Egypt’s ailing economy is on the cusp of a $12bn IMF programme that could help mobilise $10bn-$15bn of much needed foreign investment into the country, the country’s finance minister, Amr El Garhy, told Emerging Markets on Thursday.
El Garhy, a former investment banker who took office in May this year, is the eighth person to take up the role since the Egyptian revolution in January 2011. He has inherited an unstable regime facing enormous challenges, and diabolical metrics. Egypt has crippling twin deficits and indebtedness has risen to close to 100% of GDP. Low growth of 1.5%-2% and rapid inflation have done little to improve the situation.
But Egypt is on the verge of an agreement with the IMF which would unlock access to not only a $12bn Extended Fund Facility, but also some $10bn–$15bn of foreign direct investment, not including investment from the oil and gas sector. While El Garhy expects this over a period of two to three years he acknowledges that an IMF agreement will not provide instant access to fast cash, nor a solution to all Egypt’s problems, though he does see it as an important endorsement of the health of the economy. “These things take time,” he said, noting the importance of fiscal and structural reform.
Egypt is also at the “advanced stages” of Eurobond issuance and is planning to be out with a new deal of $2.5bn-$3bn before the end of the month. El Garhy is conscious to avoid a clash with the US elections though is seemly ambivalent about the result. “I’m open to dealing with any regime, we’ve had good relations with the US,” he said.
El Garhy wants to kickstart the economy into functioning at a “full steam growth rate of 5%-8%”. He aims to reduce the budget deficit to 10% in 2016-2017 which he hopes will be revised down to 8% in the next three to five years, and to reduce debt to GDP to 80%. But a consistently high level of government expenditure has weighed on public investment.
“We’re a very diversified economy and our potential is huge,” he said. “But our challenges are enormous. In recent years government spending has been very rigid.”
Fiscal reform is coming in the form of a five year plan to gradually increase VAT, reducing wages which currently make up 28% of the budget. While subsidy cuts are on the agenda, El Garhy wants to make sure they are made in the right places and will retain food subsidies for the poor.
TOURISM HIT
Depleted tourist numbers have hit Egypt’s economy hard, but El Garhy thinks that Egypt is being unfairly punished. “What happened was a tragic accident, and other countries have them too,” he said. “We don’t have security issues, people talk about factions of extremists but they are very small. We will be pushing tourism very hard.”
Regardless, El Garhy has work to do to convince those foreign businesses deterred by what they see as elevated security risks.
Along with tourism, El Garhy is focusing on industrial growth, energy, food exports and capital markets development to stimulate growth. He also plans to sell several state owned assets and is in talks about the sale of a bank, and use the capital markets as a catalyst to bring investment.