IMF Concludes Article IV Consultation With Egypt

by Ulrika Lomas, Tax-News.com, Brussels

16 January 2009

The International Monetary Fund (IMF) on Thursday published the conclusions of its Article IV consultation with Egypt, which was completed in December.

The IMF report began by observing that “economic performance since 2004 generally has been impressive, underpinned by a supportive external environment and the structural reform program that has included the liberalization of foreign trade, investment, and the exchange market, the privatization of state entities, and measures to strengthen bank balance sheets and banking supervision. Annual GDP growth in the post-reform period was more than double the average of the previous decade, driven by large-scale foreign and domestic investment.”

In the report’s executive assessment the “directors commended the Egyptian authorities for their sound macroeconomic management and economic reforms to date. Directors considered that the policy challenges facing the authorities have changed significantly since the onset of the global financial turmoil and the rapid deterioration in the international economic outlook. While the Egyptian economy has withstood the global slowdown relatively well, net exports and foreign direct investment are likely to weaken as external conditions decline further in the months ahead. Under these circumstances, and with inflation past its peak, the priority will be to maintain growth and balance of payments stability. Directors were therefore pleased that Egypt's recent economic reforms have provided the authorities some room for maneuver to cautiously undertake countercyclical policies in the event of an economic slowdown.”

“Directors supported the authorities' fiscal policy aimed at striking a balance between bolstering short-term activity and ensuring medium-term fiscal sustainability. The size and composition of the proposed fiscal stimulus in 2008/09 to support growth and employment are broadly appropriate. Directors also noted that the envisaged acceleration of public infrastructure spending to address existing bottlenecks will result in only a modest deviation from the planned medium-term consolidation path.”

They also “noted that Egypt's medium-term outlook remains sound. On the fiscal front, Directors urged the authorities to remain vigilant regarding the challenges posed by the still high levels of the fiscal deficit and public debt, the short-maturity of debt, and the back-loaded adjustment effort required to meet the revised fiscal deficit targets.”

“Reforms that restructure the public finances to support fiscal consolidation deserve priority. Directors attached importance to the early introduction of the VAT, which would have the best prospect of yielding the revenue gains needed for the envisaged medium-term fiscal adjustment." They welcomed recent government efforts to broaden the privatization program.”

Recommended