The Economist issued two reports about Egypt on Saturday, titled “State of Denial” and “The Ruining of Egypt”, which critically examined the country’s economic situation.
The government’s ongoing negotiations with the International Monetary Fund (IMF) about a $12bn loan face great internal and external pressures.
“Egypt’s government inspires little confidence,” the report read, adding that the new IMF package would be contingent on reforms that politicians have talked about for years, but have failed to implement.
The report “State of Denial” noted that the value-added tax (VAT)—recommended by the IMF—has caused chaos due to concerns over the inflation rate, which has just hit 14%. Similarly, prevailing doubts caused the president to go back on a promise to end fuel subsidies, after trimming them in 2014.
The report mentioned that the parliament is upholding the reform of Egypt’s civil service, despite the president having pledged that no employee would be dismissed.
In its report, The Economist added that about 18m businesses are not monitored or taxed by the government, meaning that the informal economy is thought to be about two-thirds the size of the formal one.
“[President Abdel Fattah Al-Sisi] is hoping for more broad-based development. So far, however, there are few signs that he will do what it takes to achieve the loan through reforms. The regime is bust, sustained only by generous injections of cash from the Gulf states,” the report read. “For all of Al-Sisi’s nationalist posturing, he has gone beret in hand to the IMF for a $12bn bail-out.”
Senior economist at CI Capital Holding Hany Farahat believes that the report is biased and not credible.
Farahat said that although Egypt is going through a crisis, we have been able to overcome a great deal, even despite five years of political turmoil, an economic crisis, and problems in the tourism sector. “Problems do exist (in terms of foreign currency) but that does not mean that we are in the midst of a catastrophe. The crisis is on its way to being solved,” he stated.
He also noted that, contrary to the report, the IMF visit to Egypt comes after four or five years of suspended loan negotiations. The IMF praised the economic reforms taken by the Egyptian government, which is considered proof of their trust, according to Farahat.
The report contended that the Gulf countries, which strongly support Al-Sisi and have given Egypt billions of dollars in aid, seem to be losing faith. Farahat argued that this claim is not built on any economic foundation.
The report also stated that: the United Arab Emirates is believed to have pulled its advisers out of the country in dismay. The latest instalments of aid have been slow to arrive.
Taxes in Egypt decreased by about 5% down to 22.5%, and the tax regulations on economic zones were amended, according to Farahat. The report had said that only a few companies have signed up to operate in Egypt’s economic zones due to the government’s decision to raise the corporate income tax rate from 10% to 22.5%. The report compared this to Dubai’s Jebel Ali port where companies pay no taxes at all for 50 years.
Al-Sisi pours taxpayers’ cash into “grandiose” projects, the report read. Farahat countered this by saying that these projects are not grandiose; their benefits will become apparent within the next 10 to 15 years, not tomorrow.
He concluded by saying that the IMF’s decision will not be affected by the two reports because it is a scientifically neutral institution. The IMF is in Egypt to evaluate the situation for itself without having to resort to newspaper articles, Farahat stated.
Former dean of the Sadat Academy for Management Sciences Abdel Moteb Abdel Hamid is astonished by the article, as he claims Egypt is paying its debts, and yet is reported to be suffering from the spectre of bankruptcy—this does not apply in any way to the Egyptian economy.
“Our economic situation in 1988 was much worse than today,” Abdel Hamid added, as Egypt managed to overcome the economic crisis at that time and was able to implement the reform programmes despite the high budget deficit and inflation rate.
Economics professor in the faculty of commerce at Ain Shams University Yomn El-Hamaky criticised the report, describing it as shocking and unfortunate. Egypt does not suffer from any threat of bankruptcy owing to its abundance of resources and as-of-yet unexploited wealth, he said.
Until the government empowers the poor through microprojects and improves the economic situation, however, it cannot even consider lifting the subsidies, El-Hamaky said.
Minister of Finance Amr El-Garhy said Monday that the IMF loan is an acknowledgment of Egypt’s reform programme, adding that the loan does not include any conditions.
El-Garhy denied the rumours circulating in the media about the IMF’s request for a tax adjustment and the lay-off of 2 million employees from the state administration system.