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Monday, 21 November 2022

Central bank to end support for subsidized loans

The Central Bank of Egypt is going to stop providing funding for subsidized loans and pass the responsibility to the housing, finance and tourism ministries, under a decree issued by Prime Minister Moustafa Madbouly in the Official Gazette yesterday.

Refresher: For the past couple of years, the CBE has run initiatives designed to improve access to finance for key areas of the economy. Tourism companies, low- and middle-income homebuyers, farmers wanting to invest in water-efficient irrigation systems, and people applying for the government’s dual-fuel vehicle swap scheme have all been able to take out loans from commercial banks at preferential interest rates subsidized by the central bank.

Now the ministries are on the hook: The housing, finance and tourism ministries will now be responsible for funding the subsidized rates. The Finance Ministry has been tasked with running an audit on the initiatives and making a decision on how (or whether) to take them forward without CBE support.

Mortgage support cut back: The EGP 50 bn program launched in 2020 to help middle earners get mortgages has been reduced to EGP 15 bn, according to the decision.

We saw this one coming: In the weeks leading up to last month’s loan agreement with the IMF, reports in the press had suggested that ending subsidized loans was one of the conditions attached to fresh financing. Three government sources had told Bloomberg Asharq that the Fund was pushing the central bank to “unify interest rates” and end the low-interest loans. Was this a condition of the IMF pact? We’ll find out in December when the body’s executive board is scheduled to meet to approve the agreement with Egypt.

No backsliding allowed: All entities, including the CBE itself, will be banned from financing new initiatives or amending existing ones that would increase burdens on public finances without cabinet approval.

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