Egypt on track for In­ter­na­tional Mone­tary Fund’s re­pay­ment

Times of Oman - - MARKET -

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.

Reuters file pic­ture

IMF SUP­PORT: 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. -

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