Following the International Monetary Fund’s (IMF) visit in February 2017 to Egypt, Director Christine Lagarde reported on Egypt’s progress in obtaining the second tranche of the IMF loan amounting to $12 billion. In November 2016, the IMF gave the green light to the first instalment of the loan to Egypt, confirming the demand for a series of economic austerity measures: a cut in public spending and the depreciation of the Egyptian pound. Provided that the deadline for the subsequent financing tranches are met, the IMF will examine the status of the Egyptian economy until June 2017.
''The Egyptian pound, following a depreciation cycle, is slightly rising. This may be a sign that the temporary phase is ending'', claimed Lagarde. The Director of the IMF also praised the governments of the Gulf Cooperation Council countries for their efforts in stabilizing their balance sheets after months of low oil prices. According to Lagarde, after Egypt, other Gulf countries have expressed their intention to introduce a value-added tax (VAT) in the coming months. In many rentier states, due to large profits for the sale of oil, tax levels are very low. ''There is a willingness on the part of the leaders of these countries to diversify sources of growth in order to have more control over their tax situation'', continued Lagarde.
The reform of the oil sector
Lagarde: The #liraegiziana, after a write-down cycle is going up slightly. This may be a sign that the transition phase is ending
The board's first priority on the reforms in Egypt is the restructuring of the national oil company, Egyptian General Petroleum Corporation (EGPC). Four multinationals have been engaged by the Egyptian Ministry of Petroleum to proceed with reforming the sector. These are, namely, McKinsey & Company, Ernst & Young, Navigant Consulting and PricewaterhouseCoopers. The four multinationals will submit their action plans by mid-March. Included in the reform are the oil market subsidies system, a reform of the management operating system and the management development strategy. The World Bank will fund the initiatives proposed by the winning bidder, among the most competitive projects for reforming the Egyptian oil sector.
The International Monetary Fund considers the reform of subsidies in the energy industry as an essential point to proceed with the promised loan of $12 billion. The Egyptian authorities have ensured their intention to remove all petrol subsidies by 2019. These measures are expected to reduce the debt/GDP ratio from 95% in 2016 to 78% in 2021.
Specifically, Italian and British oil companies Eni and British Petroleum (BP), respectively, in the coming years, will increase investments in this country. The initial investment, announced for the first five years, will amount to $10 billion. The Egyptian Ministry of Petroleum’s plan is to increase gas production by 50% by 2018. The Egyptian Ministry has also reported new investments in the energy industry and its intention to repay Egypt’s debt in the industry, amounting to $3.6 billion.
Good signs for the agricultural sector
Egypt’s agricultural sector is also showing signs of recovery after years of recession. Specifically, exports of Egyptian cotton grew by 63.9% in the first quarter of 2016/2017. According to the Central Agency for Public Mobility and Statistics (CAPMAS), the increase is linked to the higher availability of cotton recorded last year. According to Reuters, however, the increase in Egyptian cotton exports is a direct result of the devaluation of the Egyptian pound. These encouraging figures came after the accusations made by the Egypt Cotton Association, according to which 90% of last year’s production was not genuine.
Good signs were also recorded in bilateral relations between Egyptian authorities and the Trump administration. A delegation of the Congress, led by Dana Rohrabacher, Juan Vargas, Luis Correa and Andy Harris, visited Cairo. Egyptian President Abdel Fattah al-Sisi praised President Donald Trump’s recent decisions regarding terrorism and immigration. Specifically, the Egyptian authorities would positively welcome any definition by the U.S. authorities of the Muslim Brotherhood as a terrorist organization. The Trump administration said it was ready to cancel the measure adopted by former president Obama on cutting payments for U.S. military aid in Egypt. This could bring U.S. aid to Cairo back to the same levels as before 2009, after the cuts imposed by Obama following the coup in 2013. Finally, al-Sisi’s visit to Washington scheduled for next month will be the first visit made by an Egyptian president to the United States since the Mubarak era.
After years of stagnation, the Egyptian economy is showing signs of recovery, especially in the oil sector and in cotton exports. The next instalments of the loan from the IMF will be confirmed following the austerity measures, decided by the Egyptian authorities. These cuts could, however, increase social conflict following years of severe economic crisis. Specifically, subsidy cuts in the energy industry must be carefully balanced with the more general reform of the national oil market.
The Egyptian Oil Ministry wants to increase the gas production by 50% by 2018, continue to invest in energy and repay the Egyptian debt in the sector amounted to 3.6 billion dollars