The Egyptian economy has good capabilities that will enable it to recover in the coming period so long as the economic and social reform programme is implemented over the next three years, said International Cooperation Minister Sahar Nasr.
In her interview with Daily News Egypt on the occasion of the Euromoney conference, Nasr said that the loans for which the ministry negotiates are “cheap” and directed to developmental projects. Moreover, they do not burden the national budget compared to other debts that finance the budget deficit and the debt instalments, of which the interest rates amount to 16%, compared to 2% or less on the ministry’s loans.
What are the features of the programme the ministry has presented to all international institutions for borrowing?
When I took office, I asked for all the reform plans the government has started on since June 2014. Moreover, I asked to observe the financial reform policies put in place by the minister of finance, of which the majority were executed while those remaining are still being executed.
Furthermore, I requested the reforms conducted by the ministers of electricity and petroleum, in addition to the plan developed by the Ministry of Investment, which includes improving the investment climate and issuing the investment law with its implementing regulations, single window system, and other points. In addition, I asked for the plans of the minister of industry for the new industrial areas.
I put all of this together into a unified programme and presented it to the cabinet which then approved and submitted it to all the international institutions.
The programme, which has been submitted to all financing institutions, covers four years and is based on helping the neediest governorates and the segments suffering the most from poverty and unemployment. In addition, it determines the economic sectors that are in need of the most support and that will be able to drive economic growth.
The programme targets, in coordination with the financing bodies, to improve the level of the basic services provided to the Egyptian citizen, such as transport, roads, sanitation, water desalination, health, and electricity.
The ministry helps the government to provide the financing needed to implement the social and economic reform programmes, especially given that Egypt’s budget is still unable to finance these basic needs.
The programme is being coordinated with all the ministries and concerned government bodies. Before President Abdel Fattah Al-Sisi took office, the vision was unclear, which led to halting the execution of a number of financing plans with different financing bodies.
I worked as quickly as possible to draft a strategy that would determine the needs and priorities of the Egyptian economy with the World Bank and the European Bank for Reconstruction and Development, in addition to the most important sectors that are suffering a financing gap.
The rates the ministries and government bodies were using to withdraw from loans before I took office were very low due to the low rate with which they used to implement projects. The rate was 9%; however, it has increased to 48%, thanks to revision of a majority of these agreements.
No negotiations are currently being conducted for government bodies to obtain loans before feasibility studies of projects are presented and it is certain that they have a high enough return rate in order to pay the instalments and interest rates of these loans.
What are your estimates about the financing gap and the segment your ministry is expected to provide?
The financing gap is estimated at approximately $30bn over a three–year period. We, at the ministry, are seeking to provide approximately $15bn, 50% of the financing gap, over these three years, which is an estimated $5bn a year.
We succeeded in providing approximately $3.8bn from financing bodies, out of the $5bn targeted to be provided in the current fiscal year.
These $5bn will be directed to 20 projects in different developmental sectors, such as electricity and sanitation. They will be financed by World Bank, African Development Bank, and other financing bodies.
What are the bodies that contributed and will contribute to providing that money?
A segment representing 25% of the World Bank loan, and was directed to sanitation projects, has been received; it is worth $550m. In addition, another 25% of the World Bank loan was also received; that loan is directed to social housing projects. Moreover, about $500m from the African Development Bank was received, out of a $1.5bn loan.
Egypt is seeking to bridge its financing gap through different channels, including borrowing from the World Bank, the International Monetary Fund (IMF), and the African Development Bank, in addition to offering bonds in the international markets and obtaining deposits from the UAE and Saudi Arabia.
I reject the accusation that the loans of the Ministry of International Cooperation will put a great burden on the next generations. I am investing in the next generations through improving the quality of life through the projects in health, education, electricity, water, and sanitation.
The infrastructure projects facilitate the mission of the country to attract more investments that create jobs for youth and students, which means that the ministry is investing in the future of the youth.
The loans of the Ministry of International Cooperation are always directed towards pushing development in Egypt forward without exhausting the public debt. Their interest rates and repayment periods are very low compared to the domestic debt that is financed through treasury bonds with a 16% interest rate. Moreover, their interest rates are also very low if they are compared to the cost of the international bonds intended to be offered with a 6% interest rate.
The burdens of the Ministry of International Cooperation’s loans, of which their interest rates reach 0.5% at times with a repayment period amounting to 35 years, are the smallest among the different financing sources, such as local borrowing or offering bonds in international markets. These bonds have high interest rates and have short repayment and grace periods.
(Photo by Mahmoud Fekry)
Who pays the instalments and the interests of these loans?
The Ministry of International Cooperation only negotiates about project financing, after the economic feasibility study proves the government’s ability to pay the instalments and debt interest rates, in order to avoid creating new burdens of debt.
Egypt— the largest Arab country in terms of population and high import rates— is struggling to recover its economy through reforms targeting the reduction of the budget deficit with the aim of shrinking a public debt that exceeds 98% of the GDP .The reforms speed up the pace of foreign investment and the inflow of tourists.
Are there consultations taking place that would see the value of some debt exchanged for development projects?
We are currently working on establishing a new unit to swap a large part of Egypt’s debt with development projects. We will re-negotiate all the loans in the coming period, and check the capability of being able to replace debts with projects. We succeeded in agreeing with Italy and Germany to direct these debts to projects that train and empower youth.
Those debts will be directed to development projects that aim to empower youth and women in the economy. Egypt is responsible for disbursing these funds without interference from creditors.
What are the latest updates concerning the IMF loan?
All the technical and negotiating procedures related to the portions of the IMF’s loan that is worth $3bn have been completed. The loan will be presented to parliament to understand why we need it, and we are waiting for the general committee to approve the agreement. The agreement will soon be presented to the State Council to adjust its legal drafting.
We can disburse the first tranche of the loan, which is estimated at $1bn. It is just a matter of time until we finish the required legal and administrative procedures.
Have you cooperated with the Ministry of Housing to support the social housing project?
In cooperation with the World Bank, we designed a programme guaranteeing that support for social housing will be provided to those who deserve it.
Instead of providing subsidies to the contractor— the unit’s support was roughly EGP 15,000 regardless of the citizen’s income—it will be provided to citizens according to their income. It is agreed that someone who receives a bigger subsidy will be provided a small unit, and a larger unit will be supplied to someone who receives the smaller subsidy. This would cancel out the “first come, first served” idea.
The subsidy provided to the unit’s owner will be divided over a 15–year period, and the owner is obliged to repay part of the instalments before selling the unit to anyone else.
The ministry’s work intersects with all ministries. What guarantees that governmental agencies will prioritise their work before that of donors? Are those entities subject to your ministry’s surveillance?
The story is not about surveillance, it is about coordinating before the project is established, and we do not interfere in any ministry’s work. I am talking about the value of the loan, the size of grants, how to spend the money, the years of spending, and the interest rates and any obstacles related to suspending the exchange or restructuring the loan for one reason or another.
There is always a joint committee between us and the ministry to review the progress of the work. For example if we are talking about a power plant, there is a joint committee between the Ministry of Electricity and the Ministry of International Cooperation to discuss all matters. I attend meetings to discuss the technical problems in the project in the presence of the concerned minister.
We work as a team, and I’m trying to support all the ministers at all times.
Do we have the ability to set the terms that suit the economy while negotiating with funders?
Absolutely, we are entitled to renegotiate several funding programmes related to certain projects in the case that the state decided to prioritise a particular sector at the expense of another. For example, the energy sector has a great share of the current loans to finance electricity projects
I noticed that a lot of people, even the ministers themselves, do not know much about the nature of international institutions, and they are not aware of Egypt’s rights or how to negotiate for loans.
I’ve been working with international institutions for so long, so I know our rights very well, and that we have the strongest hand in any matter.
I have the right to renegotiate loans and to restructure them or even to cancel them if necessary.
We are not at all forced at all to continue receiving a loan that would add a burden to the state, and sometimes the state’s priorities change. For example, the state must direct the loan to sanitation rather than irrigation grids or a ministry decides that they no longer need the loan because their priorities changed or because it has bridged the gap from another loan or by another structure.
At this point we return to the lenders to negotiate with them, and inform them about the new situation. This is what some ministers are not aware of—we are not forced to obtain a loan, and the state controls the situation. No international institution has the right to impose its conditions.
How do you see Egyptians’ ambitions following two consecutive revolutions?
In the history of the revolutions, the economy has always deteriorated as a result. Citizens’ hopes and ambitions of economic growth and the improvement of the standard of living continue to increase.
It is normal for this period to be followed by economic development; however, it is just a matter of time until the establishment of the economic reform programmes and policies. The reforms are to fix the structural imbalances that result from the first stage of the revolutions that witnessed political and security disturbances.
Have the recent crises, such Giulio Regeni’s murder or the Russian aeroplane crash, strained relations abroad to the extent that they disrupted the progress of the ministry’s negotiations?
Our international relations are stable at the present time. We have a lot of grants provided by European countries. We also have exchanged debts with Italy—which deny what is being told about the strain in relations between both countries. We are still cooperating with the Russian and French sides as well.
When will the Egyptian economy be able to generate revenues that cover expenses and reduce the deficit?
We all need to move fast to increase the production, investment, and the manufacturing that needs to be directed towards exporting.
This will contribute to creating job opportunities and improving the standard of living. Manufacturing and production are vital to overcoming the current economic situation.
