Government in full-court press on the economy
The President weighs in on International Monetary Fund loan talks: President Abdel Fattah El Sisi wants the government to ensure there’s balance between the demands of the reform program the IMF will demand and providing Egyptians with social welfare needs during its talks for the three-year, USD 12 bn IMF loan. His statements followed a meeting with Prime Minister Sherif Ismail and the cabinet economic group on Wednesday, according to an emailed statement from Ittihadiya.
Prime Minister Sherif Ismail says it’s not clear how long it will take to reach an agreement with the IMF. In a statement issued after the cabinet meeting, Ismail was looking to temper the flurry of speculation in the media, where expectations range between cash being received “in weeks” to the expectation it will be something closer to November, all citing unnamed government sources.
(Deputy Finance Minister Ahmed Kouchouk did tell Al Masry Al Youm that the staff-level talks will take two weeks and are due to start on Saturday. The IMF delegation will meet with all senior economic ministers to discuss the reform agenda — which he says is 100% Egyptian in a bid to dispel talk of forced conditionality. Ismail tied to the talks to reform measures including passing the value-added tax, slashing spending, issuing FX-denominated bonds and the IPO of state businesses.)
On the VAT: Ismail said in his statement that he’s optimistic the legislation will pass in the House, where he suggested MPs were being generally cooperative.
How does the cabinet plan to tackle the FX crunch, you ask? Why, to rely on all of us, of course: “The government has many solutions to solve the FX crisis, but the best solution is in the hands of the people,” said Ismail. The PM called for an end to speculative trading in FX and an end to unnecessary imports. He called on Egyptians to “buy local” and cut their consumption of electricity as Egypt’s petroleum imports have reached USD 1 bn per month. The statement contained no new policy initiatives. However, “a source from the cabinet economic group” is claiming that the government will float the EGP once it has received the loan, AMAY reports.
That said, pursuing an IMF loan may have been enough to temporarily stem the downward spiral of the EGP, which is now fluctuating between EGP 12.80 and EGP 13.00 to USD 1 on the parallel market on the news of the talks, Al Borsa reports. The CBE is also intensifying its clampdown on FX traders, with banking sources telling Youm7, that the number of FX officers shuttered has now risen to 23 from under 20 at the beginning of the week.
EFG Hermes is suggesting the IMF facility could be concluded in September, provided the House of Representatives is on board, according to a research note yesterday by Mohamed Abu Basha and Simon Kitchen. With an IMF mission visit due to start tomorrow, “we believe a staff level agreement could be reached once the VAT law has been approved by Parliament … [and] the fund will also want a commitment on a more flexible FX policy. Such agreement would then need to be ratified by the IMF’s board, likely post implementation of the VAT in September, as well as by Parliament; only then would the fund start to disburse the money.” EFG Hermes estimates the funding gap at c. USD 30 bn, meaning “the GCC will have to play a large role” in plugging it. And don’t expect devaluation anytime soon, they warn, saying the move — while a likely condition of IMF assistance — will take place once the agreement is in place, not before. Tap here to read the full research note (pdf), including its strategy recommendations for foreign and domestic investors.