Chris Jarvis, head of the International Monetary Fund’s Mission to Egypt and Advisor at the IMF’s Middle East and Central Asia Department, praised recent steps taken by the Central Bank of Egypt (CBE) to regulate the currency exchange rate, and the new CBE Governor Tarek Amer’s flexible policy, aiming to achieve a balance in the flow of foreign exchange.
He told Egyptian journalists, during the spring meetings of the IMF and World Bank group held in Washington, that there is an imbalance in the supply and demand of foreign exchange and a set of synchronous economic policies and measures are required to restore balance.
These measures include reducing the budget deficit to ease the demand for foreign currency and raising the interest rate of the Egyptian pound to increase the demand for the pound. “We always advise for a comprehensive package of measures to bridge the gap in foreign currencies,” he said.
Jarvis added that the government should increase exports, reduce imports, and improve tourism and Suez Canal revenues. The government should also persuade everyone that its economic policies are effective and will contribute to restoring investments to Egypt.
He praised the government’s plans to reform the budget and reduce the deficit, adding that the policies submitted by the government to parliament were realistic and exposed challenges, which is a cause for optimism.
Jarvis revealed that the IMF met with the Egyptian government, represented by the CBE and the Ministry of Finance, in the framework of counselling. He noted that the IMF has an expanded programme related to tax reforms, which will be offered to the government.
He also commended the value-added tax law (VAT law) that the government seeks to introduce, as revenues from the income tax do not exceed 13%, which he described as very low. He further pointed to the necessity of increasing tax revenues through levying the VAT, as is the case in many countries, and eliminating the people’s concerns over its impact on low-income citizens represented in the increase in prices, especially as basic commodities, such as food, are exempted.
Jarvis further highlighted that anxiety around the introduction of the VAT is expected, comparing it to the general sentiment in Britain in 1975, where there were concerns over the VAT’s impact on prices. This can be addressed if the government improves the atmosphere of competition in the consumer goods sector through regulating monopolies and improving business.
He urged the government to continue cutting down fuel subsidies, as subsidies and wages mark the bulk of the budget, which affects expenditures on health and education. He also pointed out that subsidies have failed to reach the people they were aimed to help, and have instead mainly benefited high-income earners.
Jarvis highlighted the government’s plan to cancel energy subsidies, excluding butane cylinders which are mainly used by lower-income segments, considering it a positive model for the reform policies designed to help low-income citizens.
He pointed out that infrastructure projects should be measured using a set of criteria, the most important of which are their profitability and their ability to create job opportunities on the long term.
He pointed out that the new Suez Canal project aligns with these standards, whereas its failure to achieve returns in the short-term has been due to the negative global trade conditions. He also emphasised that the implementation of the Suez Canal project in such a short time increases confidence in Egypt’s capacity to implement large-scale projects.
“I have a good feeling about the project in the long term, although it has not yielded the expected revenues so far,” he added.
Jarvis said the last two years have been marked by the restoration of political stability, which in turn contributes to building trust. He noted that the current state of uncertainty results from global problems, such as international terrorism, which has damaged the tourism sector, especially after the Russian plane crash.
Regarding to the government’s ability to achieve the targeted growth rate in light of the slow global economy, Jarvis highlighted the importance of achieving long-term growth and creating new jobs through structural reforms.
He added that the IMF discussed with the government ways to incentivise small businesses and provide them with required funding. He further noted that the banking sector should not limit credit to a specific category of large companies, praising the CBE’s initiative to provide financing to small businesses to stimulate growth and create job opportunities.
With regards to the high public debt, Jarvis pointed out that the external debt is still within safe limits and it can be managed. On the other hand, he expressed concerns over Egypt’s high local debt, pointing out that Egypt is not the only country facing this debt problem. He, however, ruled out the suggestion of limiting the cap on debt, as is the case in some countries, preferring instead the imposition of clear policies to reduce the deficit.
He revealed that external debt ranges between 15% and 20% of GDP, while local debt recorded 90% of GDP, which is a high percentage for a country like Egypt. He further affirmed the necessity of gradually reducing the local debt.