Interpreting Middle East Economic News and Analyzing Market Trends

Egypt is being strong-armed into accepting IMF loan

Egypt is being pressured by the US and International Monetary Fund (IMF) into accepting a $4.8 billion loan.  Egypt badly needs financial assistance in order to get its economy going again.  However, the terms of the IMF loan are unacceptable, unrealistic and will do more harm than good.  They also go against the IMF’s praise of Egypt’s economic reforms just before the Arab Spring.  The IMF, however, does not care.  This international organization has a history of always collecting its loans…. and Egypt has some good assets to take in case of default.


Here are some highlights from an article on the US Secretary of State, John Kerry’s recent visit to Egypt.

Secretary of State John Kerry said on Saturday it is vital that Egypt revive its economy and that the country’s fractious political parties reach agreement on painful economic reforms to secure an IMF loan.

The country’s foreign currency reserves have dived to little more than a third of levels before the 2011 revolution and the budget deficit is soaring as a sliding Egyptian pound pushes up the cost of state subsidies for imported fuel and food.

“It is paramount, essential, urgent that the Egyptian economy get stronger, that it gets back on its feet,” Kerry told Egyptian and U.S. business executives in Cairo. “It’s clear to us that the IMF arrangement needs to be reached.”

The government of President Mohamed Mursi said on Thursday it would invite an IMF team to reopen talks on a $4.8 billion loan that was agreed last November but put on hold at Cairo’s request during street violence the following month.

With an IMF deal likely to involve painful measures, Kerry called for consensus on tackling the problems.

Kerry said he would talk to Mursi on Sunday about what the United States could offer Egypt, including economic assistance, support for private business and boosting Egypt’s exports to the United States. But Washington needed to know “that Egypt is going to make the right fundamental economic decisions with respect to the IMF“, he said.

Earlier, a senior U.S. official said Washington believed Egypt needed to increase tax revenues and cut energy subsidies to secure an IMF loan – measures likely to be highly unpopular if Mursi’s Muslim Brotherhood government forces them through.

Read the full article from Reuters.

To prove that the IMF and US are strong-arming Egypt, here are two reports on economic reform in Egypt.  The first is a report from the IMF praising Egypt for its economic reform and market liberalization, which began in 2004.  The second is from an OECD report just months before the Arab Spring began:




Egypt: Reforms Trigger Economic Growth

By Klaus Enders IMF Middle East and Central Asia Department

February 13, 2008

  • Egypt’s recent growth performance has been the best in years
  • Growth was sparked by economic reform, liberalization
  • Further fiscal consolidation, other reforms are key to sustaining growth, creating jobs

Growth in Egypt has picked up steadily since 2004, making it one of the Middle East’s fastest-growing economies.

It launched bold reforms in 2004 that, along with a favorable external environment, have triggered an impressive acceleration of growth, to 7 percent in 2006/07.

In its most recent review of Egypt’s economy, the IMF says the expansion has broadened from energy, construction, and telecommunications to such labor-intensive sectors as agriculture and manufacturing.

According to the IMF, the Egyptian economy will continue to grow at 7-8 percent if ongoing improvements in the business environment succeed in raising investment to more than 25 percent of GDP.

Between end-2004 and end-March 2007, 2.4 million jobs were created. As a result, unemployment—chronically high in this emerging market economy—has dropped from 10.5 percent to 9 percent. Exports and imports also rose sharply, along with workers’ remittances, Suez Canal receipts, and tourism revenues.

Better business climate

The reforms have started to tackle critical impediments to private business and investment.

• The establishment in 2004 of a well-functioning foreign exchange market lifted formal and informal restrictions on access to foreign exchange that had long hampered business in Egypt.

• In two rounds of reductions, the weighted average import tariff was cut to about 6.9 percent by 2007, accelerating integration with the global economy.

Personal and corporate income tax rates were slashed, and tax administration is being modernized, with a move to self-assessment of personal income taxes.

• Business regulations have been streamlined to speed up customs clearance and facilitate registration of new businesses and property. Egypt consequently earned the honor of top reformer in the World Bank’s 2007 Doing Business Report.

• A wide range of productive assets, including joint-venture banks and the fourth-largest state bank, have been privatized. More than half the banking system is now in private hands.

• Governance and financial soundness of state banks and banking supervision have been strengthened in the context of broader, ongoing financial sector reforms. Those reforms are also modernizing the insurance sector and capital markets.

Structural reforms were complemented by prudent macroeconomic policies. Monetary policy, underpinned by greater exchange rate flexibility, has become more effective in targeting and containing core inflation. The fiscal deficit for 2006/07 was reduced to about 7.7 percent of GDP from an average of 9 percent in recent years. The decline is due to the tax reforms, fuel price adjustments, wage restraint, and windfall receipts from a telecom license sale.


So why is the IMF now asking Egypt to do the opposite and raise taxes?


You can read the full report here.




Here’s the OECD report summary, published in October 2010.  The report is titled “Competitiveness and Private Sector Development: Egypt 2010”

Egypt’s business environment has improved substantially in recent years as a result of a series of successful economic reforms, mainly at the macroeconomic level. The reforms have been undertaken by the pro-business government formed under the Prime Minister, Ahmed Nazif, in 2004. This chapter discusses the substantial and tangible advances in many areas of the operational business environment and highlights some of the major reforms that have taken place in Egypt since 2004, and which have played a positive role in improving Egypt’s business climate. Arising from a need to stimulate economic growth and generate new jobs, the government set out to improve Egypt’s overall economic performance in order to increase its growth potential and favour sustainable development. Areas highlighted here that have showed noticeable improvements include the government’s privatisation programme, taxation, trade tariffs, monetary policy, the banking sector and infrastructure.


Read the summary from the OECD here.  The full report may no longer be online.


The IMF is on a mission to bankrupt Egypt and is now getting others (US) to help put pressure on Mursi’s government to give in.  Once Mursi gives in (it’s inevitable), watch Egypt slide from bad to worse.