Following last week’s successful negotiation of a US$12 billion loan from the International Monetary Fund (IMF), Egypt’s President Abdel Fatah Al-Sisi has announced that his government is determined to implement comprehensive government reforms to improve the country’s economy and reduce public debt.
With a growing dollar shortage, dwindling foreign reserves and an economy battered by years of unrest, Egypt’s government is looking to the IMF loan as a lifeline for its economy.
However, disbursement of the three-year loan facility agreed with the IMF and subject to final approval by the Fund’s Executive Committee, is linked to progress on a variety of economic reforms, including subsidy cuts, introduction of Value Added Tax (VAT) and a shift to a more flexible exchange rate regime.
Speaking at the opening of a factory in Alexandria, the Egypt’s president prepared people for the impending restructurings by saying that he would not hesitate to take the tough decisions that his predecessors had failed to take. “The first effort at reform came in 1977 and when it was not accepted by the citizens, all the governments hesitated to make reform efforts, afraid of reactions,” said the Egyptian president.
Cutting back of subsidies has for a long time remained a politically heated issue in Egypt, but the government has since 2014 embarked on a 5-year program to eliminate energy subsidies. The government also announced last week that it would raise electricity prices by a least a quarter, as part of its plans to eliminate the subsidies altogether by 2019.
The country’s parliament is also considering VAT bill which has faced opposition from lawmakers who have raised concerns about its likely impact on prices. The president has however promised that the impending reforms would not impact the country’s poor, as plans were being put in place to protect the vulnerable.
For his part, the Head of the IMF delegation to the talks, Chris Jarvis, said during a press conference, “Egypt is a strong country with great potential but it has some problems that need to be fixed urgently.” He added that the Fund looked forward to Egypt’s parliament passing the value added tax (VAT) law and introducing measures such as tax increases, cuts in energy subsidies and a more flexible exchange rate mechanism.