Cairo is seen during a sandstorm, in this general view taken on Feb. 11, 2015. (Reuters Photo/Asmaa Waguih)

IMF Says Egypt’s Reforms Starting to Spur Turnaround in Economy


FEBRUARY 11, 2015

Cairo. The International Monetary Fund said on Wednesday that Egypt’s structural and monetary reforms were starting to produce a turnaround in the economy, which has been hit by persistent turmoil since 2011.

The uprising that toppled Hosni Mubarak four years ago hit the economy hard, discouraging investors and tourists and slashing growth to below 2 percent in 2010-11.

However, Egypt has received billions of dollars in aid from Gulf states since ex-army chief Abdul Fattah el-Sisi ousted president Mohamed Morsi of the Muslim Brotherhood in July 2013 after mass protests against his rule.

The aid has kept the economy afloat as the government introduces reforms, seeking to restore growth while controlling inflation and curbing its budget deficit.

“The measures implemented so far, along with some recovery in confidence, are starting to produce a turnaround,” said the IMF in a press release at the conclusion of Article IV consultations, where IMF experts assess a country’s financial and economic state.

Egypt has not held such consultations since March 2010, according to the IMF, but the government had asked for them in the hopes that a positive report would boost its image ahead of an international investors conference in March in Sharm el-Sheikh.

The IMF and Egypt have sporadically discussed a possible loan worth up to $4.8 billion to help the ailing economy since the 2011 uprising drove away tourists and foreign investors, two main sources of foreign currency.

The IMF said it projected growth to reach 3.8 percent in 2014/15 and to rise to 5 percent over the medium term. Although an improvement from the lows hit after the turmoil began, at these growth rates the country will still struggle to create enough jobs for its rapidly growing population.

The IMF said it expected fiscal consolidation to bring the budget deficit below 8 percent of GDP by 2018-19. Lower fiscal deficits will also “support the targeted reduction in inflation to 7 percent over the medium term”.

Egypt’s gross domestic product is expected to grow 4 percent in the current financial year to the end of June, up from 2.2 percent last year, Prime Minister Ibrahim Mehleb said on Wednesday.

Mehleb, speaking to an international conference of government officials and executives in Dubai, also said he believed his government’s budget deficit would come in below 10 percent of GDP this year, against 14 percent last year.

The directors of the IMF said there was a need to broaden tax revenues, including by enacting value-added tax (VAT). They said the decline in oil prices reflected an opportunity to accelerate energy subsidy reforms.

In July, Egypt slashed energy subsidies that have long weighed on state finances, causing price rises but signalling that the government was ready to take tough decisions.

The IMF also welcomed recent movements in the exchange rates “as an important step in the right direction”. The Egyptian central bank has taken several measures to curb the black market.

It has allowed the pound to depreciate after six months of stability, giving banks a wider band around the official rate in which to trade dollars and limiting the amount of dollars that can be deposited in banks, private banks and the central bank.

Nevertheless, the IMF said in its external sector assessment that Egypt’s exchange rate appeared overvalued and that “there is considerable scope for macroeconomic policies and structural reforms to improve competitiveness”.

It noted that the current account deficit had declined recently, largely due to financing by Gulf states who are big supporters of Sisi. However, foreign exchange reserves were still relatively low.

Egypt’s foreign currency reserves rose to $15.43 billion at the end of January from $15.33 the previous month, the central bank said last week. Reserves stood at $36 billion before the 2011 uprising.