Ahead of the International Monetary Fund’s (IMF) meeting that is scheduled to be held on Monday to consider Egypt’s request to benefit from the Rapid Finance Instrument (RFI), Egypt’s Minister of Finance Mohamed Maait says that the IMF is expected to approve Egypt’s request as well as set the date of disbursement of the first tranche under the RFI.
Speaking to Ahram Online, Minister Maait shared figures of FY2019/2020’s performance and the expected performance in FY2020/2021, which he said is marked by uncertainty.
He also expounded on how the coronavirus crisis has forced the government to lower all of its expectations for Egypt’s macro-economic signs, adding that parliament is expected to approve the FY2020/2021 draft budget in the first week of June.
Egypt has filed a request for two loans under the RFI and the Stand-by Agreement (SBA), which are services provided by the IMF in response to the COVID-19 crisis.
Ahram Online: The IMF has set 11 May to consider Egypt’s request for the emergency facilities that the IMF provides in response to the COVID-19 crisis under the FRI and SBA loans. What is your expectation regarding the IMF's decision?
Mohamed Maait: Egypt is communicating with a number of prominent financial institutions, including the IMF, through technical support programs, exchanging expertise and obtaining finances when needed.
For the new deal with the IMF, Egypt has filed a request for two loans under the emergency facilities the IMF provides in order to contain the harsh impacts of COVID-19 on the Egyptian economy and to offset the sharp decrease in state revenues due to the crisis.
I think that the success of Egypt’s economic reform program that was financed through the IMF’s $12 billion Extended Facility Fund paves the way for Egypt’s request to be approved. On Monday, it is expected that the IMF’s executive board will announce its decision and set the date for disbursing the first tranche of the RFI loan to Egypt.
AO: To what extent will the new loan help the government support the sectors affected by the crisis?
MM: The new funds under these programs will be used for economic and social support, to back the sectors themselves and to keep the gains made by Egypt’s successful economic program, especially since it is not yet clear how long the COVID-19 pandemic will last and what its effects will be, as it imposes a state of unprecedented uncertainty over the global economy and that of Egypt.
AO: To what extent has the COVID-19 crisis affected Egypt’s economy, the state’s fiscal policy, and the macro-economic performance?
MM: The crisis is very tough and has affected all macro-economic signs, in particular the economic growth rates.
We had a target for the economic growth rate to record 6 percent in FY2019/2020, which ends in June, depending on the achievements of the economic reform program over the past four years. We aimed to have it surpass 6 percent in FY2020/2021.
Unfortunately, the crisis has forced us to lower our expectations to 4.2 percent, with no specific expectation for the coming FY2020/2021 budget due to the uncertainty of the crisis.
Moreover, FY2019/2020 is seeing an increase in public debt of EGP 44 billion on the back of the increase in expenses amid the COVID-19 crisis.
The crisis has also caused a decline in revenues by around EGP 75 billion, EGP 65 billion of which are a drop in tax revenues.
We cannot ignore that the preventive fiscal procedures to contain COVID-19’s impacts have placed pressure on the FY2019/2020 budget, as we have spent EGP 40 billion of the EGP 100 billion that were allocated for this purpose, for healthcare, supply, exporting, education, social protection and construction.
AO: You mentioned that the expected economic growth rate cannot be set amid the uncertainty imposed by the COVID-19 pandemic. So, on what kind of measures has the FY2020/2021 draft budget been built?
MM: Actually, we started to formulate the FY2020/2021 draft budget in September 2019 and we finished it in February, when the crisis was in its beginning.
The budget was drafted under the scheme of ‘A Supportive Budget for Egypt’s economic activity, human development, and structural reform.’
Thus, it was difficult to adjust the budget, especially since the ministry is committed to a constitutional date to submit the draft budget to parliament, which is supposed to be before March.
So, we remain with the FY2020/2021 draft budget with a commitment to respond to the changes that are likely to be made amid the crisis under the directives and notes of parliament.
AO: When is parliament expected to approve the FY2020/2021 draft budget?
MM: It is projected to be approved during the first week of June.
AO: What about the expected performance for Egypt’s economy in FY2020/2021?
MM: The FY2020/21 draft budget adopts a package of measures aiming to secure Egypt’s current fiscal and economic performance, while working to decrease the public debt-to-GDP ratio to 85 percent, up from the 82.8 percent that was expected in the FY2020/2021 draft budget statement released in April.
In this regard, the public debt-to-GDP ratio in 2017 recorded 108 percent, then decreased to 98 percent in 2018, and declined to 90.2 percent in 2019. We aimed to have continue to retreat to 89 percent in 2020, then to 83 percent in 2021 based on the economic reforms. However, the decrease in state revenues due to the crisis has pushed us to lower the expectations for 2020 and 2021.
The FY2020/2021 draft budget also remains with an initial public budget surplus of two percent of GDP, declining the total deficit-to-GDP ratio to 6.3 percent.
It also ensures social protection enhancements, equitable distribution of state resources, focusing on boosting the efficiency of food commodity programmes and expanding cash subsidies for certain groups.
The total public spending in the draft budget is projected to record EGP1.7 trillion, with expected revenues of EGP1.288 trillion, rising by 13.6 percent compared to FY2019/2020, as they are projected to increase at a growth rate that exceeds the increase in spending which paves the way for the public deficit and debt rates to decline.
On the other hand, it adopts an approach to make ultimate use of state asset revenues through a sound pricing system, and to expand partnership between the public and private sectors.
Egypt’s economic reform program has left ample room for decreasing both the public debt and the budget deficit in addition to achieving a budget surplus.
AO: How can you offset the notable decrease in revenues?
MM: The crisis threatens a great deal of shocks, so, we will count more on expanding finance instruments to tackle such an important question, including benefiting from facility programs that the financial institutions provide to contain COVID-19’s impacts, as well as other instruments such as drafting new regulations in this regards like the recent sate’s revenue development law.