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Egypt to update reform plan ahead of IMF meeting on Saturday
Egypt plans to present an updated programme to the IMF as it seeks to obtain a $4.8 billion loan after its initial economic plan was deemed 'weak' and 'not rigorous' by the international lender
Marwa Awad in Washington, Friday 19 Apr 2013
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Egypt's economic reform program includes cuts on the country's hefty subsidy bill (Photo: AP)

Egypt is rushing to knock into shape an economic reform plan to qualify for a $4.8 billion loan from the International Monetary Fund (IMF), which remains skeptical of the government’s readiness to implement key austerity measures needed to prevent an economic crisis.

Egypt presented a plan to the international lender, involving measures to slash energy subsidies and raise taxes, to increase revenue and quell a soaring budget deficit. The IMF technical mission, which visited Cairo earlier in April, found the plan "weak" and "not rigorous," according to an Egyptian official close to the negotiations.

But Egyptian officials, including the ministers of finance, planning and international cooperation, as well as the governor of the central bank, will meet with IMF chief Christine Lagarde on Saturday to present an updated programme with new figures to help allay the world lender’s concerns over implementation and reach an agreement.

"We are working to put together a more convincing program with more precise figures and a clearer time frame on when and how broad structural measures, such as reforming energy subsidies and raising certain taxes, would be implemented,” the official, who requested anonymity, told Ahram Online.

"The earlier programme was deemed weak and not rigorous," he added.

But Mohamed Mekkawy, advisor to Egypt’s finance minister on external relations, told Ahram Online on Friday that the delegation will present the IMF with a more detailed plan during the Saturday meeting with Lagarde.

He refrained from suggesting by when an agreement may be reached.

Mekkawy was keen to stress that the government’s aim to introduce structural reforms was not because of pressure from the international lender but because this was the necessity for Egypt’s economy. The talks are held on the sidelines of the Spring Talks meetings in Washington.

“We are developing the program to move ahead with the reforms that will improve Egypt’s economy, not because of the IMF or others but because this is the right thing to do for the country,” Mekkawy said.

The IMF mission, which concluded its trip to Cairo last week without reaching an agreement, informed the Egyptian side that details were still pending over how the government plans to implement a coupon plan designed to cut massive energy subsides that eat up a quarter of the budget, the Egyptian official explained.

He added that the IMF is skeptical Egypt can kick-start the process of the smart-card system by July and has doubted the government’s ability to monitor the distribution of the coupons within a realistic timeframe.

Mekkawy said the IMF also needed a breakdown of the figures of energy subsidies, and has dubbed Egypt’s petroleum sector a “black box” because the data and surveys were not easily available.

Energy subsidies take up 20 percent of Egypt’s budget, and authorities estimate the energy subsidy bill will reach LE120 billion in the financial year ending 30 June. In total, the subsidies bill is forecast to grow by 12 percent in the coming fiscal year, a growth level that is significantly lower than that seen in other major expense items, such as public wages.

The Egyptian officials’ comments echoed Lagarde’s assessment on Thursday that the Egyptian programme needed more work. "There is clearly more work to be done; numbers need to be aligned and worked on," she told reporters.

Earlier this week, a director in the IMF's fiscal affairs department said Egypt should consider compensating its poor in cash transfers for the removal of subsidies.

Unrelenting political bickering between ruling Islamists and opposition groups has derailed the government’s efforts to impose austerity measures to help fix the economy. IMF officials at the annual Spring Talks meetings said a lack of political consensus has held back growth. The latest world economic outlook report predicted the Egyptian economy will grow by 2 percent in 2013, down from an earlier forecast of 3 percent.

"We only see a relatively moderate improvement in growth in 2013 because of the protracted political transition," said Thomas Helbling, from the IMF.

Another sticking point in the programme was a disagreement over when to introduce a general sales tax. Egyptian officials said they will introduce new taxes on six items in October, including cigarettes, alcoholic and non-alcoholic beverages, but the IMF mission finds the delay unfeasible given that October is the preliminary date set for parliamentary elections.

Mekkawy said the taxes on the select items would be implemented within the next three months.

The reform plan also looks to reduce the deficit from 10.9 percent of GDP in the current June fiscal year to 9.5 percent in the next year.

Despite the seeming complexity of the points of contention, Masood Ahmed, director of the IMF’s Middle East and Central Asia Department said on Friday that parties involved are working towards a quick deal.

“We are working very diligently to bring the set of discussions to a conclusion as quickly as feasible,” he said. 



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Carole T.
20-04-2013 12:56pm
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Tax on nonessential food items
Why limit tax to non alcoholic beverages? Why not taxes on chips, poorly made snacks and chocolate bars with little true chocolate content? These "foods" are ruining the health of children and adults alike. At least wine has some health benefits but these foods only promote obesity and eventually diabetic and hypertensive problems. These are the problems that cost the country in state subsidized health services and medicine. Showing commercials on tv that promote eating flavored chips over true food is a disservice to the population. If these non essential foods were taxed maybe the public would find it cheaper to pick up an apple or a banana instead of a bag of fat laden shwarma flavored chips.
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