Egypt economic reforms proposals are realistic, achievable: Economist

Ahmed Feteha, Tuesday 20 Mar 2012

Reforms proposed by the interim government to secure IMF funding can slash the budget deficit without damaging the economy, a leading Egyptian economist tells Ahram Online

The programme could have been more ambitious, but is 'sufficient', says Magda Kandil, executive director of the Egyptian Center for Economic Studies (Photo: ECES)

The economic reforms proposed by Egypt to acquire borrowing from the International Monetary Fund (IMF) are realistic and achievable, according to one of the country's leading economists.

The programme outlines measures to increase public revenues mainly through increasing taxation and containing expenses through rationalising subsidies. Egypt's interim government must submit detailed economic reform proposales to the IMF in order to qualify for a much-delayed $3.2 billion loan.
"The programme presents a set of short-term measures aiming at decreasing the budget deficit without severely damaging the general economy or taking a toll on social
benefits," Magda Kandil, executive director of the Egyptian Center for Economic Studies (ECES) and a former IMF advisor, told Ahram Online.
A large chunk of the proposed reforms includes modification to Egypt's tax structure. The document proposes a shake-up of Egypt's sales tax, including unifying rates, simplifying rules and rationalising exemptions.
It also suggests new property taxes and raising levies on cigarettes and alcohol.
"Taxes in Egypt are already lower than in its [regional] peers, and there is plenty of room for reform," Kandil explains. "By either taking measures to reduce evasion or by adding new tax vessels we could see revenues grow without harming economic activity."
She added that the programme could have been more ambitious and failed to cover many key issues.
"It is not clear how the government plans to stimulate productive activities," she complained, saying the document failed to provide details of incentives to encourage business investment.
Business-friendly measures such as special tax cuts, subsidies for exports, and easier credit for small and medium-size enterprises should have been present in the document, Kandil said.
But she added that there were political reasons for the document's apparent caution.
"There are disputes between the [interim] government and the parliament about these measures," she said. "It is very hard to adopt a more ambitious economic programme when you need consensus to pass legislation."
The programme provides scarce comfort for those campaigning for social justice, which many believe was a key driver behind Egypt's popular uprising. It says little about adopting a progressive income tax -- a long-standing demand among some Egyptians who believe it a step towards greater social equality. The new levies it does describe are mostly value added taxes and other uniform burdens, which are by nature regressive.
"Social justice is about creating a strong economy that provides jobs for the population and makes it easy for small enterprises to flourish," Kandil explains.
"Collecting money from the rich and channelling it to the poor is a short-term strategy that will not solve the problems of the majority of the impoverished masses."
She added that the time is not right to levy more taxes on businesses because Egypt is currently short on investments.
"We can raise taxes when the country is overflowing with investments, but to do it now will be making Egypt less attractive [to investors]."
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