(Photo Courtesy of IMF)
By Abdelrahman Youssef
Daily News Egypt sat down with the International Monetary Fund’s (IMF) Mission Chief in Egypt, Chris Jarvis, to discuss the Egyptian economy and IMF recommendations in that regard as well as how political stability influences economic growth.
Will Egypt still need financial support in the future or are the IMF’s recommendations for economic reform enough to address financing needs?
The authorities’ economic programme is expected to go a long way in addressing Egypt’s macroeconomic imbalances and vulnerabilities. However, the authorities’ policies would still leave large financing gaps in the medium term, which would need to be covered by greater adjustment or financing, or a combination of the two.
So, what does the government need to do?
We think that a more flexible exchange rate policy focused on achieving a market-clearing rate and avoiding real appreciation help in this respect, as it would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism, and attract foreign direct investment.
This would foster growth and jobs and also reduce financing needs. So far, the authorities have not requested IMF financing, but we would be ready to consider such request when the authorities feel it is opportune. As mentioned by managing director Christine Lagarde more than once, the IMF stands ready to help Egypt and its people.
What are the expected effects of the security situation on growth and inflation rates, especially since the IMF connected economic recovery to lesser risks? How does political stability reflect on economic growth rates?
In our report, we noted that in addition to a supportive economic environment, investor confidence depends on security and an even-handed application of the rule of law. The authorities have made significant progress in re-establishing security: the level of disruption of economic life is much less than in the recent past, and this progress is reflected in our projections.
The risks haven’t disappeared though, and if they materialised they could have a dampening effect on growth. A steadfast implementation of the authorities’ programme is the most important element for the success of their strategy.
It should be accompanied by the building of financial and policy buffers. Raising international reserves and preparing contingency plans for the budget that would be useful to address unforeseen shocks and boost confidence, in case risks materialise.
