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Tuesday, 25 October 2016

Spotlight on Prime Minister Sherif Ismail’s interview with Lamees El Hadidy

We will close the USD 12 bn IMF facility in the coming two months, Prime Minister Sherif Ismail told Lamees El Hadidy during an appearance on her show Hona El Assema last night. The government is ironing out details with the IMF, said the PM said, offering no further information on the nature of the details. A singing in two months’ time would mean that Egypt will not receive the first tranche until 2017. “We must stick to the reform process and devalue if we are to secure further payments of the facility,” said Ismail. Addressing whether the government can and should cut subsidies and devalue before signing the loan as recommended (required?) by IMF boss Christine Lagarde, Ismail said that while each piece of the reform plan will take place at an appropriate time, these reforms must happen concurrently.

The PM defended the ongoing raids by the government to seize sugar from private sector factories, saying the raids were limited in scope and necessary to better monitor the market. He admits that the government should have taken a more focused approach instead of blanket raids, but he did state that the seizures helped increase supply. Ismail rejecting the notion that there is a crisis with sugar. Supplies are being pumped in at a rate of 8,000 tonnes per day and Egypt and Egypt’s current reserves stand for three months. The effects should be felt on the street when the government increases that to 10,000 tonnes per day.

The government will not *permanently* set prices on goods. That appears to be the takeaway after Lamees peppered the PM with questions on the cabinet committee that will look into profit margin caps. In times of need, he said, the government must step in to regulate prices for a period. Ismail paid lip service to consultations with industry, but the ultimate message was clear: The government will regulate the market to maintain price stability for a period.

Ismail skirted questions about whether Egypt would fully float or adopt a gradual approach to devaluation, reminding Lamees that this is the Central Bank of Egypt’s business.

The government is planning a gradual shift away from the current commodity subsidy system in favour of a direct cash payout to qualified beneficiaries. The Takaful and Karama programs are models in that respect, he suggested. The PM rejected the notion that the government has been slow to move on cutting fuel subsidies, reminding viewers that fuel prices were allowed to increase in 2014; the government is on track to cut subsidy spending to 20-25% of expenditures by 2019. There’s no set timeline for those cuts, he said, because fuel prices are subject to global market swings.

Export subsidies will close the year at EGP 6 bn (we presume he means the state fiscal year of 2016-17), said Ismail. While public transport prices will remain on the same for now, they will rise in the future.

On government spending, the prime minister reiterated that the diplomatic corps faces sharp cutbacks as part of a plan to curb the state’s spending on everything except salaries for public servants. The cuts were approved at last week’s cabinet meeting, but will see no pullback from national projects or other “investments” the government undertakes, he said.

Lamees pressed the PM on whether money earmarked for national projects such as the new capital would be better spent on health and education. Ismail retorted that healthcare and education are already a priority for the government and his cabinet has indeed begun reforming the education system after 30 years of neglect. Projects such as the new capital are managed outside the government budget — and draw new investment, he said.

Cabinet appears not to have been terribly pleased with the first draft of the Investment Act, according to Lamees, something Ismail did not deny. He said only that the new law was still in its infancy and that the private sector will be consulted law.

Meanwhile, Ismail rejected the notion that businesses were being squeezed out of the economy by the government and the Armed Forces. He added that the latter will see its role in the economy reduced significantly in three years. The armed forces and the government are only taking a lead on infrastructure developments, something which would reduce costs for investors, he said.

How does the government plan to save the middle class was also a hot topic and resulted in the fairly perplexing answers. In essence, he ticked off a list of all the policies the government had announced to protect the lowest-income citizens as if they applied to the middle class, too, among them the benefits of Karama and Takaful, which would see their spending increased to EGP 2.5 bn; maintaining subsidies on fuel, power, and housing, and expanding access to the smart card system after inefficiencies are rooted out.

Ismail is not concerned about the planned 11 November protests.

Watch part 1 of the interview (runtime: 30:42) or part 2 (runtime: 30:42).

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