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Wed 22 Jan 2020 08:28 AM

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New IMF programme still up in the air as Egypt primes its economy

The Egyptian government has won plaudits from international investors for enacting tough reforms, supported by a $12 billion IMF loan package

New IMF programme still up in the air as Egypt primes its economy

Egyptian minister of planning and economic development Hala El-Saeed.

Egypt expects its domestic reforms to spur private investment whether or not it agrees on a non-financial International Monetary Fund programme, a decision that will be made “soon,” Planning and Economic Development Minister Hala El-Saeed said.

“Now is the time for the private sector,” said El-Saeed in an interview in London late Monday, while at a U.K.-organized conference to boost investment in Africa. “The infrastructure and laws are there.”

The government has won plaudits from international investors for enacting tough reforms, supported by a $12 billion IMF loan package that concluded in November. The three-year programme focused on reviving the economy, and delivered the Middle East’s fastest growth that the fund forecasts will accelerate to 5.9% in 2020.

But the changes also entailed devaluing the currency, slashing subsidies and trimming spending. For regular Egyptians, that meant a surge in inflation that gutted incomes and stunted growth in the private sector, where business activity has contracted in all but two of the past 16 months, according to the Markit Egypt Purchasing Managers’ Index.

That’s in part because job-creating private companies have yet to thrive in an economy dominated by privileged state entities, in particular those belonging to the military. The IMF has said the public sector’s economic footprint should be reduced.

New programme?

Egypt has been considering signing up to a further, non-financial IMF programme to reassure investors it will stay the reform course. The same economic committee overseeing domestic plans will decide whether to involve the IMF, El-Saeed said.

The minister said no decision on any new IMF programme has been taken, but it will be “soon.” She declined to give a time frame.

The next phase of Egypt’s revamp will focus on capacity building and sustainable growth, mainly through empowering the private sector, according to officials and the IMF. Foreign direct investment already surged in the first quarter of the current fiscal year, rising 66% from a year earlier, thanks to greenfield inflows and capital spending in the oil industry.

Meanwhile, El-Saeed said she’s confident the government is doing enough on its own to begin attracting more investment.

‘Breakthrough for companies’

With some big ticket items, such as bankruptcy and public private partnership laws in place, more detailed sectoral reforms are in the works, including an automated customs system, she said. Infrastructure spending, neglected during the years of turmoil that followed 2011’s uprising, is also emerging, she said.

Another tool in the government’s kit is a new sovereign wealth fund, set up jointly with the United Arab Emirates, that will consolidate underused state-owned assets -- from land parcels to industry -- and make them more productive by attracting foreign and domestic private investors.

El-Saeed described the fund as “an accelerator” for shifting state-controlled property -- including that owned by Egypt’s powerful military -- under partial private control.

Challenged on why Egypt created a fund to do what in many countries is done without, the former economics professor said Egyptian bureaucracies lacked the expertise for developing such public-private partnerships.

Egypt has trumpeted reform before, with disappointing delivery. A continued focus on mega-projects, such as a new administrative city between Cairo and the Suez Canal, has sparked skepticism as to whether this time will end differently.

No trickledown effect

Gains have been slow to trickle down to its poorest. Authorities are being careful to ensure efforts don’t further batter them by tampering with safety nets like the ration cards system used by 75% of the population.

Government surveys suggest the proportion of Egyptians living below the poverty line of about $1.5 per day has increased to a third. According to El-Saeed, however, new numbers for 2018-2019 to be released this year will show improvement.

Egypt’s wider challenge hasn’t gone away. One reason poverty has risen steadily over decades in the country of around 100 million is that the largest families tend to be among the poorest.

“It’s a work in progress,” El-Saeed said.

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