29 January 2018
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IMF gives Egypt a positive review

The IMF has given Egypt a positive review under its Extended Fund Facility programme, but the focus will now turn to fostering longer term growth.

By Daniel Richards

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On January 23, the IMF released its second review of Egypt’s performance under the Extended Fund Facility (EFF) programme it entered into in November 2016. The review was largely complimentary on the progress made by Egypt so far, citing the ‘bold’ economic reforms and ‘decisive policy actions’ undertaken, and the positive effect these have had on restoring market confidence and growth momentum. This chimes with the data that has come out of Egypt in recent quarters, where there has been a marked improvement in the Emirates NBD PMI index, a sharp rise in reserves and foreign portfolio investment, and a narrowing of the twin deficits.

The focus of the IMF’s assessment of the Egyptian economy has now turned to the next chapter in its development, namely ‘unlocking higher and more inclusive growth.’ To this end, it cites the disparity between Egypt and other emerging market peers in terms of private sector activity, and underscores the need to bolster this if sufficient jobs to cater for Egypt’s youth bulge are to be created.

While the removal of the pound’s peg and reduction of subsidies were difficult, these were in some senses the low-hanging fruit in terms of reforms, despite the hardship they have inflicted on many ordinary Egyptians. Bolstering private sector activity and competitiveness will come up against vested interests in the public sector and a few politically connected private sector entities, which have traditionally been protected. Making the environment more competitive would encourage greater efficiencies and innovation, bolstering the long-term growth outlook and employment, but progress here will likely be slower than that seen to date.

Nevertheless, there has been some progress with regards to legislation aimed at encouraging private sector activity; a new investment law was passed in 2017, and on January 28, the Egyptian parliament passed the country’s first bankruptcy law. This abolishes imprisonment for bankruptcy, and minimises the need to recourse to the courts to settle such cases, and will likely support greater private sector investment.

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Written By

Daniel Richards Senior Economist


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