Tight grip on fiscal policy brings down debt and sees country meet IMF objectives
Egypt in 2016 was suffering from weak growth, growing unemployment, a punishing fiscal deficit and brutally high levels of government indebtedness.
The government, with the IMF’s supervision, launched into an ambitious programme to cut public spending and reduce the budget deficit. Phasing out subsidies on fuel was a key step, although the government has managed to bolster its social safety net and food subsidies, helping to keep public opinion on side.
Mohammad Maait took charge of the finance ministry in 2018, leaving the post of vice minister of finance for public treasury affairs and head of the economic justice unit.
Since joining the ministry, Maait has kept a tight rein on fiscal policy, bringing down the country’s debt to GDP ratio from 108% down to 90.5% by the end of that year. He also helped to bring Egypt’s budget deficit down to 8.2% from 10.4%. Next year, Egypt is aiming to reduce its deficit to 7.3% of GDP in 2020, partially through reforms to the tax administration system.
Through his work cutting public sector wage spending and subsidies, Egypt has successfully achieved the objectives set for it by the IMF in 2016.
Now, with lower government debt, banks are free to up their lending to the private sector and stimulate growth, which is already starting to return. Maait’s macroeconomic reforms were instrumental in rebalancing and stabilising the Egyptian economy.
Maait has demonstrated a market-oriented approach, improving Egypt’s economic fundamentals to such a degree that it has earned an upgrade from Moody’s and Fitch this year.
While vulnerabilities remain — a shock to global growth or a resurgence of political instability would damage progress— the Egyptian economy is far more resilient than it would otherwise have been, and Maait and his ministry are promising that the reforms will continue, sustaining economic growth and continuing to bring down the budget deficit.
Such promises are common in finance ministries rebuilding their economies, but it is a testament to the credibility that Maait and Egypt have earned that the international investor community and ratings agencies are prepared to take them at their word.