Egypt, IMF Agree on $4.8 Billion Stand-by Agreement

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Researched by Industrial Info Resources (Sugar Land, Texas)--The Internatinoal Monetary Fund (IMF) and Egypt have agreed on a 22-month stand-by agreement (SBA) for $4.8 billion, which will support the government's economic program through fiscal year 2013-14. The SBA request is expected to be submitted to the IMF Executive Board for approval in a few weeks. The IMF statement indicates that "fiscal reforms are a key pillar under the program."

The 22-month reform programme aims to "address the structural imbalance" in the Egyptian budget, which could strengthen investor confidence. As such, Egypt has committed to reforming energy subsidies and raising tax revenues by increasing the progressivity of income taxation and broadening the sales tax to become a full-fledged value added tax scheme. The 25% top rate for income and corporate tax would not change, the cabinet said in a statement issued after the IMF agreement. Energy subsidies, which cost $17.5 billion last year, account for 20% of the budget.

According to the agreement, the budget deficit of nearly 11% in 2011-12 will be reduced to 8.5% by 2013-14, while the primary deficit will be cut from 4% in 2011-12 to 0.6% in 2013-14, before it turns into a surplus beyond that.

Additonally, the IMF indicates that "monetary and exchange rate policies will be geared toward ensuring declining inflation over the medium term, enhancing Egypt's international competitiveness to stimulate trade and attract capital inflows, and increasing international reserves to protect against external shocks."

"The program will be supported by a financing package of $14.5 billion in loans and deposits on favorable terms from a range of bilateral and multilateral partners, including the IMF," the IMF said.

The country also will get bi-lateral funding from Turkey, the U.S., Saudi Arabia and Qatar.

Economists said that the fiscal targets can be achieved. "Greater exchange rate flexibility may be allowed to improve competitiveness and ensure an adequate level of reserve coverage," said Cem Akyurek, a senior economist at Deutsche Bank in Istanbul. "Increasing risks to recovery in tourism and foreign direct investment, due to rising geopolitical risks and remaining important steps for progress in political transition, are risks to a sustainable recovery."

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