Egypt to extend subsidy cuts, boost revenues under reform package

Egypt will make further cuts to energy subsidies, raise taxes and seek more international financing as it pursues economic reforms this year, Finance Minister Amr El-Garhy said yesterday.
Speaking at a Cairo press conference, Garhy said the steps are part of ongoing economic reforms the country urgently needs. The International Monetary Fund approved last year a $12bn loan after Egypt floated its pound and cut energy subsidies.
The finance minister also revealed that the IMF loan carries an interest rate of 1.5% to 1.75%.
The reforms come as Egypt faces major economic challenges after the political turmoil that followed the 2011 uprising that toppled longtime leader Hosni Mubarak.
Economic growth has slowed, investment has fallen sharply and currency reserves have plunged.
Egypt’s government agreed in November to slash fuel subsidies as part of the IMF reform package but because the country floated its currency at the same time, the subsidy bill ballooned, Garhy said.
The cost of subsidies rose “as a result of the exchange rate we currently have and...that we as a state import a large part of our petroleum needs,” he said, without providing figures.
“This, right now, is the biggest challenge” the government faces on the economy, Garhy said.
The Egyptian pound, which had been pegged at 8.83 to the dollar before November, was trading at more than 18 pounds to the dollar yesterday.
Garhy said the government was also planning to raise the rate of the value added tax by one point to 14% as of July.
Egypt introduced VAT in September and in December also raised tariffs on hundreds of imported items by up to 60% as it seeks to boost government revenues.
Garhy said the IMF deal had raised investor confidence in Egypt, especially as the fund regularly reviews the implementation of the reform package.
The IMF oversight and twice-yearly reviews “allow all investors...to be assured of the level of seriousness of this (reform) programme,” Garhy said.
The full details of the IMF deal have not yet been disclosed, but as well as providing the interest rate, Garhy said, that each tranche would be repaid within 10 years of disbursement, with a 4.5-year grace period. Egypt will also seek to raise more money on international markets, he said, starting with a roadshow from today to promote dollar bonds in the UAE, US and Britain. “We are targeting between $2bn and $2.5bn,” Garhy said.
The minister said he expects foreign currency investments in Egyptian treasuries to reach $10bn to $11bn, the same level as before the 2011 uprising, “possibly within a year”.