The IMF loan in the context of economic reform

Mohamed El-Bahrawi
5 Min Read

The air of ambiguity surrounding Egypt’s receipt of the IMF loan provides a distraction from what the loan is really about, and the clandestine nature of the negotiations goes a long way towards substantiating the true objective of the loan. For the sake of dodging bouts of public rage in times when they’re as frequent as the cabinet’s conflicting statements, the government decided to close the kitchen door in an attempt conceal what’s cooking; a deal which is very likely to infuriate the public.

Obviously it’s not about the money, and our ministers have reiterated that point on a number of occasions. What is a $4.5 billion loan when we’re talking about jumpstarting an economy as big as Egypt’s? It’s an insignificant loan in the context of revitalising a nation’s economy on the verge of depression.

It was also clearly noted by the same ministers that the loan is a testament to the security and stability of the investment climate in Egypt. Getting the loan, according to officials, would facilitate the flow of foreign investment by those who are wary of the prospects of Egyptian economic recovery.

One major point that pundits elect to ignore when addressing the public, arguably the most significant, is how the loan is a test  to gauge the government’s willingness, or rather seriousness, in taking radical policy measures that steer the nation in the direction of genuine economic reform, measures that are likely to incense public opinion.

For instance, will the government assume the risk of slashing a decent portion of the subsidies budget and confront the public with a full picture of the economy’s dire status? Or will it recoil, as it always does, at the first sign of public outrage?

Is the government strong enough to take a decisive action with regards to the valuation of the Egyptian pound and let it float? Taking into account that the initial repercussions incurred would be skyrocketing inflation, rising levels of unemployment, poverty, crime, and naturally public outrage?

Is Egypt willing to become an international player and open its books transparently, and without attempting cliched tricks to hide the dirt? Will the loan be utilised constructively or will it fall through the cracks in the system? These are the questions the IMF is seeking answers for. These are the matters stalling the signing of the loan.

The loan will be granted, simply because its monetary value is objectively insignificant, but what comes after that is the real test for the first post-revolution government. It is essentially a test to the cabinet’s philosophy in balancing priorities.

Will austerity policies and their aftermath, harsh as it may be, trump appeasing public opinion in an era of a highly volatile political conflict and struggle to expand political clout?

These are the hard-hitting choices facing the current government. And it’s only natural for an inexperienced, precarious cabinet to negotiate such tough measures in the shadows, if only to stall the public’s expected reaction. Yet, how long will the administration prevaricate?

It is only a matter of time before the reality of the negotiations come to the fore, and then the feared ire of the public will hit twice as hard, as the government will have unwittingly opened the door to accusations of deception and misleading the public.

The real question here becomes, what sits atop the cabinet’s priorities? Is it the protection of the current administration with its already-tainted image against further public discontent? Or pave and secure the way for the draconian-yet-imperative reform train to take its proper course?

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