INTERVIEW: Increasing interest rates essential for MENA, including Egypt: IMF’s Azour

Doaa A. Moneim from Washington DC , Thursday 13 Apr 2023

During the IMF and World Bank Group’s spring meetings in Washington DC, Ahram Online interviewed the Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF) Jihad Azour.

(IMF) Jihad Azour.
Director of the Middle East and Central Asia Department at the International Monetary Fund (IMF) Jihad Azour.


Azour stated that several countries in the region are experiencing double-digit inflation for the third year in a row, which is a serious issue.

Egypt, for instance, witnessed headline inflation surpassing 32 percent in March, while core inflation dropped below 40 percent compared to February, according to the Central Bank of Egypt (CBE) and the General Agency for Public Mobilisation and Statistics (CAPMAS).

“The priority, as in the rest of the world, is to activate the monetary policy instruments to lower inflation and keep it under control. This may require, in certain cases, tightening the monetary policy by increasing interest rates so that they reach neutral or positive levels”, Jihad asserted. 

Since March 2022, the CBE, in a bid to contain soaring inflation, hiked key interest rates by 10 percent (1000 bps). The CBE also has a clear commitment under the IMF’s Extended Fund Facility, which the IMF approved in December, to shift to a flexible interest rate regime and to maintain it.

“The situation is different between countries, as oil exporting countries, particularly the GCC, have been able to keep inflation under control, and on average below three to 3.5 percent. What really matters to these countries is to avoid any preop procyclical policies, which could fuel additional inflation for the rest of the region”, according to Azour.

“On the other hand, countries where inflation has exceeded the target need to use further monetary policy by hiking interest rates to curb inflation,” noted Azour.

Egypt's inflation remains well above the target set by the Central Bank of Egypt at 7 percent (±2 percent) on average through the fourth quarter of 2026. 

Debt crisis

“The debt situation is different, of course, for certain number of countries. Debt has increased over the last three years. The COVID-19 crisis and the measures taken to address it led in certain cases to an increase in debt”, Azour stated.

“For countries with high levels of debt it is crucial to maintain consistent fiscal consolidation policies and implement financing policies that can help reduce the average cost of debt,” noted Azour.

The IMF projected Egypt’s general government gross debt to reach 92.9 percent of GDP in 2023, the highest since the 87.9 percent ratio recorded in 2018, according to the Fiscal Monitor report released on Tuesday.

​This ratio is also above the ratio recorded in 2016 (91.6 percent) when Egypt’s IMF-backed $12 billion loan, which lasted for three years, was approved, according to the report’s figures.

“Certain countries have to calibrate their policies in order to keep a macroeconomic status. Countries with high level of debt need to increase the measures to reduce the debt burden on the reform”, Azour stressed to Ahram Online.

Speaking of Egypt’s economic situation, Azour told Ahram Online that Egypt has been pursuing reforms over the last five years and the IMF has been supporting these reforms through several programs.

"As you may be aware, we have recently established a new agreement with Egypt which is centered around four primary pillars. The first pillar aims to maintain the economic stability by addressing inflation through monetary policy instruments. The second focuses on protecting the economy from external shocks through flexible fiscal and exchange regimes. The third pillar aims to address the issue of growth by implementing structural reforms and accelerating their progress. Finally, the fourth aims to maintain and expand the social programs that Egypt has already implemented and continues to implement," Azour stated.

Egypt is currently engaged in a $3 billion loan programme for four years that aims to address the imbalances which the country’s economy has been suffering as a result of the repercussions of the Russian-Ukrainian conflict. The first review, which was planned to be conducted on 15 March, seems to have been delayed. According to an IMF official, who spoke to Ahram Online on Tuesday, the preparations for the review are still in progress.

Currency depreciation, interest rate hikes

Ahram Online also discussed with Azour the extent to which currency depreciation and high interest rates have contributed to countering inflation and debt issues in some MENA countries, including Egypt.

“The purpose is to move to a flexible exchange rate regime. Market forces will define the level of exchange rate. This is important because it helps countries reduce the impact of external shocks, and we are in a shock prone economy globally. Therefore, it's important to anchor the exchange rate policy through flexibility to provide the right protection to the Egyptian economy”, Azour explained to Ahram Online.

Global oil prices scene

Azour also spoke to Ahram Online about the latest decision by a number of oil exporters to further cut their production and the potential impacts of the decision on the region’s economies. He said that in general the cuts in oil production will lead to an increase in oil prices, which will have a negative impact on oil importing countries, including Egypt.

“This is why we are recommending that countries maintain monetary policy stent to address any risk of inflation. We also recommend that countries reduce subsidies, which have proven to be both ineffective and unfair and to have a negative impact”, Azour said.

For oil importing countries, including Egypt, the mix of policies is going to be important to provide confidence to investors as well as to citizens. It will also address some of the issues that have accumulated over time, according to Azour.

The IMF’s and World Bank Group’s (WBG)’s annual spring meetings are being held in Washington DC through 16 April under the theme “The Way Forward: Building Resilience and Reshaping Development”.


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