The CBE’s exit from the subsidized loan programs isn’t going down well with some industry figures
A decision by the government to end the central bank’s role in subsidizing loans has not been received well by some sections of the business community, with the Egyptian Businessmen’s Association (EBA) and some MPs calling on ministers to rethink their plans.
Refresher: A decree issued by Prime Minister Moustafa Madbouly earlier this week will see the CBE stop providing funding for subsidized loans, and pass the responsibility to the housing, finance and tourism ministries. The central bank currently backs soft loans for key areas of the economy, including construction, industry, agriculture and tourism, as well as mortgages and some cars. It has allocated hundreds of bns of EGP to financing borrowers in these sectors with loans at an interest rate of 8%.
The IMF wants this to stop: 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. Under its 2020 standby loan program, the central bank had pledged not to renew the programs past FY2021-2022 but still hasn’t pulled its support. The IMF argues that providing loans at below-market rates complicates monetary policy, but is willing to allow them to continue provided the costs are borne by the government and not the central bank.
Industry figures aren’t happy: “The export-led industrial and agricultural sectors will be the ones most negatively impacted by the decision,” said EBA chairman Ali Eissa. “This decision will push the export-led sectors out from competition on the world markets, cut industrial investments and compel most industrial businesses to lay off workers.”
The EBA appears to have sympathizers in the House: Rep. Mahmoud Essam, who sits on the House Industrial Committee, has called on the government to listen to the industrial committee’s concerns. “Many start-up industrial projects depend on subsidized loans and the halt of these will put them in a serious mess,” he said.
Cue an appeal to the president: The EBA’s industrial, agricultural and tourism committees will meet today to discuss their response to the decree, and will draft a memorandum that will be submitted to the Supreme Investment Council, which is chaired by President El Sisi. The industry body will propose setting up a fund at the Finance Ministry to help fund the loans, and phasing out the central bank’s involvement over the next five years, said Mageddin El Manzlawy, chairman of the EBA’s industrial committee. “Most of the loans are directed to buying raw materials and production inputs and a sudden halt of them will throw companies into a state of disarray,” he said.
They want others on board: The EBA is in talks with the Federation of Egyptian Industries (FEI) and the Chambers of Commerce to form a unified position. The FEI, led by businessman Mohamed El Sewedy, is yet to reveal his position on the issue.