International economics expert, Amy Ekdawi, has criticized the Egyptian government’s ambiguous economic policies, which have cast a shadow on the nation’s loans from international institutions.
International economics expert, Amy Ekdawi, has criticized the Egyptian government’s ambiguous economic policies, which have cast a shadow on the nation’s loans from international institutions.
A state of anxiety prevailed amongst political and economic circles when the government obtained a preliminary International Monetary Fund (IMF) approval last month to borrow L.E. 4.8 billion ($ US 787 million). The main concerns were about the potential impact of the loan on sovereignty issues.
Approving it, some argued, would inaugurate medium-term economic programs, while the state still lacks regulatory institutions to monitor government decisions.
Ekdawi, manager of the Middle East and North Africa Program at the Bank Information Center in the United States– a civil association concerned with empowering and supporting local communities to affect the policies of major international borrowing organizations – talks about the repercussions of the loan and civil society’s chance to affect it.
Did the government make a mistake when it decided to borrow from the IMF?
There is no rationalized borrowing policy in Egypt. The government economic program should have been discussed first, especially in light of the absence of a parliament to discuss and approve it.
After discussion and identification of the clauses to be included, the income should be considered and then it should be decided whether or not loans are needed or if there are other ways to cover expenses. Finally, a certain percentage of the total budget should be allocated for loans and the items that need borrowing are then determined. All of these stages are important but were unfortunately ignored.
What is the role of civil society in following up on the loan?
It should put pressure on the government to disclose its economic program instead of opposing the loan as a rule. The proposed clauses of the program should be discussed because the government would enforce it, whether or not through the IMF loan. And the civil society should exert pressure through the media and symposiums to amend the clauses it considers unfit.
Are there any conditions on how to spend the loan?
They are the program details agreed between the government and IMF, and the latter’s officials stated that they approved it and would finance it. Accordingly, the conditions have been developed by the government in its program; and through our experience with the programs financed by IMF, we can predict the program’s contents:
-Restructuring subsidy programs to reduce government spending
-Assessing and amending the tax system to make it fair
-Reducing the balance of payment deficits by cutting spending, while considering that IMF claims that it maintains the proportion of spending on health and education programs, which means that if spending is decreased, then spending on these two programs would be decreased as well.
-Minimizing inflation through the central bank’s monetary policies, such as increasing loan interest rates to make the demand less than the supply, which reduces the percentage of inflation. In addition, the Egyptian pound should be floating; with a decreased foreign exchange reserve at the treasury. The state must stop protecting the pound price until the demand on exports increases and imports decrease.
How does IMF monitor the loan spending?
The IMF doesn’t grant loans in one full swoop but in payments that are mostly annual. The loan term is five years and before the granting of each payment, an IMF delegation will assess the situation then publish its report on the IMF’s website.
Are there any similarities between this loan and Tunisia’s and how do Islamists deal with it?
Tunisia received a loan from the World Bank (WB) not from IMF. In any case, there is a similarity between both situations in Egypt and Tunisia as the economic ideology of the Islamists is open market, competition and investment encouragement. This explains how the economic program of the Egyptian government matches the one suggested by IMF.
The difference between financing by IMF and by WB, however, is that the Tunisian government is free to choose the programs on which it wishes to spend the loan amount; WB, contrary to IMF, doesn’t only finance economic programs. This means that it is the Tunisian government that has chosen to focus on economic policies to promote investments and a competitive market, which is in line with the economic ideology of the ruling Islamic Ennahda Movement, which is exactly the case in Egypt.
