President Mohamed Morsy is scheduled to meet an International Monetary Fund (IMF) senior official to resume talks on the requested $4.8 billion loan.
The IMF director for the Middle East and Central Asia, Masood Ahmed, will also meet Prime Minister Hisham Qandil, some ministers and the Central Bank’s governor.
Enthusiasm for the IMF’s loan rises as the economic crisis hardens; it is seen by loan advocates as a means to get out of the current economic hardships.
Professor of political economy at the American University in Cairo (AUC), Nadia Farah, thinks that the IMF loan will be a breakthrough for the government but not for the people.
“This loan will be a certificate of trust for the Egyptian economy, it proves that Egypt can repay its loans, so they can seek more loans” explained Farah. “there is a budget and trade deficit that the loan is intended to breach, for the citizens the effect will be disastrous; Pound floating, subsidies reduction and the bundle of taxes, which is expected to be re-enacted this month” she added, “all this with the pound devaluation will trigger an inflation wave and in the absence of minimum wage the regular citizen will pass through hard times.”
The professor spoke of different alternatives to borrowing from international institutions: “Progressive taxes for example could reach 40 per cent for incomes exceeding EGP 10m like all the developed countries, instead of the actual 25 per cent, in order to increase the tax revenue, but they don’t want to make the rich pay.”
Farah added that the government should not resort to currency floating and keep the borrowing to its strict necessary limit to finance immediate needs; she also said the huge waste in government spending must be cut, referring to official processions and the consultants who earn more than EGP 1 million per month. In the absence of maximum wages, all these measures can save, according to Farah, millions or billions of pounds rather than hitting the consumers with huge inflation.
“Who will repay the debts?” Asked Farah, noting that Egypt pays $1,400m annually to settle foreign debts.
“The growth rate is 2.7 per cent, if we take off the population growth the real growth rate will be around 0.7 per cent, employment increased from 10 per cent in Mubarak era to 13-14 per cent officially, 750.000 persons enter the labour market annually and 1500 factories were shut down since 2011.
“The current regime is adopting the same neo-liberal policies of the old regime, except that they don’t have the same economic calibres, these policies were discarded in the whole world after they have ruined the economies of Latin America and caused huge income disparities.”
Former Finance Minister Samir Radwan said: “We cannot find the solution to the economic problem in the IMF loan, the financial gap reached $14-15 billion according to the finance minister and the planning minister, including investment and current spending, so the loan is not the magic stick.
“The loan is important because it certifies that the adopted policies are the right ones, other loans will follow to help breaching the deficit gap.”
On whether the positive effects of the loan will be felt by the average citizen, Radwan said: “It depends how the government will use it, and the policies it will adopt, if the government adopts austerity measures, he will not benefit from it , on the contrary, he will suffer increasing prices.”
“If I were in the place of the responsible, I would channel the loan to an incentive package for investment, the private sector is shaking and the Egyptian investors are refraining from participation” concluded the former minister.