Dr Mohga Kamal-Yanni is Oxfam’s Senior health & HIV policy adviser, and works on financing for development, including how powerful institutions influence developing countries policies. As an Egyptian, she is also passionate about ‘the revolutionaries who opened the door for the power of the youth to change the world for the better.’
As summer approaches in Egypt, people worry about endless hot days with electricity cuts. Fridges in Egypt are not a luxury. Cooling water takes a major part of fridge space in a low/middle class homes. Loaves of bread packed onto fridge shelves save the family from daily queues.
Last year, when people complained about electricity cuts at the sweltering height of summer, the Egyptian Prime Minister, Hesham Qandil, advised them to wear cotton clothes and run only one air conditioner in a single room to save electricity. The advice was not popular, especially with those living in crowded accommodation with perhaps one fan, or with students who cannot study for their exams in the dark.
Today, Egypt is facing another fuel crisis, with vehicles queuing for hours and sometimes days outside petrol and diesel stations. The reasons for the crisis are multifaceted, but according to the IMF, Egypt’s economy is on the brink of collapse with a mounting budget deficit and diminishing foreign currency reserves – necessary to buy basic goods such as wheat and fuel. This has been the IMF message since 2011, when the then military council declined a loan.
Last year the civilian government requested an even bigger loan from the IMF ($4.8 billion instead of $3.2 billion offered in 2011). The loan raised public debate on whether Egypt needed the loan given the government’s lack of clear and transparent economic policies . Now the IMF and government are back at the negotiating table for another go. Just before the World Bank/IMF spring meeting this year, an IMF mission returned from 2 weeks’ negotiations with the government in Cairo. Its press release stated that there was ‘progress’ – yet no indication of the extent or shape of such progress. At the spring meetings several IMF and civil society panels discussed the loan and government officials had further behind-the-scene discussions with the IMF – another press statement added that “further progress was made”.
The public and official debate centres on the loan and its “conditionalities”, even though there is such a lack of information that the question arises ‘conditions on what?’. While the Egyptian public has had clear goals since January 2011 uprising (bread, freedom, social justice), the government has not proposed an economic plan to achieve them.
The lack of clear economic vision is causing public confusion over whether Egypt needs a loan at all and if so, how the loan contributes to achieving the objectives of an Egyptian economic plan. The loan itself will not solve Egypt’s deficit problems, let alone stimulate economic growth. Its role is unclear apart from opening the door for more loans from other bilateral and multilateral institutions. Many Egyptians fear that the loan will just lead to deeper debts without generating the jobs and economic growth necessary to repay the debt and achieve societal goals.
The IMF does not seem to be interested in offering technical or policy assistance to the government to develop such an economic vision. Instead, it narrowly focuses on three economic measures: removing fuel subsidies, increasing the General Sales Tax (GST), and floating the pound, despite the clear signs of unrest among ordinary Egyptians as they have already started to suffer the impact of the fuel crisis.
There seems to be a lack of understanding of the importance of diesel in agriculture, small businesses and the local transport of goods and people. Any rise in the price of diesel will be transferred to consumers and thus increase the cost of living and hinder attempts at economic recovery. Moreover, the IMF thinks that poor people will escape the impact of a rise in GST because of the exemption of food and small businesses. Yet this ignores the fact that GST on agriculture inputs will be passed on into the price to food products. Also small businesses buy their inputs from bigger businesses, which pay GST.
And other ways to improve the fiscal and economic situation are not being taken seriously by either the government or the IMF. Civil society and academics have proposed measures such as progressive taxation, taxing the stock exchange, or removing fuel subsidies for rich people and energy-intensive industry. The IMF’s typical answer is that these measures would take time and not raise sufficient revenue. Yet elsewhere, the IMF itself has advocated for the removal of wasteful and regressive fossil fuels subsidies that benefit higher-income consumers, with corresponding social protection measures in place for the most vulnerable.
What is frustrating for civil society is the lack of transparency and information on the government economic plans or details of this and other loans. The debate relies on leaked information, the experience of other IMF loans and policies in Egypt and in other countries and the little revealed in the media.
The IMF will presumably post the loan document on its website once the board approves it, but by that time it is a fait accompli and the public and civil society will be powerless to amend the deal.
If the IMF seriously wants to help Egypt, then it should:
- Help the government to develop a transparent economic plan for 3-5 years with clear goals, actions and costs. The plan should focus on fiscal and economic measures that target the rich side of society and protect ordinary Egyptians from the implementation of unfair austerity measures
- Be much more transparent (along with the Egyptian Government) about the details of economic measures and loan conditionalities
- Encourage the government to study alternative ways to address the fiscal crisis and stimulate economic recovery in the short term and economic growth in the medium term