IMF: Egypt's reform program to revive growth prospects, restore confidence, stability in economy

International Monetary Fund (IMF) Managing Director Christine Lagarde said the economic reform program adopted by Egypt is meant to revive economy and restore stability and confidence in the economy.

In an IMF report on Egypt entitled "A Chance for Change", Lagrade said "the program is by the Egyptian government, for the Egyptian people, and to help the Egyptian economy.” The new reform program seeks to revive Egypt’s growth prospects by restoring stability and confidence in the economy, and implementing structural reforms that will create jobs.

Lagrade added that political instability, regional security issues, and the global economic slowdown have negatively affected the Egyptian economy, amplifying its long-standing structural problems.

She noted that this resulted into high government deficit and public debt. Weak revenue combined with poorly targeted subsidies and a growing public sector wage bill resulted in large deficits and high level of public debt.

The new reform program seeks to revive Egypt’s growth prospects by restoring stability and confidence in the economy, and implementing structural reforms that will create jobs.

Lagrade referred to the measures taken by Egypt as including maintaining a flexible exchange rate regime. This will help to improve Egypt’s external competitiveness, support exports and tourism, and attract foreign investment. This will also allow the Central Bank of Egypt to rebuild its international reserves. Monetary policy will focus on containing inflation and bringing it down to mid-single digits over the medium term.

The Egyptian program also included strengthening government revenues. The value-added tax (VAT), which was adopted in August 2016, will help strengthen budget revenues. To protect the most vulnerable segments of society, the new VAT includes exemptions for most staple foods consumed by the poor, she said.

Under the program, the government will implement energy subsidy reforms. The energy subsidies are not well-targeted and benefit mostly the non-poor. They also skew production toward energy-intensive industries and away from labor-intensive and job-creating enterprises. Reforming these schemes would free up resources that can be spent on priority areas such as health, education, research and development, and social protection, the IMF official said.

The Egyptian government also seeks strengthening social protection programs. About one percent of GDP from fiscal savings will be directed to additional food subsidies and cash transfers to the elderly and poor families. Resources for social programs such as school meals, subsidies for infant milk and children’s medicine, and vocational training for young people will also be preserved, and in the case of free school meals, greatly increased, Lagrade said .

Egypt also will work on boosting growth through wide-ranging structural reforms. Reforms to improve the business climate - such as streamlining industrial licensing, and facilitating access to finance for small and medium-sized enterprises - are also a key component of this program. These measures will boost job creation and help to address Egypt’s high unemployment, which is particularly acute for young people and women. Making more public nurseries available and improving the safety of public transportation will make it easier for Egyptian women to work outside the home.

With sound implementation of the program, growth could rebound to 6 percent by 2021—similar to the levels in 2005-2010. “The government’s reform program supported by the IMF aims to raise growth, make it easier for women and young people to find work, and protect the poor and other vulnerable groups,” said IMF Mission Chief for Egypt Chris Jarvis.

Egypt is a country with immense potential. It has a dynamic and young population, a large market size, a favorable geographic location, and access to important foreign markets, the report said.

The opening of the parallel Suez Canal, large investments in the energy sector, and the discovery of a major gas field also bode well for Egypt’s growth potential, the report concluded.