The International Monetary Fund (IMF) has ensured that Egypt is complying with its commitments to economic policy made to obtain the second tranche of the $12 billion loan from the international body. The announcement of the delivery of the second instalment will take place at the end of February in Cairo, to coincide with the visit of the IMF board to the Egyptian capital. After six years of political instability that have kept tourists and investors at bay, the IMF has finally decided to grant Cairo the promised loan. The measure was approved in November 2016, with the delivery of the first tranche of $2.75 billion. Chris Jarvis, head of the IMF mission in Cairo, explained that ''although the economic indicators for December have not yet been published, the criteria for obtaining the second part of the loan are expected to have been met''. However, cuts in public spending and increased prices could involve risks to Egypt’s political stability, while reforms required in the oil and energy market are still far from realization
The IMF's demands
According to the IMF guidelines, the Egyptian authorities will eliminate the remaining limits on foreign currency transfers and deposits by the end of June and will restructure the oil industry. The two measures, including the depreciation of the Egyptian pound and the introduction of value added tax (VAT), have already been implemented. In relation to the first measures, which led to many protests in August 2016, the Egyptian pound has halved in value against the dollar. However, the IMF has called for further sacrifices from the Egyptian authorities: the end of subsidies in the energy industry, reforms of public enterprises and a structural review of the monetary policy. ''The return of macro-economic stability will allow Egypt to turn its back on the turmoil of the post-revolution period'', states the IMF report. Yet, the decline in dollar reserves has greatly affected imports, while public debt has been growing following the increase in subsidies and the decline in revenue from tax collections. Moreover, the Egyptian government has promised the IMF that it will maintain a flexible exchange rate with occasional interventions to prevent excessive volatility in the short term. It has also promised to cancel the $50,000 ceiling on imports in non-priority sectors by June, and the $100,000 ceiling for individual transfers. Instead of managing the exchange rate, the Central Bank of Egypt will have to take action on prices, while inflation rates could reach 19% this year, following the new monetary policies, cuts in subsidies and the introduction of VAT. The IMF plan provides that, in the long term, inflation rates will reach values below 7%, thanks to restrictive monetary policies.
Reforms to the oil industry
One of the main points put forward by the IMF is the demand for a reform of the oil industry and Egypt’s national oil company EGPC. The Egyptian government has promised to approve a plan in this regard by the end of March. The EGPC must also repay approximately $3.6 billion in arrears to international companies and try not to accumulate new debts. From a tax perspective, the Egyptian government has promised to eliminate gasoline and diesel subsidies by 2019 and to publish quarterly reports on inflation and monetary policies. The agreement with the IMF stipulates that the Egyptian authorities are to carry out long-term structural reforms, including bureaucratic simplification and incentives for private investments. Cust in public spending, planned in compliance with the IMF’s demands, could lead to significant political consequences. ''If the monetary policies do not limit inflation, there will be losses in monetary reserves. This is why structural reforms are required, although there is a risk that regional conflicts could intensify and domestic security conditions deteriorate'', added Jarvis. According to the IMF, the government’s measures should reduce public debt from 95% of the GDP to 78% by 2021. GDP growth is expected to remain stable at around 4%, with a 5-6% increase in the medium term. It is estimated that Egypt needs $35 billion to overcome the severe economic crisis, which began in 2008 and was one of the causes of the protests in 2011. China, the United Arab Emirates (UAE), Germany, Great Britain, France and Japan have all contributed to the loan. Saudi Arabia has instead cut the huge loans promised to Cairo. Therefore, the Egyptian authorities are focusing, on the one hand, on the promised Russian investments in the new Egyptian nuclear power plan of Dabaa, amounting to $25 billion, and, on the other hand, on a rapprochement with Iran, relations with which have stalled since Morsi’s presidency (2012-2013).
The IMF called for the reform of the oil sector and the Egyptian Oil&Gas national company EGPC. These measures should reduce public debt from 95% to 78% of GDP by 2021