In May 2016, Egypt began negotiations with the International Monetary Fund to obtain a large loan, to address the various economic problems at the time, through an agreement with the government called the economic reform program approved by the Fund’s experts in August and approved by the Executive Board of the Fund on November 11. November of the same year.
The government presented a number of proofs that prove its seriousness to implement the agreement before the approval of the Executive Council, including the issuance of a value-added tax law, a tax dispute settlement law, a civil service law, liberalizing the exchange rate, raising interest by 3%, and increasing the prices of gasoline 80 and 92 octane, diesel, kerosene, and gas. Natural for cars, homes, household and commercial gas cylinders and electricity.
All of these decisions, which represented demands for the fund, were referred to in the Egyptian letter of intent addressed to the fund manager on the seventh of November, to be approved by the Executive Council on a 3-year reform program, starting in the fiscal year 2016/2017 until 2018/2019.
The surplus continued until the repercussions of the Corona virus, to return to the state of deficit in March 2020 for a period of 5 months, after which it turned to achieve a surplus for a period of 9 months until mid-2021, to return to the state of deficit since July 2021 until now for a period of 13 months
The letter of intent included the problems of the Egyptian economy at the time, most notably:
The problem of currency shortage that hampered manufacturing industries.
The continuation of the black market in currency.
Decline in private capital flows to Egypt.
Reducing the period of coverage of foreign currency reserves for imports to 3.5 months.
The escalation of public debt and the large financing gap, the high current account deficit, high unemployment rates for youth and women, weak market confidence and an unfavorable business climate, high double-digit inflation and difficult licensing requirements, government debt interest payments reaching about a third of budget expenditures, and external debt ratios reaching 20% of the gross domestic product.
Repeated dollar shortage in banks
Whoever follows the conditions of the Egyptian economy in the current year will find that these problems are still ongoing, and some of them have become more severe than they were before the implementation of the agreement with the Fund, including the complaint of businessmen about the lack of the dollar currently, and the lack of management by the banks, which led to the suspension of a number of factories, and the complaint From the lack of production inputs, which practically means the erosion of the fruits of economic reform 3 years after the end of the agreement with the Fund.
Here are some practical evidence for this. Until mid-2016, there was a deficit between net foreign assets and liabilities (currencies) at the Central Bank of Egypt amounting to 5.1 billion dollars, and the deficit increased to 6.773 billion in the month preceding the decision to float, and after the flotation the deficit kept decreasing until it ended in March March 2017.
After that, it turned into a surplus that continued to rise until it reached 15.825 billion dollars in the middle of 2019, and the surplus continued and escalated after that, but after the emergence of the Corona virus and its repercussions, it tended to decrease, but it remained positive, until it reached 8.5 billion in February of this year, after which it turned into a deficit of 5.1 billion in March, then the deficit continued to rise to reach $9.3 billion in July.
The same path was repeated, albeit to a deeper degree, with banks operating in Egypt, which we can call commercial banks, where the deficit between their foreign exchange assets and liabilities amounted to $4.8 billion in mid-2016, and the deficit increased to $7.1 billion the month before the flotation, and after the flotation, the deficit continued to decline gradually until It ended in May 2017, achieving a surplus of 876 million, and the surplus continued to rise until it reached 2.1 billion dollars in mid-2019, the date of the end of the Fund's program.
And the surplus continued to exist until the repercussions of Corona, to return to the state of deficit in March 2020 for a period of 5 months, after which it turned to achieve a surplus for a period of 9 months until mid-2021, to return to the state of deficit since July 2021 until now for a period of 13 months, with the value of the deficit increasing from 1.66 billion dollars in its first month, until the deficit reached 10.1 billion dollars last July.
Portfolio investments come back out
It is natural that the possibility of those commercial banks managing the needs of importers of foreign currencies will decrease, especially since the central bank, which is supposed to be the bond for them, also has a deficit in foreign currencies, and the result is the return of the black market to the dollar, as was the case in 2016, but at a revolving price About 23 pounds to the dollar compared to 18 pounds it was around in 2016.
As well as the net foreign investments in the portfolio, i.e. in Egyptian government debt instruments and stocks in the stock exchange, which are called hot funds, which witnessed a deficit, i.e. an exit of 1.3 billion dollars in the fiscal year preceding the agreement, but achieved a surplus in the first year of the agreement amounting to 16 billion, and in the second year 12 billion, the third year 4.2 billion , to achieve a deficit of 7.3 billion dollars in the year following the end of the agreement with the Fund, and a deficit in the first nine months of the last fiscal year of 17 billion dollars.
As for the net current account in the balance of payments, which represents the difference between the proceeds of merchandise and service exports, labor transfers, foreign aid and the benefits of Egyptian investments abroad, and payments of goods and services imports, foreign transfers and interest payments on foreign investments in Egypt, the value of the deficit in the current account for the fiscal year preceding the agreement amounted to 19.8 billion dollar.
But the value of that deficit kept decreasing for the three years of the agreement, bringing the deficit back to escalation in the fiscal year 2020/2021 to $18.4 billion, and the deficit for the first nine months of the last fiscal year amounted to $13.6 billion.
The same is true of inflation rates that were made up of double digits before the agreement with the Fund, until they became a single digit in the last year of the agreement and thereafter, to return to double digits again this year, which affected the nature of the real interest from which the inflation rate is deducted, which It was negative before the agreement and then turned positive for the last two years of the agreement and beyond, but it has returned negative since February of this year until now.
The cost of debt is 54% of budget spending
As for the number of months of imports covered by the foreign exchange reserves of the Central Bank, it amounted to 3.5 months before the agreement, and 8 months improved last year of the agreement to return to 4.5 months last July.
As for banking indicators, the return on average assets in banks before the agreement reached 1.5%, then improved to 1.8% in the last year of the agreement, but declined to 1.2% in the last fiscal year, as well as the return on average equity, which amounted to 24.4% before the agreement, and remained 23.4% The last year of the agreement decreased to 16.1% in the last fiscal year, and the percentage of specialization coverage of irregular loans in banks, which amounted to 99% in mid-2016, but decreased to 92% in the middle of this year.
With regard to the government budget, the interest rate of government debt for expenditures increased from 30% in the fiscal year preceding the agreement, to the years of the agreement rising to 39.9% in the last year of it, as well as the share of both debt interests and debt installments together from the budget expenditures, which amounted to 45.4% before the agreement, and maintained the limited rise during the period The agreement, to jump to 54% in the current fiscal year, and also the increase in the value of the total and monetary deficit in the budget now than it was before the agreement with the Fund.
Thus, the erosion of many of the fruits of economic reform, which many experts see as financial and monetary reform and not economic, is evident, as evidenced by the Prime Minister announcing the second phase of economic reform in April 2021, for a period of 3 years, and focusing on the industrial, agricultural and communications sectors, but we did not We hear something about that stage.
Thus, Egypt needs a new reform program to face its multiple economic problems, but it will take place on a more difficult ground than in 2016, when the external debt in mid-2016 amounted to $55.8 billion, reaching $157.8 billion last March, and when the cost of the external debt was from Premiums and benefits for the fiscal year preceding the agreement were 5.1 billion, while the figure was $6.3 billion for the first quarter of this year only.
The same applies to the domestic public debt, which amounted to 2.6 trillion pounds in mid-2016 before the agreement, to 4.7 trillions in mid-2020, after which the official authorities did not publish anything about its value for 27 months, in clear violation of its agreement with the IMF in 2016 with more disclosure and transparency.