Egypt Has Proposed 18-month Reform Program to IMF

CAIRO, Capital Markets in Africa: Three Egyptian dailies said Monday that Cairo was proposing to IMF delegates an 18-month reform program in return for a $12 billion loan over three years to shore up its economy, but that differences remained between the two sides on how to proceed.

The reports by the privately-owned Al-Shorouk, Al-Masry Al-Youm and Al-Watan said the two sides were at odds over the size of a proposed devaluation of the Egyptian pound and the timetable for implementing some of the more politically sensitive reforms, like reducing or removing state subsidies on fuel, electricity and food staples.

According to the papers, the International Monetary Fund has rejected Egyptian requests for a delay or a staggered implementation of some of the proposed reforms.

The IMF’s response, according to Al-Masry Al-Youm, was categorical and reflective of Egypt’s dire economic situation and the urgency of fixing it. “There is no time left and nothing should be put off,” it said quoting, like the other two papers, government sources familiar with the Egypt-IMF talks that started last week in Cairo under tight secrecy.

Egypt is struggling to keep its economy afloat, amid a slump in tourism, foreign currency shortages and double digit inflation and unemployment. The government is also fighting an insurgency in the strategic Sinai Peninsula while continuing to show little tolerance for domestic political dissent. On Monday, the central bank reported a drop by about $2 billion in foreign currency reserves, down to $15.54 billion at the end of July after honoring a number of foreign debt repayments.

Egypt’s economic crisis has taken on a serious political dimension, with critics now blaming President Abdel-Fattah el-Sissi for exacerbating it by embarking on massive costly infrastructure projects they say have drained the country’s meager funds and done little to revive the economy.

El-Sissi, in office since June 2014, counters that the projects, like a nationwide road network and an expansion of the Suez Canal, are vital if the country was to attract investors and their benefits would filter down in time. He has repeatedly vowed in recent days to shield the poor and middle class from a virtually inevitable wave of price hikes when reforms are implemented. On Monday, his government announced higher electricity charges for domestic use as part of a plan to lift state subsidies in the energy sector.

The IMF delegates, according to the three papers, see 11.60 pounds to the U.S. dollar as a realistic exchange rate. Such a rate would be nearly three pounds more than the current official rate of 8.87 pounds available at banks but close to the thriving black market rate of 12-12.50 pounds. The Egyptians, according to the media reports, want the pound’s exchange rate to be only 10.60 to the dollar.

“Both sides are looking at a pound floatation, and whether it should be done in one go or gradually,” said Al-Masry Al-Youm.

The pound’s exchange rate is crucial to a country like Egypt, whose survival is heavily dependent on imports, not just of staple food items, but industrial components and raw materials to keep the manufacturing sector going. Much of the imports needed by the private sector are financed by dollars bought on the black market.

As part of the planned reforms, Egypt was considering the partial privatization of several state-owned enterprises, possibly including oil companies. These, according to Al-Shorouk, would initially earn the treasury about $10 billion.