energy subsidy cuts are important for many reasons: they will free public resources for investment in priority sectors such as infrastructure, education, and health, which will support growth and jobs,” Ms. Lagarde told Asharq Al-Awsat. “The lower deficit will free resources for private sector investment, also key to growth. By the same token, higher energy prices will encourage energy conservation and reduce blackouts and shortages.”
The IMF projects Egypt’s GDP will grow by 2.3% this year, followed by 4.1% next year. Consumer price inflation, however, is expected to be in the double digits.
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(via WSJ Blogs)
