The International Monetary Fund (IMF) has said that it did not ask the Egyptian state to impose new import tariffs as a prerequisite for its US$12 billion loan, after a presidential decree increased import tariffs on a range of consumer goods two weeks ago.
On Thursday the IMF released the transcript from a press briefing led by its director of communications, Gerry Rice, in which Rice said that the three-year loan to Egypt, which the IMF approved on November 11, did not stipulate new import tariffs.
“While we understand the increases are compliant with Egypt’s obligations to the World Trade Organization,” Rice said, “increasing import tariffs is usually not the best policy to improve a country’s balance of payments or fiscal position.”
President Abdel Fattah al-Sisi’s government formulated the new import tariff regulations, which were passed into law on November 30 and increase import taxes on goods including fruits, cosmetics, shoes, glass, electronic appliances and children’s toys by up to 60 percent. According to the Finance Ministry, this measure was aimed at creating a climate that will attract investment, boost productivity and cut imports, which have widened the trade deficit.
While the IMF approves of Egypt’s new austerity measures, it has warned state officials not to cut essential food subsidies. In late October, a few days prior to the IMF’s approval of the loan, Rice commented that his organization welcomes cuts to fuel subsidies, the application of a new value added tax and the devaluation of the Egyptian pound, but “a lot of the protest seems to be aimed at the issue of food subsidies. And I just want to make clear the IMF program does not call for any cuts in food subsidies.”
He added that the Egyptian state should “make social protection a cornerstone of this program so that budgetary savings that come from some measures will be applied to and used to alleviate the expected effects of reforms on the poor and the vulnerable.”
In January 1977 a wave of popular protests and riots known as the “Bread Uprising” broken out in Egypt in response to IMF and World Bank policies which recommended slashing state subsidies on certain essential food items.
“Going forward, maintaining a flexible exchange rate regime, which is part of the [IMF] program’s objectives, having an exchange rate determined by market forces, will improve Egypt’s external competitiveness for exports and tourism, attract foreign investment, and again, will enable the central bank to rebuild its international reserves,” Rice said in the press briefing. “Rebuilding international reserves is one of the objectives of the program, and the recent increase in the central banks’ reserves reflects external financial inflows, including from the IMF.”
Rice also explained that the financing of the $12 billion loan is being facilitated by the World Bank and commercial banks in the United Arab Emirates, among others. Egypt has also secured the financing through contributions from China, G7 states and Saudi Arabia.
These sources are part of “the external complementary financing assurances that have been secured by the Egyptian authorities to close the overall financing gap,” Rice said, adding that IMF staff reports and program documents pertaining to the loan would be issued “within a few days.”