El Garhy: No backing away from subsidy reform, IMF visiting in April, stamp tax is coming. Fresh off the successful float of the EGP and the closing of a USD 4 bn eurobond, the finance minister and his team are now in the trenches on the 2017-18 budget — and looking at how to push the reform program forward. El Garhy spoke on Sunday at an American Chamber of Commerce in Egypt luncheon headlined “Egypt’s Financial Reform Agenda: The Way Forward.” The minister said Egypt has “passed through a very difficult phase that can be described as a tsunami of adverse circumstances.” Today, the float of the national currency has “resolved something like more than 60% of the issues that we face … leaving the market to determine the right level for the currency.” What remains, he says, is “what the government can do in terms of really paving the way for the private sector to operate more, because we need the entire economy to move at full speed.” El Garhy also noted the government is targeting reducing the budget deficit to a mid-single-digit percentage of GDP by 2021, telling attendees that this was a function of “long-term sustainable growth.” He expects GDP growth rates to be hitting 6% by 2021 and inflation to fall to 7-8% by that time.

Our key takeaways from the luncheon include:

• There’s no backing away on subsidy reform: Subsidies have to be designed differently to reach the neediest, El Garhy says. “We don’t want to live with energy subsidies that killed this country from 2002-2003 through 2014,” but the timing for lifting fuel subsidies has not been set yet.
• Egypt is fortunate oil prices have fallen from their peak north of USD 100 per barrel, the minister noted. That said: The effective devaluation of the EGP and a rally in oil prices to the USD 50s sees the ministry working now to figure out what to price oil at in next year’s budget.
• The stamp duty on stock market transactions has to be finalized before May and suggested the EGX’s doldrums in recent days has a lot more to do with the strengthening of the EGP against the greenback than it does with traders bucking the prospect of a stamp tax on buyers and sellers.
• We also spoke with Deputy Finance Minister Amr El Monayer, who said a 0.2% rate for the stamp tax is only one scenario the Ministry is considering, not necessarily the final rate that will be in the draft legislation. El Monayer says it’s not likely the stamp tax will be shelved.
• The IMF delegation visit originally set for March has indeed been postponed, as the Finance Ministry needs to finish the budget for FY2017-18 by 31 March. “So we will do it sometime in April. That will happen in line with the agenda before and after the Spring Meetings” of the IMF and World Bank, which are due to happen 21-23 April in Washington, El Garhy said.
• There is no fixed date for the disbursement of the USD 1.25 bn second tranche of the IMF loan to Egypt, Deputy Finance Minister Ahmed Kouchouk explained to Al Mal. The agreement with the IMF only sets a “proposed schedule of purchases.” Kouchouk adds that people are confusing the regular semiannual visit by the Fund’s delegation to conduct its mandated reviews and the actual disbursement of the funds.
• El Garhy says the IMF loan document, and an Arabic translation of it, were sent to the House and will be discussed in a plenary session on 7 March.

El Garhy also discussed about the successful eurobond issuance, saying “when we started the eurobond roadshow, we were thinking of [raising] USD 2.5 bn. Then we started receiving the order book. We were at a level USD 7-8 bn before the US market opened, and before 6 a.m. LA time we reached over USD 14 bn … We eventually decided to take USD 4 bn and we’ve tightened the price. Even more importantly, the secondary market performance is very strong. We’ve seen a rally.” He also added that foreign holdings of local T-bills jumped to EGP 53 bn within three weeks following the eurobond issuance as well.

The one clear thing on economic policy in Egypt now: “There is determination, resolve, and very strong attention from the political leadership on economic reform, and very clear desire to move the agenda forward,” El Garhy said.