IMF loan to Egypt suggests veiled conditions

Ahram Online, Monday 6 Jun 2011

IMF delegation's stress on 'private sector-led' economic growth and reference to subsidies reform hint at behind the scenes pressures

Bread protests
Subsidies are due for an IMF-approved shake-up, risking public anger (Photo: Reuters)

The International Monetary Fund's staff level announcement of a US$3 billion loan for Egypt suggests it expects the country to alter its subsidies system and adhere closely to free market principles despite previous claims that IMF assistance is unconditional.

The IMF's Deputy Director of the Middle East and Central Asia Department, Ratna Sahay, concluded the monetary body's Cairo visit yesterday with a speech stressing "private sector-led economic growth" is the way forward.

Sahay added that "fundamental structural reforms" are necessary and expected.

"The transition to a VAT-like consumption tax and reform of the highly inequitable and costly system of subsidies, are needed to improve the efficiency of public spending and help reduce the fiscal deficit in the medium term," she said.

Sahay admitted that the IMF and Egyptian government agree immediate changes are unrealistic and the country needs to build an effective safety net to protect low income households. But she suggested a substantial shake-up of Egypt's previously 'untouchable' food and fuels subsidies is only a matter of time.

"The government intends to prepare a road map to facilitate implementation of these reforms in the future," Sahay said.

A survey of Egyptian public opinion released on Sunday by the US government-backed International Republican Institute found 64 per cent of Egyptians interviewed in April said they participated in the revolution as a protest against low living standards and a lack of jobs.

Critics say such poverty was exacerbated by the neo-liberal economic policies of the Mubarak era. Around 69 per cent of those polled also expressed disapproval of Egypt's business community.

On Sunday, the IMF and Egyptian authorities reached a staff level agreement on US$3bn loan to support the government’s economic 2011-12 fiscal plans. Egypt’s request will be submitted to the IMF Executive Board for approval in July.

Short link: