Prime Minister Mostafa Madbouly published a decision on the Official Gazette on Monday to task the Ministry of Finance with management and follow-up on all existing initiatives that have a low return on market prices instead of the Central Bank of Egypt (CBE).
This decision was widely expected after Governor of the CBE Hassan Abdalla said during the last economic conference that “the main task of the Monetary Policy Committee of the Central Bank is to confront and control inflation, not initiatives.”
The initiatives included in the decision included the real estate financing initiatives for low- and middle-income people, the initiative to support tourism, the initiative to replace old vehicles, as well as the modern irrigation initiative. However, the decision did not address the two initiatives to support the private sector and industry and small and medium enterprises.
According to the Official Gazette, this includes the decision-making process and the identification of controls related to those initiatives in terms of identifying the beneficiaries, the costs, the time period, the entity that will undertake the executive management of each initiative, the source of funding for the initiative, and the entity that will bear the cost, so that the cost and resources for financing these initiatives are reflected within items of the general budget after the approval of the Cabinet based on the proposal of the Minister of Finance.
The concerned authorities shall ensure that there is sufficient balance in their account with the CBE to finance the cost of the initiative. In the event that the concerned authorities are unable to bear the cost of the initiative affiliated with it, the Minister of Finance — in conjunction with the relevant minister —shall submit to the Cabinet a mechanism for managing the required funding and taking the necessary corrective decisions at least one month before the due date of the next compensation amount.
In the event that the value of the compensation due to the banks is due and it is not possible to have a sufficient balance in the accounts of the concerned authority to bear the cost of the initiative, then a deduction is made to the unified account of the Ministry of Finance at the CBE,and these amounts are collected and settled later in favour of the finance ministry and the accounts of that authority as stipulated in Article 2 of the decision.
The decision stipulated that for the real estate financing initiative for middle-income people with a decreasing interest rate of 8%, the Ministry of Housing, Utilities, and Urban Communities bears the cost of compensating banks for the difference in the rate of return while reducing the maximum limit for the initiative to EGP 15bn instead of EGP 50bn.
The value of compensation for that initiative is calculated on the basis of the amount used under the initiative X the credit and discount rate + 2% – 8% reducing interest.
As for the initiative to support the tourism sector, the Tourism and Antiquities Support Fund or the Ministry of Tourism and Antiquities will bear the cost of compensating the banks for the return rate difference with a maximum of EGP 50bn while raising the interest rate on it from 8 to 11%.
The value of compensation for this initiative is calculated on the basis of amount used under the initiative X credit and discount rate + 2% – 11% reducing interest.
As for the initiative to replace vehicles with dual fuel at a flat 3% interest, the finance ministry will bear the cost of compensating banks for the difference in the return rate with a maximum of EGP 15bn.
The compensation value for this initiative is calculated on the basis of amount used under the initiative X credit and discount rate + 2% – 3% reducing interest.
In terms of the real estate financing initiative for low- and middle-income people — which is earmarked for EGP 100bn at an interest rate of 3% — the housing ministry bears the cost of compensating the banks for the difference in the rate of return.
The value of compensation for this initiative is calculated on the basis of amount used under the initiative X credit and discount price + 3% – 3% reducing interest.
As for the initiative to encourage modern irrigation methods, the finance ministry bears the cost of compensating banks for the difference in the return rate with a maximum of EGP 55.5bn.
The value of the compensation in this initiative is calculated on the basis of amount used under the initiative X credit and discount price + 2% – 0%.
The PM’s decision also stipulated that the relevant authorities and ministries should undertake the technical and organisational supervision of these initiatives, including the process of establishing the information systems necessary to manage them.
He added that the value of compensation for each initiative is deducted from the accounts of the concerned authorities with the Central Bank in accordance with the decision of the Cabinet in this regard every three months starting from 1 November 2022, or according to the periodicals and timings stipulated in previous decisions issued by the CBE.
According to the decision, these bodies shall ensure that there is sufficient balance in their account with the CBE to finance the cost of the initiative and take the necessary corrective decisions at least one month before the due date of the next compensation amount.
Furthermore, the CBE shall, on a monthly basis, provide the concerned authorities and the finance minister with all data and information related to each existing initiative through reports to be agreed upon with those authorities every three months starting from 1 November.
Additionally, the PM’s decision prohibited all agencies or bodies — including the CBE — from preparing, formulating, or financing a new initiative, or amending any existing initiative that would entail financial or indirect burdens on the public treasury except after the approval of the Cabinet based on a study prepared by the finance ministry.
He also stressed that in the event of a violation of this decision, the public treasury may not be asked for any compensation in this regard, provided that the ministry will manage and follow up on new “future” initiatives or any amendment to existing initiatives in accordance with the controls and provisions contained in this decision.
