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

An Egyptian baker is seen beside a vegetable market in Cairo, Egypt. (Reuters)
Updated 11 November 2017
0

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

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.”


Confusion reigns as Venezuela braces for release of new banknotes

Updated 20 August 2018
0

Confusion reigns as Venezuela braces for release of new banknotes

  • Caracas is issuing new banknotes after lopping five zeroes off the crippled bolivar
  • The new currency will be anchored to the country’s widely discredited cryptocurrency, the petro

CARACAS: Beleaguered Venezuelans braced Monday for the rollout of President Nicolas Maduro’s radical new plan to curb the spiraling hyperinflation that has thrown their oil-rich, cash-poor nation into turmoil.
Caracas is issuing new banknotes after lopping five zeroes off the crippled bolivar, casting a pall of uncertainty over businesses and consumers across the country.
“There will be a lot of confusion in the next few days, for consumers and the private sector,” said the director of the Ecoanalitica consultancy, Asdrubal Oliveros.
“It’s a chaotic scenario.”
Other measures — revealed by Maduro in a speech to the nation late Friday — include a massive minimum wage hike, the fifth so far this year.
As it stands, the monthly minimum wage — devastated by inflation and the aggressive devaluation of the bolivar — is still not enough to buy a kilogram (2.2 pounds) of meat.
The embattled Maduro, a former bus driver and union leader, said the country needed to show “fiscal discipline” and stop the excessive money printing of recent years.
But economists say the radical overhaul could only make matters worse.
In the capital Caracas, residents were skeptical about the new measures.
“Everything will stay the same, prices will continue to rise,” 39-year-old Bruno Choy, who runs a street food stand, said.
Angel Arias, a 67-year-old retiree, dubbed the new currency a “pure lie!”
Three of the country’s leading opposition groups — Primero Justicia, Voluntad Popular and Causa R — have rejected the reform plan and called for a day of protest on Tuesday.
The new currency, the sovereign bolivar — to distinguish from the current, and ironically named, strong bolivar — will be anchored to the country’s widely discredited cryptocurrency, the petro.
Each petro will be worth about $60, based on the price of a barrel of Venezuelan oil. In the new currency, that will be 3,600 sovereign bolivars — signaling a massive devaluation.
In turn, the minimum wage will be fixed at half a petro (1,800 sovereign bolivars). That is about $28 — more than 34 times the previous level of less than a dollar at the prevailing black market rate.
The socialist president also announced a curb on heavily subsidized fuel in a bid to prevent oil being smuggled to other countries.
Subsidies would only be available to citizens registering their vehicles for a “fatherland card,” which the opposition has decried as a mechanism to exert social control over opponents.
Fuel subsidies have cost Venezuela $10 billion since 2012, according to oil analyst Luis Oliveros, but without them, most people would not be able to buy fuel.
Oliveros also warned that the new bank notes will crumble “within a few months” if hyperinflation is not brought under control.
The International Monetary Fund predicts inflation will hit a staggering one million percent this year in Venezuela — now in a fourth year of recession, hamstrung by shortages of basic goods, and paralyzed public services.
“Don’t pay attention to naysayers,” Information Minister Jorge Rodriguez said, pushing back against criticism of the plan. “With oil income, with taxes and income from gasoline price hikes... we’ll be able to fund our program.”
Oil production accounts for 96 percent of Venezuela’s revenue — but that has slumped to a 30-year low of 1.4 million barrels a day, compared to its record high of 3.2 million 10 years ago.
Maduro’s predecessor Hugo Chavez stripped three zeroes off the bolivar in 2008, but that failed to prevent hyperinflation.