Float undermined most objectives of IMF program; government has not carried out many scheduled measures as of April 2017. EIPR issues “An Eye on Debt”: the first report monitoring the IMF loan program as of April 2017
The government did not comply with any of the program’s terms requiring disclosure and transparency, and the currency float and the depreciation of the Egyptian pound eroded the benefits of higher fuel prices. These are the most significant conclusions of “An Eye on Debt,” released in Arabic on 7 May 2017.
The report, issued by the Egyptian Initiative for Personal Rights, aims to monitor the measures imposed by the loan program and their impact on the economy, both positive and negative. It also identifies the measures the government failed to carry out and attempts to offer alternatives that are less onerous for the public, especially low-income groups.
The report found that the government did not carry out most scheduled measures in the period from the signing of the loan agreement in November 2016 to April 2017, the first scheduled visit of the IMF experts.
“In particular, the government took none of the required measures to release detailed statements on monetary stability, a plan to restructure fuel subsidies and the energy sector as a whole, and government loan risks,” said Salma Hussein, a researcher with the economic and social justice unit at the EIPR.
The report also found that the IMF is pursuing contradictory measures by setting incompatible objectives. One example is fuel subsidies: the IMF called for lifting fuel subsidies to reduce public spending and the budget deficit, but it also dictated the currency float. The float increased the fuel import bill, doubling fuel subsidies in the budget from LE50 billion to LE10 billion due to the currency devaluation.
“Hence, citizens are enduring higher fuel prices in the form of runaway inflation for nothing, since the goal of reducing government spending on fuel subsidies has been undercut,” said Abd al-Hamdi Mekkawi, one of the report’s authors.
This is the first in a planned series of shadow reports to be released to mark each visit by the team of IMF experts.
The visits, during which the government’s performance is assessed, are scheduled for every six months and are connected with the disbursement of another tranche of the loan. The IMF is likely to approve the second tranche of the $12-billion loan despite the government’s failure to comply with most demands in the first assessment period. The government also failed to achieve the targeted reduction of the primary deficit, even as the IMF itself has scaled down its growth forecasts and, in turn, the creation of jobs.
The EIPR has reservations about most of the measures required by the IMF, which have socioeconomic consequences that harm the economy and social stability. This is especially true since both the IMF and government have failed to curb inflation resulting from the float of the pound, fuel price spikes, and the implementation of the VAT.