Economic analysts have expressed agreement with an International Monetary Fund (IMF) report released upon the completion of an IMF visit to Egypt during November.
The IMF mission’s visit came as part of efforts its familiarisation with economic conditions in Egypt in accordance with Article IV, which the IMF uses to assess a country’s economic and financial policies.
According to the final statement issued by the IMF, the Egyptian economy, which has begun to recover following a four-year slowdown, is full of ample opportunities. However, planning for mega-projects should involve a dose of caution in order to avoid financial risks, with the statement also calling for greater flexibility in the exchange rate policy.
The government previously announced a parallel canal drilling project for the Suez Canal extending a 72km, financed though investment certificates with a yield of 12%.
The government collected over EGP 65bn in eight days to finance the project through the issuance of certificates through banks.
Economic analyst Omar El-Shenety agreed with the IMF mission regarding the need for caution in expanding mega-projects at present. El-Shenety said this was especially since Egypt has had many unsuccessful experiments over the last 20 years, most notably the Toskha Project.
“Expanding projects with revenue in the short-term is better for the Egyptian economy especially in the present circumstances,” El-Shenety added.
El-Shenety, founder of Multiples Group, explained that liquidity in the banking system currently amounts to EGP 1.8tr, 45% of which the government has borrowed. This leads to crowding within the private sector regarding borrowing for expansion or beginning new projects.
However, a Ministry of Planning official said: “The national projects that have been launched were studied though global consulting firms, and the government has worked on legislative frameworks to help small and medium enterprises by issuing a small and medium enterprises micro finance law.”
The official, who requested anonymity, said: “The idea that the state is crowding the private sector for borrowing is being considered, as the banks also lend to the private sector, which is evidenced by the growth rates achieved by the manufacturing industry during the first quarter of the current fiscal year.”
In the first quarter of fiscal year (FY) 2015/2014, growth rates reached 6.8%, according to the Ministry of Planning. Basant Fahmy, a financial consultant with Al Baraka Bank Egypt, stated that the government has to support small- and medium-sized projects in order to overcome liquidity issues.
“We are still living a revolution and the situation is still unstable for mega projects,” Fahmy said.
She warned the government against expanding mega projects and depending on bank funding because banks may not be able to continue funding when foreign funding is available, also warning against preserving foreign loans.
According to the Ministry of Finance, foreign debt exceeded $46.1bn in March compared to $43bn in of June 2013. Fahmy agreed with the IMF report on the exchange rate for national currency against the foreign currency, adding: “The government must change its monetary policy as soon as possible because postponing this will increase the pressures and raise the costs later on.”
Fahmy demanded that the Central Bank of Egypt (CBE) give up the currency support policy and work to subsidise goods because the first policy is biased towards the rich and enables them to purchase luxury goods. Instead, subsidising goods would affect essential products like raw materials, food, machines and equipment.
“Since before the 25 January 2011 Revolution, there have been demands to decrease the value of the national currency by 20%, and the delay in meeting the demand is increasing pressure on the Egyptian economy,” she added.
Fahmy acknowledges that lowering the value of the Egyptian pound will decrease savings in Egypt. However, this is an inevitable measure that must be taken to eliminate issue and encourage industry to export and overcome the signs of inflation, which will lead to lower savings, she said.