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Another loan from the IMF may not necessarily solve Egypt’s recurrent economic ordeals as long as the government’s commitment to introduce liberal structural reforms remains ambivalent, Oxford Economics said on Thursday.
“Too often we have seen a pickup in enthusiasm towards the reform agenda in the run-up to IMF deals, followed by a loss in momentum thereafter,” read a briefing released by the London-based economic research institution. “If the Egyptian authorities really want to solve their economic woes, they need to remain committed to the reform agenda, regardless of whether an IMF deal is in the picture or not.”
The six-page briefing also noted that an IMF loan, might enhance Egypt’s external position, but would not suffice to cover Egypt’s external financing shortfall, estimated around $40 billion. Th report cited media sources suggesting that the loan will range between $3billion and $6 billion.
The Oxford Economics report came less than a week after an IMF spokesperson said that the agency and the Egyptian authorities were close to reaching a staff-level agreement very soon.
He added that both parties had made "substantial progress on all policies" including, most importantly, fiscal consolidation in a way that can safeguard public debt sustainability and ensure a steady decline of the debt-to-GDP ratio over the medium term, currency flexibility, reducing the role of the state in the economy, and enhancing the private sector.
“These reform areas are not new and have been a key feature of the previous deals signed with the IMF since 2016,” read the briefing. “Progress has been made in some of these areas, but it has been very slow in others.”
On foreign exchange flexibility, Oxford Economics remains weary that Egyptian authorities might initially embark on a sharp devaluation to accommodate the IMF demands before shifting back to currency intervention as they did in the wake of the 2016 IMF assistance program.
“Too often we have seen these reforms fall off the radar during the good times − when portfolio inflows are soaring, and FX reserves are surging,” the report said. “Now, times are tough, not only for the Egyptians but for the rest of the globe as well, meaning that Egyptian authorities have lost bargaining power and the stakes are higher.”
The report recommended “a slow but planned shift” towards currency flexibility in order to mitigate the social impact of the ensuing inflation.
On the privatization of state-owned enterprises (SOEs), the report said there was still much to be done, especially that the state and the military still have considerable control over the economy. In the meantime, the report raised concerns over privatization deals where the government selects investors and closes transactions through private negotiations. “This raises issues around transparency, and whether the SOEs are being sold to the most efficient private sector buyer,” the report said.
(Reporting by Noha El Hennawy; editing by Seban Scaria)
