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IMF gives Egyptian economic reforms $2bn ‘stamp of approval’

An Egyptian baker is seen beside a vegetable market in Cairo, Egypt. (Reuters)
LONDON: The International Monetary Fund’s (IMF) agreement to provide $2 billion to Egypt as part of a three-year $12 billion loan agreement is a stamp of approval of economic reforms being pushed through under the terms of the deal, commentators said.
The latest payment, which remains subject to IMF executive board approval, will bring total disbursements under the agreement to $6 billion, Reuters reported.
In a statement released following a recent visit to Egypt the fund said, “Egypt’s economy continues to perform strongly, and reforms that have already been implemented are beginning to pay off in terms of macroeconomic stabilization and the return of confidence.”
“While the reform process has required sacrifices in the short term, seizing the current moment of opportunity to transform Egypt into a dynamic, modern, and fast-growing economy will improve the living standards and increase prosperity for all Egyptians.”
Last year, Egypt floated its currency and reduced energy subsidies as part of an ambitious economic reform program outlined under the terms of the loan.
Since then, the Egyptian pound has approximately halved in value and inflation has soared to record highs in what is widely acknowledged to have been a challenging adjustment period.
During a panel discussion on Egypt at the MENA Britain Trade Expo 2017 in London held Friday, Mohamed Farid Saleh, the executive chairman of the Egyptian Exchange, said resolving the fiscal deficit is “not something that can be achieved with a magic wand” but pointed to short-term gains, including easing in inflation moving forward.
Speaking to Arab News ahead of the session, he said economic performance had proved “resilient,” citing the 4.2 percent growth of the Egyptian economy in the fiscal year ending June 2017, exceeded projections of 3.5 percent.
“The reform measures took place despite difficulties on several fronts and the upcoming benefits and potential gains are evident.”
“The government of Egypt is committed to the reform plan to put Egypt on track when it comes to macro-economic settings and macro-economic balances,” he said.
Karim T. Helal, chairman of ADIB Capital, the investment banking arm of Abu Dhabi Investment Bank in Egypt, said the reforms have been difficult but necessary.
“The immediate-term effect has been very painful for the populace in terms of devaluation and the subsequent inflation,” he said.
“It’s a bitter pill to swallow but we had to do it and we are at least showing signs that things are finally heading the right way.”
He described the IMF’s announcement as a “stamp of approval” for Egypt’s progress under the terms of the agreement.
“The fact that the $2 billion has been released now will indicate to the international investment community that the plan put forward at the outset is actually going according to expectations and that Egypt has indeed delivered what it was supposed to deliver,” he said.
Rana Adawi, managing director of Acumen Asset Management, said that the decision came as no surprise in light of Egypt’s success in implementing the required reforms.
“It’s a vote of confidence from the international community that we are committed to change,” she said.
Despite the disturbance created by the currency devaluation last year, the benefits of the move are starting to be felt as businesses take the opportunity to move into the export market, Adawi said.
“The flotation of the Egyptian pound made the country become very competitive in some sectors,” she said.
“You can see the finances of small businesses in the industrial sector going from loss-making to profit-making as a result of the flotation.”
Speaking during the Egypt panel discussion, Helmy Ghazi, managing director and head of global banking at HSBC, said: “The substance of reforms in Egypt are actually quite impressive and we at HSBC are very confident in the outlook and the economic prospects for Egypt.”

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