Will KSA & UAE’s support obviate Egypt’s need to resort to IMF?

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Economic experts: International Monetary Fund’s loans are not the most ideal solution, but the last resort to cover our financing needs

Egypt needs to secure plenty of dollar cash which is hard to do from one source

By Mahmoud Fouda


More and more signs show everyday indicating that Egypt will most likely borrow from IMF in an attempt to fix the $30bn financing gap over 3 years. But, the latest visits by Arab kings and Western presidents to Egypt raised expectations over the investments they intend to channel into Egypt, as well as pledges to give financial support to sustain foreign currency reserves. This has sparked questions over the possibility of the Egyptian government giving up a decision to borrow from IMF once it receives the promised support.

Cairo hopes that these visits will result into pumping dollar funds into Central Bank of Egypt (CBE) in the form of deposits or investments in its debt instruments, like KSA and UAE. This would contribute to overcoming the shortage-in-dollar crisis and subsequent intensified speculations which pushed its exchange value up to 12 Egyptian pounds in black market.

The CBE’s decisions last March to devalue pound is considered the latest indicator of the government’s willingness to resort to IMF. The fund, on its part, praised the bank adopting more flexible policies and reforming the subsidy system back in 2014 which is still ongoing. Indeed, the strongest of them is planning to impose VAT which the fund have always called on Egypt to do to increase tax revenues.

It is expected that the promised Arab funds will play a great role in suspending the decision to borrow from IMF, especially since it is faced with some challenges. On top of these is the House of Representatives’ approval, which is predicted to be ruthless since IMF loans are usually linked with applying with austerity measures.

Another economist emphasized that the government is working in parallel at all aspects that contribute to overcoming the $30bn gap in funding resources within 3 years. He said that the choice of getting a loan from IMF is still in mind, without any confirmation that it is expected on the short-term. KSA and other Arab states’ pledges of providing financial support does not necessarily replace considering other choices, including IMF loans.

“The whole image is not yet clear and all options complete one another.”

Whatever is best for public interest will be adopted”, said an economist. The government will most probably apply for a loan, recommending that negotiations with IMF should not be limited to the loan only, but should discuss all financial needs. Egypt can cooperate with the fund to provide technical support on how to apply financial reforms or get the fund’s trust certificate after negotiating the fourth article. On the other hand, Hany Gneina, head of stock department at Beltone Financial, believes that Arab pledged deposits and investments will obviate the option of getting loans. Borrowing from IMF is not the perfect solution, but the last card the government will play to secure funds, for social and political reasons.

The government’s commitment toward carrying on financial and monetary reforms- which the fund has always recommended- without agreeing on credit programme is a proof of its willingness to achieve real progress on its own terms and without restrictions from any entity that may not suit the circumstances in Egypt.

Gneina assured that all reforms are unconditioned proactive actions that is supposed to boost its chances to get funding from IMF, if Egypt wanted it.

Hany Tawfiq, Head of Egyptian Association for Direct Investments, expressed a viewpoint similar to that of the government, specifically working on all channels through which it could secure foreign currency. He stressed out the need to allocate Arab funds to exports, investment and operations to generate revenues, in order for us to be able to repay these funds and their interests on due date.


 

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