IMF Has It Wrong on Egypt

The International Monetary Fund, after signalling that it does not believe Egypt’s proposed economic reform programme is strong enough, has offered Cairo a temporary loan to help the nation weather its currency and budget crisis while it negotiates a more complex $4.8 billion loan.

In Washington, the International Monetary Fund said Egypt needed bold and ambitious action to tackle its economic problems urgently and it could get temporary IMF funding while it negotiated a long-delayed full loan programme.

An IMF spokeswoman Wafa Amr said the Rapid Financing Instrument was designed to provide rapid, but limited, assistance to member countries facing urgent balance of payments needs.

Reuters, March 11

The stop-gap measure could amount to about $750 million, according to Reuters, a sum which pales in comparison to the budget deficit targeted at $28 billion this financial year, or 10.9% of annual economic output.

The Fund is quietly acknowledging that in the absence of the reforms president Mohammed Morsi has been reluctant to enforce, the country needs immediate help as it fast runs out of cash for fuel and wheat imports.

Providing immediate help at a smaller and more grass-roots scale, and ensuring this is not hinged on an IMF final accord is something other international investors should consider in Egypt, as Rebel Economy has argued before.

Especially as Gulf money, which has acted as a stop-gap in the past, is not forthcoming. (Qatari finance minister Youssef Kamal dashed any hopes that more funds were on their way soon this week. “We already announced $5 billion,” he told Reuters. Asked whether Doha expected to provide more, he replied: “Not yet.”)

But there is a problem in the IMF’s approach. 

While the IMF is working hard to represent a voice of compromise at a time when the government’s credibility is being tested and the mandate to follow through on important reforms narrows, it should not help Egypt plug an unsustainable budget through these temporary measures because it artificially props up the government.

Egypt should not accept the bridging finance.  Instead, what the government should do is begin a campaign to make the budget transparent and the economic situation clear. It needs to do that to get political buy-in for austerity measures.

The president and his supporters are buying time because they want to win parliamentary elections before imposing a more difficult economic reform plan. Accepting the bridging finance only furthers the government’s interests. 

It’s almost like Mr Morsi is holding the country hostage with the help of the IMF.

If anything the IMF should not offer bridging finance and force the president to be clear about a reform plan.



2 Comments


  • Automaton
    Posted March 12, 2013 at 3:49 pm | Permalink

    From the IMF perspective, not sure why propping up this government would be bad policy, it is quite possible that a future government post parliamentary elections would be less dominated by the brotherhood, and less agreeable to IMF terms.

  • Posted March 12, 2013 at 4:49 pm | Permalink

    Regarding making the budget more open and transparent, have you seen this utterly depressing report indicating that Egypt’s budget is significantly more opaque than it was in 2010:

    http://internationalbudget.org/wp-content/uploads/OBI2012-EgyptCS-English.pdf



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