Egypt: Steadfast Reforms Key for Economic Stability, Jobs, Growth

Current reform plans positive for growth, jobs, economic stability

Steady implementation vital to achieve goals, manage external, internal risks

Policies to address economic vulnerabilities can also help raise living standards

Speaking to the IMF Survey, IMF Mission Chief for Egypt, Christopher Jarvis, noted that Egypt faces a challenge. On the one hand, it needs to put its fiscal and external accounts in order to restore macroeconomic stability. On the other hand, the Arab World’s most populous country needs to improve living standards for its growing population. Fortunately, he says, some of the same macroeconomic policies geared towards reducing the fiscal and external vulnerabilities can also help boost growth and jobs and reduce poverty.

IMF Survey: The IMF has just concluded its first annual policy discussions with the Egyptian authorities, known as the Article IV consultations, since 2010. What’s the Fund’s assessment of the economy and the authorities reform plans?

Jarvis: For a number of years, Egypt has suffered from insufficiently inclusive growth and high unemployment. Since 2011, these problems have been compounded by large fiscal deficits, rising public debt, fragility in the balance of payments and, hence, losses of foreign exchange reserves. Unsurprisingly, vulnerabilities have been increasing in the process.

But things started to turn around in the last few months. The authorities have embarked on an economic reform program to raise growth, create jobs, and contain fiscal and external deficits and the loss of foreign exchange reserves.

On the expenditure side of the budget, the government started to reform the system of energy subsides. It also started to get a grip on the public sector wage bill, which, as a result of a very complicated wage structure, had been rising too fast. On the revenue side, the authorities introduced higher tax rates for high earners, and a capital gains tax. Those measures have already made a big difference in curbing the unsustainably high fiscal deficit.

Going forward, the fiscal program envisages gradual elimination of most fuel subsidies within the next five years. It also includes enacting a long-awaited value-added tax which, if implemented successfully, can greatly boost government revenues and, hence, improve the country’s fiscal position at large.

To achieve inclusive growth, the authorities are pursuing structural reforms and developing measures to protect the poor. In this...