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IMF Supports Egyptian Fiscal Reform

by Lorys Charalambous,, Cyprus

29 November 2012

The International Monetary Fund (IMF) is to grant a 22-month Stand-By Arrangement (SBA) to Egypt, worth USD4.8bn, to support plans to overhaul the tax system, to slash the deficit and increase social spending.

Confirming a staff-level agreement on the SBA, the IMF explained the program would "address the country's fiscal and balance of payments deficits, and lay the foundation for rapid job creation and socially balanced growth in the medium term."

Says theIMF: "Fiscal reforms are a key pillar under the program. The authorities plan to reduce wasteful expenditures, including by reforming energy subsidies and better targeting them to vulnerable groups. At the same time, the authorities intend to raise revenues through tax reforms, including by increasing the progressivity of income taxation and by broadening the general sales tax to become a full-fledged value-added tax."

Under the program, Egypt would reduce its budget deficit from 11% of gross domestic product (GDP) in 2011/12 to 8.5% of GDP by 2013/14.

The IMF added: "An important objective of the authorities is to ensure a fair and competitive business environment with a level playing field among investors. Accordingly, the authorities intend to enhance the transparency of registration and licensing procedures, facilitate the resolution of investment disputes, and support small and medium-size enterprises. Fair and unencumbered access of businesses to economic opportunities is important for a socially balanced private sector growth and job creation."

The Fund concluded that: "Overall, the authorities' economic program promises to address many of Egypt's pressing economic challenges during a difficult time of political transformation, and lays the foundation for durable and inclusive growth, while striving to meet the people's expectations for greater social justice and good governance."

TAGS: tax | business | value added tax (VAT) | sales tax | fiscal policy | budget | International Monetary Fund (IMF) | licensing | Egypt | tax reform

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