New IMF loan agreement — round 2, but without austerity measures

Egypt’s new loan agreement with the International Monetary Fund seems less brutal than the 2016 loan agreement. The statements published at the beginning of August by the IMF have almost no mention of any austerity measures, which comes in contrast to the previous loan agreement whose conditions included the devaluation of the pound, and the liberalization of fuel prices and the introduction of a VAT, all of which drove up the inflation rate to unprecedented levels.  

In 2016, the government had signed a $12 billion loan agreement with the IMF through the Extended Fund Facility program, which lasted three years. Months after the agreement expired, the government announced that it was in talks with the IMF regarding financial assistance in light of the COVID-19 crisis. In June, the IMF agreed to provide Egypt with a $2.77 billion loan under the Rapid Financing Instrument program, which is an unconditional loan agreement, and another $5.2 billion loan under the Stand-By Arrangement framework.

According to Amr Adly, a professor of political economy at the American University in Cairo, the new agreement puts the IMF in a role similar to the original role of the World Bank. “It is the role of facilitating structural reforms and legislation that aim to reshape the economy on a deeper level, beyond the fiscal and monetary reforms,” he explains. 

The IMF is primarily concerned with monitoring fiscal and monetary policies of member states, whereas the World Bank is mainly concerned with enhancing the role of the private sector, especially in developing countries. 

“The new agreement brings to mind the 1991 agreement that Egypt signed with both the IMF and the World Bank, which stipulated both monetary and fiscal changes, including the implementation of austerity measures and structural reforms,” says Adly. 

On the fiscal and monetary front, the 1991 Structural Adjustment Loan included conditions such as floating the pound, reducing energy subsidies, cutting subsidies to fertilizers and pesticides in half and passing a sales tax law.  In addition to this, the structural reforms pushed for the liberalization of trade and paved the way for privatization, which was done by passing the 1991 public business sector law

The following table compares the terms of agreement between the new loan and the 2016 loan:

Time frame for implementation The 2020 loan agreement Implementation status The 2016 loan agreement
Implemented The FY 2020/2021 budget must target a primary surplus of at least 0.5 percent Implemented  Devaluation of the pound and raising the interest rate by 3 percent
End of January 2021 Drafting a reform strategy for the National Investment Bank and getting it approved by the Cabinet Implemented  Imposing a value-added tax
End of September 2020 Publication of an updated report on the financial performance of all state-owned companies in FY 2018/2019, and a separate report on  economic authorities during the same year Not implemented Imposing a capital gains tax
End of December 2020 Submitting a draft bill on managing public finances to Parliament to support the process of preparing the state budget. The bill will include a medium-term framework for public finance, deadlines for issuing the state budget documents, clear rules on how to transfer budget allocations from one entity to another, the allocations for budget reserves, additional appropriations, and accounting adjustments for all public entities, including economic authorities.  Implemented Approving the FY 2017/2018 and 2018/2019 budgets with a primary surplus of at least 2 percent
End of December 2020 A medium-term strategy review of public revenues aimed at developing tax revenues in light of the implications caused by the COVID-19 crisis Implemented A ministerial decree approving the automatic pricing mechanism for petroleum products 
End of December 2020 Updating the debt management strategy with a focus on extending debt maturity Implemented Raising the prices of petroleum products to cover production costs
End of December 2020 Submitting amendments to the competition law to add a new chapter on acquisitions and mergers  Implemented Forming a committee from the ministries of finance and planning and the Central Bank of Egypt to issue a plan to develop the financial structure and business model of the National Investment Bank
End of March 2021 Passing amendments to the customs law to simplify procedures  Only a small stock share of the Eastern Tobacco Company was offered. Later, it was announced that this initiative will be suspended indefinitely.  Offering shares of four state-owned companies on the Egyptian Exchange
End of March 2021 Announcing a complete strategy for public spending on social protection in partnership with the World Bank. Implemented  Formulating and implementing a medium-term strategy for public revenues aimed at developing tax revenues.
Partially implemented (the government approved a mechanism for allocating industrial lands based on an assessment of applicants’ qualifications and with a specified land pricing, but the IMF rejected this mechanism and recommended a bidding mechanism) Reforming the industrial land allocation system
Implemented Issuing a public procurement law along with its executive regulations, and the launch of a website for government contracts 
Not implemented Passing the amendments to the protection of competition and prohibition of monopolistic practices law 
Unclear Allocating LE250 million in the FY 2017/2018 state budget to establishing public nurseries to support women’s participation in the labor market 
Partially implemented. A previous report by Mada Masr shows that some of these financial allocations have not actually been spent.  Allocating LE25 billion in the FY 2017/2018 state budget for additional social spending programs, most notable cash transfer programs, school meals, subsidies for health insurance and medicine  
Implemented Publishing a detailed report on the financial performance of state-owned companies

Source: The Stand-By Arrangement for Egypt (August 2020), the Extended Fund Facility Loan (January 2017), the Fifth and Final Review of the Extended Fund Facility (October 2019). 

*Some terms were implemented later than the deadline and after the final review of the EEF was published 


Noaman Khaled, an economic analyst at Arqaam Capital Investment Bank, explains to Mada Masr that the structural reforms stipulated in the new agreement represent an extension of the 2016 loan agreement, which included measures that have not been fully implemented yet. 

In Khaled’s opinion, the new agreement aims to strengthen the private sector, whereas the previous agreement was primarily focused on fiscal reform. “The point of view shared between the IMF, the government, and the Central Bank is that strengthening the private sector should be the priority right now because the previous economic configuration wasn’t able to support it. In fact, the fiscal measures taken after the 2016 agreement negatively impacted the private sector, due to the decline in purchasing power and thus consumer demand,” Khaled says. 

For this reason, Khaled believes that the new agreement was devoid of any articles related to fiscal policy. “There is nothing else left to do when it comes to fiscal measures,” he says. “This new agreement is coming after the 2016 loan made the government impose the most austerity measures it could.” 

According to Adly, the expected reforms in the business model of the National Investment Bank and both the customs law and the law on the protection of competition and prohibition of monopolistic practices — as shown in the previous table — are the most significant measures in the efforts to restructure the economy and strengthen the private sector. 

“With regard to the National Investment Bank, it is likely that the main reason behind this reform is to pave the way for the bank to play a larger role in financing government investments in infrastructure,” says Adly. “The IMF agenda is always in favor of public investment in infrastructure as an approach that automatically enhances the situation of the private sector, as opposed to public investment in production processes.”

The National Investment Bank was established in 1980 as a non-commercial government bank, which does not provide services to the public and is affiliated to the Planning Ministry, whose minister chairs the bank’s board of directors. According to its founding law, the bank was established with the aim of financing government projects included in the state’s economic and social development plan through contributing to the capital of those projects, providing loans or other forms of financial assistance, and following up on the implementation of those projects. 

The bank’s website states that it used local savings during the past decades to fund projects such as the construction of electric power plants, electricity networks, water stations and sewage networks, as well as roads, bridges, railways, ports, agriculture and irrigation projects, services, housing, new cities and mining projects.” The bank also assisted several companies with activities in the major economic sectors, such as fertilizers, oil, banking and financial services, food production, urban development, metal industries, construction material, and tourism. 

“Yet we know virtually next to nothing about the bank’s operations, profits, or losses because its financial statements are not published. The Central Auditing Authority is the only entity that can review the bank’s operations, as the bank is not subject to the Central Bank’s monitoring authority,” says Adly.“ As such, we do not know the size of the bank’s assets, but keep in mind that the bank has a legal monopoly over the deposits of government insurance funds. The little information we have indicates that the bank plays a major role in financing government debt as one of the entities dealing with government bonds and bills, which means that the bank allocates a large portion of its deposits to non-investment spending.”

Mohamed Abou Basha, a lead economist at EFG Hermes, believes that any reform of the National Investment Bank that is supported by the IMF will necessarily include a reevaluation of the bank’s financial engagements with government entities. “This is because of the bank’s participation in many government projects, some of which are losing money, in addition to the untapped assets that the bank obtains in exchange for debts that the government entities cannot pay back. Also, the bank issues investment certificates to clients through its public branches at extremely high interest rates. All of this takes place in the absence of sufficient information about the bank’s financial status, which casts doubt on the efficiency and effectiveness of its investments according to market standards,” Abou Basha tells Mada Masr. 

As for amending the competition law, the statements published by the IMF suggest that the desired amendment has to bring about an additional chapter on acquisitions and mergers. Mona al-Garf, the former head of the Egyptian Competition Authority tells Mada Masr that the competition law lacks any provisions that allow the agency to interfere earlier in acquisition and merger deals. It merely stipulates that the parties notify the agency regarding deals that exceed LE100 million after the signing of the deal. 

“In 2016, I submitted a proposal to the Trade and Industry Ministry to amend the competition law, adding provisions that would allow the Competition Protection Agency to monitor and control acquisition and merger deals before they are completed. This was based on a collaboration with the European Union at that time, but the proposal never reached Parliament,” Garf tells Mada Masr. “This amendment is crucial in the context of encouraging the private sector to finalize those types of deals without being subjected to public criticism. The mere existence of this provision will allow the prior monitoring and control of such deals, which means that concluded deals are legitimate, not problematic, and not monopolistic,” she adds. 

Uber’s acquisition of Careem was the most controversial around the role of the Competition Protection Agency in controlling acquisition and merger deals. 

Weighing in on the customs law, Mohamed al-Bahi, head of the Tax and Customs Committee in the Federation of Egyptian Industries, tells Mada Masr that the proposed amendments aim for “specific details that will facilitate and expedite the procedures, primarily through automation, so that the waiting time for shipments is reduced to almost nothing, as was promised by the finance minister.” 

And in contrast to the 2016 loan agreement, the new agreement is devoid of any provisions related to social spending. It only mentions the need for publishing a joint strategy with the World Bank on social spending by April 2021. 

In Abou Basha’s view, the absence of provisions of social spending is due to the absence of financial control measures in the new agreement to begin with. Generally speaking, the IMF includes social spending provisions to mitigate the impact of the fiscal austerity measures of the IMF agreements. 

On the other hand, Adly believes that the text on the importance of issuing a strategy on social spending with the World Bank indicates a step toward placing the details of Egypt’s social spending within the “monitoring scope” of both the IMF and the World Bank, in addition to the traditional scope of the IMF’s work, such as the currency exchange rates. 


The IMF documents quote the Egyptian government’s intention to amend the society security law to include the Takafol and Karama cash in hand programs under the social security system. 

A prominent official in the Ministry of Social Solidarity, who spoke on condition of anonymity, tells Mada Masr that the potential amendments will fold the different social support programs, such as Sakan Kareem and Etnein Kefaya, into the social security law, so that programs no longer need to operated by ministerial or prime minister decrees. 

Beesan Kassab 

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