Negotiations between the government and the International Monetary Fund’s (IMF) delegation were concluded on Tuesday and a preliminary deal was reached on the $4.8 billion loan corresponding to 335 per cent of Egypt’s quota in the IMF, said official sources.
Minister of Planning and International Cooperation Ashraf Al-Araby told a news conference “We have a preliminary agreement with the technical team of the IMF… we are happy that the IMF is supporting our program at this stage”
Al-Araby said that the program “would achieve social justice and targets those on limited incomes” reported Reuters.
Al-Araby was joined by the head of the IMF delegation, Andreas Bauer, and other IMF officials. Bauer stated that the loan carries an interest rate of 1.06 per cent, plus additional fees.
The stand-by arrangement still needs to be approved by the IMF board on 19 December before releasing the first tranche of the loan; an IMF official said the loan would be disbursed over 22 months.
Bauer said in a statement following the conclusion of the staff mission: “The Egyptian authorities have developed a national program that seeks to promote economic recovery, address the country’s fiscal and balance of payments deficits, and lay the foundation for rapid job creation and socially balanced growth in the medium term” he said.
“The policies contained in the authorities’ program will help address Egypt’s pressing economic and social challenges and reduce vulnerabilities.”
Prime Minister Hesham Qandil revealed some features of the proposed programme, saying the tax base would be broadened to more equally distribute the burden on society. He added that a reform operation has started in the tax authority to improve fiscal management and to promote the tax collection, state-run MENA reported.
Qandil added that Egypt is facing a financial deficit which requires a multifaceted economic and developmental plan. He urged global players, the IMF included, to support the plan to help Egypt increase its foreign reserves to $19 billion by the end of next year and to attract foreign resources and investment to lower interest rates.
Bauer emphasised the importance of these measures. “Fiscal reforms are a key pillar under the programme. The authorities plan to reduce wasteful expenditures, including by reforming energy subsidies and better targeting them to vulnerable groups. At the same time, the authorities intend to raise revenues through tax reforms, including by increasing the progressivity of income taxation and by broadening the general sales tax (GST) to become a full-fledged value added tax (VAT). The resources generated will be used to boost social spending and infrastructure investment, and to gradually reduce the large budget sector deficit from almost 11 per cent in 2011/12 to 8.5 per cent of GDP in 2013/14, while the budget sector primary deficit will decline from four per cent in 2011/12 to 0.6 per cent in 2013/14 and is projected to turn positive in the following fiscal year. The envisaged deficit reduction will help alleviate the public debt burden and free up financing to support social spending and private sector growth.”
The IMF official added, “monetary and exchange rate policies will be geared toward ensuring declining inflation over the medium term, enhancing Egypt’s international competitiveness to stimulate trade and attract capital inflows, and increasing international reserves to protect against external shocks.
“The authorities’ programme will be supported by a financing package of $14.5 billion in loans and deposits on favourable terms from a range of bilateral and multilateral partners, including the IMF. The availability of external financing will allow for a gradual adjustment of the economy and substantially reduce Egypt’s cost of borrowing, given the much higher interest rates on domestic loans,” Bauer said.
The deal followed a long series of negotiations between Egypt and the IMF. The talks began in the aftermath of the 25th of January revolution that toppled the former President Hosni Mubarak and triggered political and social unrest.