Tuesday, August 16, 2016

IMF loans Egypt $12 billion over three year period

The International Monetary Fund (IMF) announced it had reached a deal with Egyptian authorities for a $12 billion loan over a period of three years. Egypt has been facing a dollar shortage, falling foreign reserves and a battered economy.

The agreement will need to be ratified by both IMF and Egyptian authorities. The loan comes with conditions that include subsidy cuts and new taxes. The head of the IMF delegation, Chris Jarvis said: "Egypt is a strong country with great potential but it has some problems that need to be fixed urgently." Jarvis said that the IMF is looking for the Egyptian parliament to pass a value-added tax. The IMF also wants Egypt to allow a more flexible exchange rate for the currency, the Egyptian pound. The government has been propping up the pound and also using capital controls. Jarvis said: "The central bank is progressing on exchange rate policy, the government has its program, the budget was approved in June, the VAT is in parliament...the government's fuel subsidy reform program continues to unfold." The IMF said the loan will support the government reform program which aims to alleviate the demand for black market dollar trading, reduce the budget deficit and the government debt, as well as stimulate growth and create jobs
Tarek Amer of the Egyptian Central Bank said the IMF deal would boost confidence in the country's reform program. He asked that citizens stand behind the government. Egyptian president. Abdel al-Sisi has been preparing the public for reform measures that will include further cuts to subsidies and increased taxes plus privatization of state resources. Al-Sisi said: "The problem is whether public opinion is prepared to accept the measures which could be tough or harsh. Egyptians love their country and are able to face hardship but they are too busy with their daily lives and thus must be afforded the correct information regarding the measures."
Angus Blair, head of the Signet think tank said that the IMF wants to see reforms right away. Unrest in Egypt has resulted in a decline in tourist revenues. Foreign reserves have fallen to $15.5 billion. The government claims the program will ensure that any upturn will bring benefits to the entire population of 91 million rather than just a small elite as it has in the past. However a comment on an article discussing Al-Sisi's austerity measures notes that the austerity measures hit mainly the poor and civilians rather than the army:His austerity measures apply only on the civilians and the poor. Only today he has issued a "private law" to further increase pensions of army personnel by 10%. He has increased their pensions multiple times in the last 2 years (probably a type of bribery to ensure their allegiance".


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