The International Monetary Fund managing director Kristalina Georgieva has emphasised the importance of continuing with the agreed-upon reforms in Egypt, despite acknowledging the challenges that the fund's programme has posed for the country.
During a visit to Cairo on Sunday, the IMF chief held a joint press conference at Egypt’s new administrative capital with Egyptian Prime Minister Mostafa Madbouly. Ms Georgieva praised the Egyptian government’s adherence to the reform programme and urged leadership and people to stay the course despite worsening regional conflicts and high inflation.
“Reforms are not easy. I would like to recognise the efforts of the government and recognise the Egyptian people,” Ms Georgieva said, “My message to you is I have full confidence that you will see the benefits of this reform programme in a more dynamic, more prosperous Egyptian economy. We are in the new capital, which shows what can be done with determination.”
Ms Georgieva met with President Abdel Fattah El Sisi before her address alongside Mr Madbouly, according to a statement from the presidency’s spokesman which underscored Mr El Sisi's insistence to Ms Georgieva that the “state’s priority is reducing the burdens on the Egyptian people through combating inflation and rising prices”.
The IMF chief’s visit marks the start of Egypt’s fourth review by the fund, which is expected to launch on Tuesday, according to a speech made by Mr Madbouly on Sunday.
A great deal of speculation had surrounded Ms Georgieva’s visit to Cairo, especially after an October 20 speech by Mr El Sisi during which he directed the government to review its programme with the fund if its conditions were too much for the people to bear.
Mr Madbouly then said on October 23 that the government would be opening discussions into amending the reform programme during the fund’s visit for the fourth review this month.
Discussions are expected to be held between the IMF delegation and the relevant Egyptian authorities over the next two weeks, Ms Georgieva said.
She, however, made no mention that any of the meetings would be addressing any changes to the conditions of the programme.
“It would seem that Ms Georgieva is quite reluctant to make any changes to the loan programme and this will simply mean there will be an extra burden on the Egyptian people. And Mr El Sisi knows this. He knows that some of these reforms are a social threat,” Dr Alia El Mahdi, professor of economics, and former dean of the faculty of economics and political science, Cairo University, told The National.
“I would have imagined that she would have agreed to relax some of the subsidy cuts on electricity and fuel. After four hikes this year on fuel, any further increases are unadvisable for the political and social stability of the country. It is baffling that Mr Georgieva is not taking this into consideration.”
The Egyptian government issued a request to the fund after Mr El Sisi’s speech, asking for an extension on repayment and subsidy cut deadlines mandated by the fund under the programme among other things, according to Dr Kareem Al Omda, a professor of economics at several Egyptian universities.
“The IMF quickly took a firm stance and said it would not be open to reviewing any of the reforms which are actually impacting people’s lives such as subsidy cuts, energy prices and the free-floating currency,” Dr Al Omda told The National.
“Georgieva’s visit should be viewed as a firming up of its stance on the crucial parts of the fund's reform programme. The fund has often had to take such firm stances with the government in the absence of more effective civilian oversight.”
Areas of reform on which the fund was more amenable to allowing extensions, according to Dr Al Omda, were the reduction of the state and military’s dominant role in the economy, the increase of private sector participation and increased financial transparency.
The government’s latest appeal to the IMF for easing the loan conditions pointed to the negative effects of regional conflicts happening on Egypt’s borders, including Israel’s war in Gaza and the civil war in Sudan as extenuating circumstances that necessitate more leniency.
A 70-per-cent drop in Suez Canal revenue as a result of Houthi attacks on Red Sea shipping was cited by Mr El Sisi and Mr Madbouly.
Ms Georgieva said she appreciated the strains put on Egypt because of the revenue losses, however, she did not recognise them as significant enough challenges that may warrant a change in the fund’s mandated reforms.
“The fact that the government was appealing to the fund using the war in Gaza as grounds for a policy shift was also shaky in many expert opinions. After all, the IMF programme was finalised in March when the war in Gaza was entering its sixth month and its effects on the Suez Canal had made themselves abundantly clear. If the fund did not put the war in mind then, it’s unlikely that it will do so now.”
Ms Georgieva during her address underscored several economic markers that she said suggested that the economy is on its way towards recovery.
These included a general downwards trend towards inflation, which peaked at 37 per cent in September last year, the government’s rising foreign currency reserves and the shift from an in-kind subsidy system to a cash-based alternative.
On Saturday, Fitch Ratings upgraded Egypt's long-term foreign-currency Issuer Default Rating (IDR) from 'B-' to 'B' with a stable outlook, citing an increase in international reserves and a recovery in the net foreign asset position.
The upgrade comes as Egypt's foreign exchange reserves have risen to $44.5 billion, according to Egypt's State Information Service, an increase that was driven by a $24 billion influx of new foreign currency from the Ras El-Hekma deal and an estimated $17 billion increase in non-resident holdings of domestic debt.
During its annual meetings in Washington, which wrapped up last Sunday, the fund introduced a round of reforms which reduced borrowing costs for members by about $1.2 billion annually and reduced payments on the margin of charges and surcharges on average by 36 per cent.
For Egypt, this translates into an $800 million discount on surcharges spread out over the next six years, Dr Al Omda said.
“The only thing that is for certain is that Egypt will pay $800 million less than it had originally intended to after the IMF amended its surcharge policy during its annual meetings in Washington a couple of weeks ago,” he added.
“Anything else mentioned in the public statements by either side should be taken with a grain of salt until they become actual policy. Egypt has thus far followed the reforms strictly and there’s no reason to assume that will change.”
Egypt’s annual urban inflation rate increased to 26.4 per cent in September, remaining very close to what it was in August when it ended a five-month deceleration streak.
The rate rose after August after a series of subsidy cuts which included sizeable increases to electricity prices, up to 50 per cent for some segments, and a fuel subsidy cut in October which included a 17.3 per cent increase on diesel. The fuel price rise was the fourth to be introduced since the start of this year.
The view among experts is that prices will continue to increase over the coming months and that further fuel rises are expected for the first quarter of next year, according to Dr Al Omda.
