What's next for Egypt after the conclusion of the IMF's loan package?

The extended fund facility supported wide-ranging reforms and addressed inconsistent policies that had resulted in fiscal imbalances, high inflation and public debt

nbsp;What's next for Egypt after the conclusion of the IMF's loan package?

On August 6 Egypt received the sixth and final tranche of a three-year, $12bn loan programme from the IMF, and the country is now set to build on its legacy.

The extended fund facility supported wide-ranging reforms and addressed inconsistent policies that had resulted in fiscal imbalances, high inflation and public debt. Another target was dwindling foreign exchange reserves, a result of the fixed exchange rate between the Egyptian pound and the dollar.

A key goal of the package was to make the economy more dynamic, sustainable, inclusive and, above all, private-sector driven. With these ends in mind, Egypt cut fuel subsidies, floated the currency and increased interest rates to limit associated inflation.

A number of macroeconomic indicators have improved since the start of the programme in 2016.

The country met the IMF’s fiscal target of a primary surplus of 2% of GDP for FY 2018/19, while foreign exchange reserves reached an all-time high of $44.4bn by the end of June. Additionally, unemployment decreased to 8.1% in the first quarter of this year, the lowest rate in 20 years.

Inflation has also fallen significantly, from a high of around 35% in 1986 to a four-year low of 8.7% in July 2019. Of all emerging markets, Egyptian bonds are providing investors with the highest returns this year, at 25.9%.

Uneven distribution

Despite these positive results, the loans’ successes were not evenly distributed among the population.

In a statement published in April, the World Bank noted that the programme “took a toll on the middle class, who face some higher costs of living as a result of the reforms”.

Average household income in 2018 stood at LE58,900 ($3550), down 20% compared to 2015 levels when adjusted for inflation. Meanwhile, government figures released in late June show that 32.5% of the population are living below the poverty line, compared to 27.8% in 2015.

However, both the IMF and Hala El Saeed, the minister of planning, monitoring and administrative reform, argue that poverty rates would have been higher had the social elements of the loan package not been implemented.

These include the cash transfer programme Takaful and Karama (“Solidarity and Dignity”), which was significantly expanded from 200,000 to 2.3m households under the reforms, benefitting around 10m people.

Reforms have also had an impact on consumer habits. “Initially, consumers became more conscious about spending, and moved away from discretionary purchases,” Mohamed Shelabya, CEO of PepsiCo Egypt, told OBG. “However, we are now beginning to see a reversal of this trend, and expect consumer spending to pick up gradually.”

Continued appetite for reform

Nevertheless, more remains to be done in terms of both fiscal and wider public policy. “The measures taken with regard to the financial sector as well as to the broader economy have had the very positive consequence of improving the macroeconomic picture, so now the priority will be to continue reforms at the sector level, as a foundation for future growth,” Tarek Fayed, chairman of Banque du Caire, told OBG.

In a statement released at the end of July, the IMF highlighted two priorities: “First, to cement the hard-won gains in stabilising the economy. And second, to accelerate reforms to unleash the economy’s potential, making the private sector the engine of growth.”

Mohamed Maait, the minister of finance, told international media in July that Egypt was seeking to reach a two-year, non-financial agreement with the IMF by October, to replace the previous loan.

Any subsequent programme would follow on from where the initial deal left off, Maait said. It would look to enhance growth and structural reforms, and emphasise human development.

As of late August, however, the IMF had not confirmed that negotiations for a new deal were taking place.

Implications for industry

Looking ahead, analysts predict the Egyptian pound will continue to strengthen against the dollar, increasing in value by 3.5% to reach LE16:$1 by the beginning of 2020. This would not only provide investors with greater returns, but also boost spending power in the energy and industrial sectors, both of which are heavily import-reliant.

Observers point to oil and gas discoveries in the eastern Mediterranean earlier in March and July as key to reducing the import burden for sectors such as the chemical and plastics industries.

Greater emphasis on industries that are not so reliant on imported materials should accelerate growth among various manufacturing segments, among them ready-made garments and food and beverage manufacturing.

Indeed, the government plans to increase manufacturing’s share of GDP from 17.1% in 2016 to 20% in 2020. “The banking sector is very stable and there is a lot of liquidity among Egyptian banks, which are ready to support the growth of companies, particularly those in industry and looking to export,” Fayed told OBG

About Oxford Business Group

Oxford Business Group is a global research and consultancy company with a presence in over 30 countries, from Africa, the Middle East and Asia to The Americas. A distinctive and respected provider of on-the-ground intelligence on many of the world’s fastest growing markets, OBG has offices in London, Berlin, Dubai and Istanbul, and a network of local bureaus across the countries in which we operate.

Through its range of products, OBG offers comprehensive and accurate analysis of macroeconomic and sectorial developments, including banking, capital markets, tourism, energy, transport, industry and ICT. OBG provides business intelligence to its subscribers through multiple platforms: Economic News and Views, OBG Business Barometer - CEO Survey, Roundtables and conferences, Global Platform - exclusive video interviews, The Report publications and its Consultancy division.

Click here to subscribe to Oxford Business Group’s latest content: http://www.oxfordbusinessgroup.com/country-reports 

© Press Release 2019

Disclaimer: The contents of this press release was provided from an external third party provider. This website is not responsible for, and does not control, such external content. This content is provided on an “as is” and “as available” basis and has not been edited in any way. Neither this website nor our affiliates guarantee the accuracy of or endorse the views or opinions expressed in this press release.

The press release is provided for informational purposes only. The content does not provide tax, legal or investment advice or opinion regarding the suitability, value or profitability of any particular security, portfolio or investment strategy. Neither this website nor our affiliates shall be liable for any errors or inaccuracies in the content, or for any actions taken by you in reliance thereon. You expressly agree that your use of the information within this article is at your sole risk.

To the fullest extent permitted by applicable law, this website, its parent company, its subsidiaries, its affiliates and the respective shareholders, directors, officers, employees, agents, advertisers, content providers and licensors will not be liable (jointly or severally) to you for any direct, indirect, consequential, special, incidental, punitive or exemplary damages, including without limitation, lost profits, lost savings and lost revenues, whether in negligence, tort, contract or any other theory of liability, even if the parties have been advised of the possibility or could have foreseen any such damages.

More From Press Releases