Only 60% of funding secured, push on subsidies reform
Egypt has only secured 60% of the USD 6 bn in third party-funding the IMF wants in place before approving the USD 12 bn extended fund facility, Prime Minister Sherif Ismail said yesterday, Reuters and Al Mal reported. This delay in securing the funding apparently pushed back the IMF board meeting on Egypt, an unnamed government source tells Al Shorouk. Either way, it’s unfortunately clear that the goalposts have been moved: We’ve gone from the IMF executive board meeting being scheduled in “two weeks” time (announced in early October) to “within a month (according to Finance Minister Amr El Garhy speaking Monday night). The delay in closing on the third-party funding could mean Egypt won’t receive the first tranche of the facility until January or February of 2017, the source added.
America may be key to getting to the IMF board: Whatever Washington’s frustration with Cairo through much of President Barack Obama’s term in office, the US may be our best chance of getting the IMF facility approved by the institution’s executive board. A senior Treasury Department official said yesterday that the IMF funding for Egypt is “critical” and explained that the “is working with other G7 economic powers to ensure that it is fully funded with bilateral financing.” Treasury’s undersecretary for international affairs, Nathan Sheets, is quoted by Reuters as having told a policy forum that: “We in the United States are supportive of the Egypt program as Egypt is working closely with the IMF in taking necessary steps. We’re also working very closely with our G7 partners to ensure that that program is fully funded."
Where’s the hitch? The government isn’t saying — not on the record, at least — and it hasn’t provided a breakdown of the funding pledged to-date. It could be China: Al Shorouk’s source (above) says the Chinese are pushing conditionality, including requiring Egypt to use its USD 2 bn to buy Chinese goods, putting the funds towards Chinese-Egyptian projects in the new capital, or paying interest.
And it could be Saudi Arabia: Amid the ongoing tiff, There are still no reports that Saudi has sent its pledged deposit, which conventional wisdom within the business community suggests is not the USD 2 bn received in September. That, most believe, was pledged during King Salman’s visit earlier this year, and policymakers were counting on a further USD 2 bn.
Government is dialing-up the rhetoric on subsidy cuts, which IMF boss Christine Lagarde has made clear is one of two requirements (the other being devaluation) for getting to “yes” at the board. Egypt will spend EGP 210 bn this year on subsidies and this is unsustainable, Prime Minister Sherif Ismail told reporters (runtime: 7:14) yesterday after a meeting with economists and Finance Minister El Garhy, ostensibly to “review the economic reform plan.” Oil Minister Tarek El Molla recently noted that all options are on the table so far as fuel subsidies are concerned, while reports surfaced this week that the Ismail government is mulling whether to raise fuel prices by 20-25% in advance of the IMF’s executive board meeting. El Garhy stressed on Monday his Monday appearance on Lamees El Hadidi’s show that subsidy reforms must not be delayed.
Ismail is still telegraphing that Cabinet is on board with devaluation, telling reporters that, “we are keen on seeing a unified rate, and that the Central Bank of Egypt governor’s policy accurately reflect the true value of foreign exchange,” Al Shorouk reports.