INTERVIEW: IMF official says Egypt’s reform path is on track

In a closed press meeting from Dubai, the IMF’s Director of the Middle East and Central Asia Department Jihad Azour talks about Egypt’s anticipated monetary policy meeting, assessment of the government and policymakers’ performance, expectations for inflation, and ingredients for economic growth.

Asked about the future of the Egyptian pound currency, Azor told Amwal Al Ghad English that the International Monetary Fund does not assess the currency situation but focus more on the market situation in terms of the supply and demand, and the policymakers’ strategies.

“I believe the central bank’s policies are correct; they come in line with a good policy taken by the ministry of finance in an attempt to solve the budget deficit and provide more liquidity to support the social protection programmes and ease the burdens on the least well-offs.”

Having a strong consolidation between those policies shall raise confidence in the economy, attract more foreign direct investments, and improve the country’s economic activity afterwards, he said.

“Egypt has a great capacity given the size of its economy, its unique location, and the return of the global economic upturn.” Azor said.

Asked about his expectations about the Egyptian central bank’ upcoming monetary policy committee meeting on interest rates, Azour said that whether increasing, lowering, or keeping the interest rates with no change, it is the committee’s decision based on the central bank’s policies for the country.

“There is no doubt that the central bank has taken crucial measures to solve a big-time dilemma in respect of the exchange rate volatility in the first stage followed by embarking a series of reforms in the second stage by successfully easing soaring inflation.”

The central bank has managed to lower the inflation levels from more than 30 percent to reach between 20 percent and 22 percent by the end of 2017, the IMF official explained, saying he expects more gradual decline this year.

“This is an accomplishment and it would indeed help achieve stability and social justice by easing the burden on citizens. Inflation is apparently the least fair toll that affects everyone.” Azor said.

Inflation reached a record high in July of around 35 percent on the back of energy subsidy cuts but then gradually declined as inflationary pressure caused by Egypt floating its currency eased. Later in December 2017, the inflation levels fell to 21.9 percent from 26 percent in November.

The IMF official have hailed the central bank’s measures which have raised both investors and global institutions’ confidence in the Egyptian economy. Such measures have helped growth rates gradually rebound, seeking remittances from expatriate Egyptians and foreign investments in government treasury bills are on the rise.

Remittances from expatriate Egyptians rose by 29.3 percent year-on-year in December to around $2.6 billion, the central bank said in its latest report.

The central bank also said remittances have jumped by 19.2 percent to $29.1 billion since the country floated its pound currency in November 2016.

Asked about the impact of inflation on prices and the purchasing power of the low, middle, and high-income citizens, Azor said the middle and above-middle classes were the most severely affected by the reforms.

“The reform is a lengthy path, not just based on one single measure. And Egypt’s reform path is on track. Both the central bank and the government have quickly fixed the soaring inflation levels. The central bank is clearly determined to address such challenges.” Azor added.

“The only way to protect these classes, the government has to provide more jobs, create solutions to unemployment, and raise wages. By doing this, Egypt’s economic situation, investors’ confidence, investment climate, and flows of foreign investments shall improve. In return, the living conditions of the middle class will become better.”

The IMF official further said that Egypt has to benefit from the fact that global economy had restored its activity.

Asked about how to control the growing levels of foreign debts, the IMF official said the levels of both external and internal debts are associated with the size of the budget deficit.

“Lowering debts cannot be achieved unless budget deficit are eased and economic growth are achieved.” Azor explained.

Asked about the growth rate required whereby the effects would be felt by citizens, the IMF official said:

“Based on studies and statistics, if the growth rate exceeds between 5.5 percent and 6 percent per year, there will be more stability in the labour market and a gradual decline in unemployment rates and that’s required to have growth been felt by citizens.”

The IMF held a high-level conference in Marrakesh in late January, and focused on promoting higher economic growth, job creation, and inclusiveness in the Arab World.

“In this conference, we made it clear restoring growth demands a series of reforms that will eventually lead to reduce unemployment gradually.” Azor said.

“Egypt has the chance to reduce the unemployment levels by working harder on boosting its economic growth rates. This is not just the case in Egypt but for the rest of the Arab World.”

In conclusion, Azor said the government is undertaking more structural reforms that would help ease the burdens on low and middle classes besides providing partnership opportunities for the private sector. This will contribute to create more jobs and increase wages, he elaborated.

A photo with IMF Director for the Middle East and Central Asia Department Jihad Azour
A photo with IMF Director for the Middle East and Central Asia Department Jihad Azour