Egypt on track for International Monetary Fund’s repayment
CAIRO: Egypt has made a “good start” to its reform programme despite seeking waivers for missing targets in June and a deeperthan-expected currency depreciation, the International Monetary Fund said.
It should get its $2 billion IMF loan payment after the year-end review, the Fund said, but inflation -- running at just under 32 per cent in August -- remains the key risk for stability.
Egypt agreed a three-year, $12 billion IMF loan programme in November that is tied to sweeping reforms such as spending cuts and tax hikes.
They are designed to help revive an economy hard hit by a shortage of foreign currency and investment in the turmoil that followed its 2011 uprising.
In a review since the deal, the IMF said Egypt should receive a third loan instalment of around $2 billion after a second check of progress at the end of this year, but indicators pointed to progress and consolidated economic growth. “Stabilisation is already gaining a foothold, and we have seen positive trends,” Subir Lall, IMF mission chief for Egypt, Middle East and Central Asia, said in an online briefing.
“This is a very ambitious programme. It takes time to work, but it is well-calibrated and over the course of this economic programme of three years, we should definitely be seeing the payoff.”
The IMF has already approved $4 billion in loan instalments, most recently releasing $1.25 billion for Egypt.
Inflation, however, reached three-decade highs in July after fuel price hikes under the IMF deal. It has since dipped a bit although high costs have hit many Egyptians hard in the importdependent state. Since the Egyptian pound was floated last year, the currency has roughly halved in value.
Lull said Egypt’s inflation is expected to fall to “slightly above” 10 per cent by the end of fiscal year 2017-2018 and to single digits by 2019
Annual urban consumer price inflation dipped to 31.9 per cent year-on-year in August from 33 per cent in July, according to the official CAPMAS statistics agency. Core inflation, which strips out volatile items like food, decreased to 34.86 per cent from 35.26 per cent, according to the central bank.
The finance minister last week gave a more cautious outlook say- ing he expects inflation to drop below 15 per cent by the end of the 2017-2018 fiscal year.
“The inflation target of 10 per cent by June 2018 seems optimistic. We agree more with the (Central Bank of Egypt’s) target of 13 per cent by the end of 2018,” said Radwa El Swaify, head of research at Pharos Securities Brokerage in Cairo.
In a statement earlier, the IMF said Egypt’s transition to a flexible exchange rate went smoothly with the parallel market disappearing and central bank reserves increasing significantly.
Foreign currency shortages hampered the country’s ability to purchase abroad, creating a black market and slowing economic growth. But foreign reserves have been recovering since the currency float, rising to $36.14 billion by the end of August. They rose $4.73 billion between June and July alone. “Market confidence is returning and capital flows are increasing. These augur well for future growth. The authorities’ immediate priority is to reduce inflation, which poses a risk to macroeconomic stability,” the IMF said.