EGYPT
In Egypt, IMF money to flow as austerity bites
On the surface, the November 11 announcement of the approval of a $ 12bn IMF loan package to Egypt is a blessing for a country that is in desperate need of external financing.
EGYPT ' S DEBTS TO INTERNATIONAL OIL AND GAS COMPANIES ROSE TO $ 3.6BN IN OCTOBER
On the surface, the November 11 announcement of the approval of a $ 12bn IMF loan package to Egypt is a blessing for a country that is in desperate need of external financing.
The long list of deeply entrenched problems with Egypt ' s economy have piled ever higher over the past year as a crippling dollar shortage has hit the country ' s financial institutions. Revenues from the largest industry, the tourism sector, fell more than 40 percent in 2016, diving well below already depressed levels. Youth unemployment levels have remained in the critical 30-40 percent range. But IMF support, announced with slick public relations materials, comes alongside fiscal austerity measures.
The question, according Heba al-Laithy, professor of statistics and economics at Cairo University, is whether the country and its people can bear the further strains.“ This deal will of course show some improvement in macroeconomic indicators. However at the micro level it will probably have very serious consequences for living standards, and for inflation in this very high unemployment rate environment,” Ms al-Laithy says. The austerity programme includes an electricity price hike, a cut to petrol subsidies, privatisation of state-owned companies, civil service reductions, and the floatation on November 3 of the Egyptian pound. Egyptian citizens, already used to years of economic pain, will be feel the pinch even more.
Businesses hope that the currency devaluation will tempt foreign investment into Egypt ' s capital markets. The finance ministry has promised inflation will remain under control, but there are already signs of severe inflationary pressure.
The effects, Ms al-Laithy claims, could be very serious for the poorest Egyptians.“ Around one third of the population are already in poverty, without access to basic needs, and in my assessment that number is going to increase by at least 10 percent even with the increase in subsidy allowance,” she warns.
However other options for President Abdel Fatteh el-Sisi and his government to turn the economy around are running out. Egypt ' s debts to international oil and gas companies rose to $ 3.6bn in October, and the budget deficit is also growing. It reached 12.2 percent of GDP in 2016. Some fear that, despite the government and the IMF’ s assurances, the loans will be frittered away paying off existing debts to foreign creditors including to international oil companies rather than on investment in poverty reduction measures and job creating sectors of the
46 Business Times Africa | 2016