Increasing the flexibility of the national currency’s exchange price is an essential part of the Egyptian government’s programme; the progress, which must be done by the government and the Central Bank of Egypt (CBE), is a hugely important element, according to Chris Jarvis, the International Monetary Fund’s (IMF) mission chief for Egypt.
The exchange rate in Egypt’s parallel market is much lower than the official price, Jarvis said at a press conference on the sidelines of the World Bank Group and IMF autumn meetings. According to most, the value of the Egyptian pound has already dropped incredibly low.
Jarvis stated that the programme targets to unify the exchange rate over time so that everyone can obtain this price, then buy and sell the US dollar easily.
He refused to talk about the fair value of the Egyptian pound’s price, saying: “This matter will be determined by supply and demand.”
Jarvis expects that the flotation of the exchange rate will not cause inflation to rise in the near future.
He explained that improving policies will lower the inflation rate over the coming years, and that exchange rates are reflected in current prices. It is expected that moving the exchange rate officially will affect the inflation rate.
Jarvis refused to provide any details about the associated financing, stipulated by the fund for Egypt’s access to the loan, which is estimated at $6bn. “We cannot give precise details on the bilateral funding because it is up to the government, and we haven’t completed the final details yet. Some countries expressed their support for Egypt, but have not discussed their strategy with the Egyptian authorities,” Jarvis said.
More than half of the value of bilateral funds ($6bn) has been pledged, Jarvis said, adding that negotiations are in progress and will be completed successfully. The ongoing negotiations with China to obtain new financing are proving to be successful.
The fund did not stipulate that the money from bilateral funding agreements be fully transferred, but rather undertaken.
Jarvis added that there has been significant progress in Egypt’s programme—he is convinced that it will be accepted as they are committed to finalising a successful plan. “We do not have an alternative plan, if negotiations fail,” Jarvis said.
He stated that in the IMF’s 60-year history, the fund had only has approved a financing programme once or twice, but he does not specifically remember, and what happened in those cases were discussions that were ruled out.
Jarvis pointed out that the difference in outcomes of the programme for fiscal year (FY) 2011/2012 and the current one is the political will of the government, the CBE, and president to complete this programme and be successful.
Since the 2011 revolution, Egypt’s budget had a deficit of more than 10% as a result of many problems, either accidents or political turmoil, that led public debt to reach 100% of the GDP—a dangerous level for the economy of a state such as Egypt.
He added that reducing the deficit is an urgent matter and the programme will focus on the primary deficit, except for interest payments. The target is to reduce the deficit to 5% over three years, starting at 2.5% in the first year. This target will be achieved through the activation of the value-added tax (VAT) and controls over the public sector (limiting wage increases in this sector, and amending the energy subsidy that started in 2014) in order to reduce the budget deficit this year as these policies will increase public spending.
He explained that one of the procedures planned for the budget is increased spending on social aspects (which will impact 1% of GDP), increased spending on food subsidies and the Takaful and Karama programme, and some other specific programmes that benefit low-income citizens.
The government’s programme includes increasing insurance, medicine, food subsidies for lower-income citizens, as well as dairy for children, and health care subsidies. The fund and the government are committed to supporting the poor, Jarvis asserted.
Jarvis pointed out that Egypt is going through a difficult period without the fund’s programme—high inflation, high unemployment rates, and a serious shortage in foreign exchange.
He stated that the objective of the fund’s programme is to reduce inflation and unemployment rates, and reduce the shortage of foreign exchange in accordance with the policies that will be applied.