Last October, the media reported that an agreement between the Egyptian government and the World Bank (WB) was imminent, under which Egypt would receive $3 billion in loans over three years to finance economic development programs.
The impending agreement came thanks to the efforts of Minister of International Cooperation Sahar Nasr, who scrambled to cover the sizeable gap in financing resulting from low levels of local and foreign investment, the collapse of tourist revenues, and the inevitable decline of Gulf assistance. These efforts were crowned with the conclusion of an agreement for the first tranche of loans worth $1 billion on December 19, 2015.
On January 1, 2016, she announced that the first tranche had been disbursed, but the governor of the Central Bank denied the news three days later, leading the minister to confirm that the delay was the result of executive procedures and that the money would be here soon.
Regarding the content of the agreement, on December 21, 2015 the WB published on its website an eighty-page detailed memorandum on the loans (not the legal contract) with an executive summary, both dated November 23.
The documents indicate that the agreement requires the Egyptian government to carry through three programs. The first involves reducing the budget deficit by increasing tax revenue, reducing the annual increase in civil servants’ wages relative to GDP, and improving the management of internal debt.
The second program involves the expansion of private-sector participation in energy, while the third seeks to improve the investment climate through new laws, facilitating licensing, and improving competitiveness.
In fact, nothing in the three programs deviates from Egyptian economic policies of the last two years, indicating that the WB has linked its funding to Egypt with an economic program that the government is already working to implement without outside or extraordinary conditions.
So the talk about the World Bank’s "prescription" for Egypt and its stringent conditions is misplaced. The economic measures discussed in the WB document concord with previous state declarations, the July statement from the Finance Ministry, and the policies of the past two years.
This doesn’t necessarily mean the program is good or will achieve the development and social justice that Egyptians want—I’ve personally criticized some aspects of it in the past, especially in relation to megaprojects, public spending priorities, and the inappropriateness of investment policies and laws—but it’s useful to realize that the agreement with the WB is an expression of the Egyptian government’s program and choices.
We must discuss and engage with it on its own terms, not as the product of a consensus imposed from Washington by the WB and the International Monetary Fund.
In fact, such a discussion, free of conspiracy theories, could have been had if the government had not hemmed and hawed about releasing the details of the deal with full transparency, which opened the door to suspicion and doubt. In my view, the public is waiting for clear answers to the following questions:
1. Why weren’t the terms of the agreement released by the Egyptian government? As it stands, the only comprehensive source of information is the English-language document published on the WB website on December 21.
2. Why were civil servants and the public told that the civil service law would not affect the rights of public workers when the WB document requires the government to reduce public wages from 8.2 percent of GDP to 7.5 percent within three years?
3. Does the loan agreement with the WB or any other international institution require the implementation of a value added tax (VAT) or is it still under discussion? In its document, the WB lists the VAT as a condition for the second tranche of the loan. The executive summary only notes the need to increase corporate and sales tax revenue from 5.4 percent of GDP to 6.7 percent within three years.
The copy of the loan agreement leaked to the media last week—which the government has neither confirmed nor denied—includes a clear term on the need for a VAT. Where does the truth lie? Is there an obligation to impose a VAT? If so, what’s the timetable, rate, and scope? What kind of revenues will it generate? What impact will it have on prices and economic growth and activity?
4. Where is the loan? Why hasn’t it reached the Central Bank? The first tranche of a similar agreement with the African Development Bank ($1.5 billion over three years) concluded at the same time was disbursed in December. Is the problem really executive procedures or is it the rejection of the civil service law? Does a VAT need to be imposed first? Or does the parliament need to approve the agreement before the loan is disbursed?
5. Finally, is there any truth to press reports that the government is thinking of not putting agreements with international financial institutions to the parliament, to avoid any rejections or amendments as seen with the civil service law? I personally don’t believe this report and can’t imagine that the government would violate the constitution so flagrantly, but a clear denial is needed.
These are legitimate questions. The purpose isn’t to harass or impede the government—the economic situation is too serious for such games. These are questions that plague investors, small business owners, professionals, civil servants, and all citizens, so they require clear answers. Ambiguity is more damaging and costly than any statement on the government’s economic program, no matter how painful or controversial.
It’s said that people hate what they don’t know. The longer the truth is delayed, the more natural it is to expect the worst.
The writer holds a PhD in financial law from the London School of Economics. He is former deputy prime minister, former chairman of the Egyptian Financial Supervisory Authority and former chairman of the General Authority for Investment.
This article was published in Arabic in El-Shorouq newspaper on Monday, 8 February.