The IMF mission chief for Egypt, Chris Jarvis, has commended the country’s performance on its economic programme following the US$12 billion loan it approved last November, saying it is likely to receive the second tranche of the loan by late April.
In a video briefing aired on Wednesday, Jarvis said that the exchange rate liberalisation, the recently implemented value-added tax and the reduction of fuel subsidies were positive developments, adding that if the government sticks to the current programme it is likely to overcome the short-term challenges and achieve the success seen in Eastern Europe, Brazil, and Turkey.
The IMF also released documents containing the details of its staff agreement with Egypt, signed in November, on Wednesday. The documents include the IMF’s staff report, a Memorandum of Economic and Financial Policies and accompanying letter of intent written by Egypt’s Finance Minister Amr al-Garhy.
The document includes details of the reform programme, including the timetable for the implementation of economic policies by Egypt, which includes further increasing energy prices, a social spending package of at least LE25 Billion and a plan to restructure the oil sector drawn up by an independent consultant.
Jarvis emphasised the “homegrown” nature of the reform programme, saying it was drawn up by the Egyptian government according to its own preferences and circumstances. The mission head allayed fears about what he said was a lower-than-expected depreciation of the Egyptian pound following the exchange rate liberalisation in November, asserting that overshooting has occurred in other countries before and he expects the Egyptian Pound to appreciate if the reform programme stays on track.
The IMF wanted to ensure the most vulnerable members of society would be protected from the initial effects of the programme. These were cushioned, according to Jarvis, by budget increases in areas like food subsidies, and social programmes like the Takaful and Karama programmes, subsidies for transportation and children’s medicine, areas which may see further expenditure increases in the future. Jarvis said the IMF thinks about mitigating political risks resulting from the programmes, but assured that so far many risks identified by them have not materialised, such as a volatile and disruptive foreign exchange adjustment, or that the government suspends some of the reforms.
The approval came three months after Egypt and the IMF reached a staff-level agreement regarding the loan, following which the government implemented a series of economic reforms to meet the fund’s conditions. These included the devaluation of the local currency, the lifting of fuel subsidies in addition to aggregating $6 billion in bilateral loans, all of which Egypt has achieved since November.