The
International Monetary Fund offered its support for Egypt on Wednesday,
lauding its latest policies to spur economic inclusive growth, create
jobs and restore stability. This is an important step forward for the
country’s economy, which is still recovering from four years of
instability that started during the protests against and ouster of Hosni
Mubarak in 2011.
“This is a very significant development,” Hafez Ghanem, a
senior fellow at the Brookings Institution’s Global Economy and
Development program, said. “This is the first IMF consultation with
Egypt since the Arab Spring, and therefore, it implies that Egypt is
normalizing its relations with the [IMF] and hence with the
international financial system.”
The instability of the past four years left many sectors,
including Egypt’s vital tourism industry, at a fraction of what they
once were. Foreign investors have lost interest, and low oil prices are
hurting its biggest lenders in the Gulf. Plus, an aggressive subsidy
program on everything from food to oil has been incredibly expensive for
the government.
Egyptian lawmakers have been taking steps to move forward.
For one thing, they have planned a substantial reform of the country’s
extensive subsidy program along with a tax increase and a series of cash
transfer systems. They’ve pledged to make investments easier by cutting
down on red tape and improving transparency.They are also planning a
high-level conference next month at the Sharm el-Sheikh resort on the
Red Sea, meant to attract more badly needed foreign investment.
All these strategies are good, but, as the IMF noted in its statement, “the starting point is difficult.” For one thing, the unemployment rate hit 13.4 percent last year.
“Egypt is vulnerable to many external risks, from lower
growth in its main trading partners to a fold-off in remittances or
external support due to lower oil prices,” Christopher Jarvis, IMF
mission chief for Egypt, told reporters on a conference call. “But the biggest risk is that the government falters in its resolve to tackle economic problems.”
According to Ghanem, the Egyptian government faces two
major challenges as it goes forward with drastic reforms meant to solve
its problems.
“The first challenge has to do with the quality of public
institutions and the level of corruption,” Ghanem said. “Changing
business regulations will not have an impact if civil servants do not
implement the new simplified rules.”
It ranks just 119 out of 144 countries on the World Economic Forum’s competitiveness index and 112 out of 189 on the World Bank’s doing business survey.
The second challenge, Ghanem said, is a political one.
“So far, the government has been benefiting from a
political honeymoon immediately following the presidential elections and
was therefore able to implement difficult reforms without public
protests,” Ghanem said. “It is not clear how long this honeymoon is
going to last.”
Raising taxes and reducing subsidies is far from a popular
move and will require a series of social projects such as cash transfers
to the poor to make the changes easier to swallow for people on the
ground.
Another important factor is low global oil prices, which is
a double-edged sword. On the one hand,
Egypt has been heavily
subsidizing its fuel for some time, and cheaper prices could save the
government money. However, the country has been receiving vast amounts
of aid money from Gulf economies, which, as exporters, are taking a hit
on the record-low prices.
Though there has been some discussion of an IMF loan to help boost Egypt’s economy, no party has confirmed anything.
“We don't have a request for a program at the moment, so I
don't want to speculate about what the contents might be of a program
that hasn't been requested,” Jarvis said, noting that the lender is
ready to support Egypt if asked.
Source: Ibtimes.com
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