The Egyptian authorities are in final stages of negotiating an economic reform program with the International Monetary Fund (IMF) that would unlock up to $7bn in annual funding from multilateral sources over the next three years, said a cabinet statement.
Ongoing negotiations are expected to focus on adjustments requested by the IMF on Egypt’s homegrown economic reform program, presented to parliament late in March, before bringing the package to be agreed between the IMF and the government into a vote in the legislator.
The cabinet statement explicitly linked the successful completion of IMF talks with the implementation of reforms previously recommended by the multilateral lending institution. Fiscal consolidation measures topping the list of structural reforms required by the IMF for FY2016/2017 include the replacement of the current sales tax with a value-added tax, continued reform of the subsidy system, adoption of Civil Service Law, pension reforms and government spending cuts. Some of IMF’s recommendations have already been implemented by the authorities, such as, the Civil Service Law recently signed into law by parliament, while VAT is currently being debated in the chamber.
In addition, the IMF is urging the Egyptian authorities to adopt monetary measures such as the gradual implementation of a flexible exchange rate regime to relieve the pressure on the balance of payments through import reduction and a growth in exports. Meanwhile, the IMF is advising the Egyptian government to implement poverty reduction programs to shield marginalized segments of society from the negative impact of structural reforms.
According to finance minister Amr El Garhi, a deal with the IMF would unlock up to $21bn from external lending sources over the next three years. The sum is to be divided between $12bn from the IMF in three equal tranches of $4bn annually for three years, $3bn from the World Bank in three equal tranches over three years, $1.5bn from the African Development Bank in three equal tranches over three years, $3bn in international bonds and a further $2.5bn from other sources.
Egypt’s annual funding gap has been estimated by the authorities to be between $10bn-$12bn leaving a further $3bn-$5bn annually to be covered by investments. The cabinet statement announced that the government intends to privatize public sector enterprises through listing them on the stock exchange. Last week, investment minister Dalia Khorshed was quoted saying that her ministry plans to attract $10bn in investments over the next three years through the privatization of state assets including banks and oil companies.
Following the adoption of a three-year IMF inspired economic restructuring plan, the Egyptian government plans to cover the annual funding gap by substituting the prospective output from newly discovered giant offshore Mediterranean natural gas fields for natural gas and other energy products currently being imported at a monthly cost of around $1bn.
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