In the second stage of the IMF program: The government implements one-half of the required measures, delays six socially detrimental measures, and evades transparency

Press Release

14 February 2018

The Egyptian government implemented half of the measures required of it under the terms of the agreement with the International Monetary Fund (IMF) from April to December 2017, the second IMF review period. These are the conclusions of “ Eye on Debt II,” the second report monitoring the economic and social impact of the IMF loan program.

“An Eye on Debt,” issued by the Egyptian Initiative for Personal Rights, seeks to monitor the economic measures imposed by the IMF loan program and their impact, positive and negative, on the economy and citizens. It also identifies the measures the government failed to carry out and attempts to offer alternatives that are less onerous for the public, especially low-income groups.

This is the second in a series of shadow reports, issued to coincide with each visit by the team of experts from the International Monetary Fund. The first report noted the IMF’s failure to anticipate the magnitude of the depreciation of the Egyptian pound, as a result of which inflation increased to about double the projected rate. The first report also criticized the increase in the interest rate and its marginal effect on inflation, correctly predicting an increase in the deficit.

The EIPR analysis found that of the 17 measures mandated in this period, eight of them were socially detrimental; the government carried out four of these and delayed the rest.

The government also failed to implement three measures related to transparency and access to information, first and foremost the report on potential obligations, which offers a comprehensive picture of the debt burdens resulting from foreign borrowing by government institutions.

IMF experts concluded that Egypt was eligible for the third tranche of the loan after their visit in November 2017, assessing that it had made adequate progress on the measures required for April–November. The IMF recently released its second review report, commending the performance of the Egyptian government.

The IMF visits, designed to assess the performance of the Egyptian government, take place every six months and determine the disbursement of the next tranche of the loan. The next visit is scheduled for April–May 2018. Thus far Egyptian has obtained $4.13 billion from the IMF as part of the program.

The objectives which the government failed to meet in the second review period include:

1. Attaining the target reduction of the primary deficit. The primary deficit (which excludes interest payments on public debt) came in at 1.8 percent instead of 0.8 percent at the end of fiscal year 2016–17.

2. The IMF downgraded its projections for growth and, in turn, job creation. Independent projections see an even greater decline (see the accompanying table). To stimulate overall demand, the EIPR advocates putting more money directly in the pockets of the poorest groups by pursuing a series of measures (see the table).

The EIPR has reservations about several of the measures required by the IMF that may have deleterious effects on the economy and social stability with no tangible economic benefit. These include:

1. Raising the interest rate despite its failure to contain the inflation set off by the floating of the pound. To reduce the pressure on the price of the pound, it would be better to address the causes of dollar outflows abroad while rescheduling the public debt with a lower interest rate.

2. Increasing fuel prices on the household sector alone. It would be preferable to not exempt energy-intensive industries and services from the price increases and require these sectors to obtain energy at market prices.

3. The decision to institute a VAT on its own. The VAT should have been coupled with a package of progressive taxes on income and profits to provide additional revenues to defray the deficit while achieving tax justice.

In the period of April–December 2017, or what the IMF terms the second review period, the Egyptian government carried out the measures required under the terms of its agreement with the IMF.