IMF has it wrong on Egypt
By Farah Halime, Rebel Economy
The International Monetary Fund (IMF), after signalling that it does not believe Egypt’s proposed economic reform programme is strong enough, has offered Cairo a temporary loan to help the nation weather its currency and budget crisis while it negotiates a more complex $4.8bn loan.
Reuters reported on 11 March: “In Washington, the [IMF] said Egypt needed bold and ambitious action to tackle its economic problems urgently and it could get temporary IMF funding while it negotiated a long-delayed full loan programme.
“An IMF spokeswoman Wafa Amr said the Rapid Financing Instrument was designed to provide rapid, but limited, assistance to member countries facing urgent balance of payments needs.”
The stop-gap measure could amount to about $750m, according to Reuters, a sum which pales in comparison to the budget deficit targeted at $28bn this financial year, or 10.9% of annual economic output.
The Fund is quietly acknowledging that in the absence of the reforms President Mohamed Morsi has been reluctant to enforce, the country needs immediate help as it runs out of cash for fuel and wheat imports.
Providing immediate help at a smaller and more grass-roots scale, and ensuring this is not hinged on an IMF final accord is something other international investors should consider in Egypt, as Rebel Economy has argued before.
Especially as Gulf money, which has acted as a stop-gap in the past, is not forthcoming. (Qatari finance minister Youssef Kamal dashed any hopes that more funds were on their way soon this week. “We already announced $5bn,” he told Reuters. Asked whether Doha expected to provide more, he replied: “Not yet”)
But there is a problem in the IMF’s approach.
While the IMF is working hard to represent a voice of compromise at a time when the government’s credibility is being tested and the mandate to follow through on important reforms narrows, it should not help Egypt plug an unsustainable budget through these temporary measures because it artificially props up the government.
Egypt should not accept the bridging finance. Instead, what the government should do is begin a campaign to make the budget transparent and the economic situation clear. It needs to do that to get political buy-in for austerity measures.
The president and his supporters are buying time because they want to win parliamentary elections before imposing a more difficult economic reform plan. Accepting the bridging finance only furthers the government’s interests.
It is almost like Mr Morsi is holding the country hostage with the help of the IMF.
If anything the IMF should not offer bridging finance and force the president to be clear about a reform plan.