Google+ Followers

Monday, February 25, 2013

Egypt to implement new economic reforms in order to receive IMF loan

Egypt's Mohamed Morsy and Hisham
Qandeel and IMF's Christine Lagarde

The negotiations between Egypt and International Monetary Fund (IMF) over the $ 4.8 billion aid so badly needed for the recovering of Egyptian struggling economy have been postponed several times due to political situation in the country and continuing protests. But the IMF delegation is expected to arrive to Cairo again for the further talks regarding the aid.

According to Egyptian authorities the negotiations are expected to be resumed and the aid should be granted to Egypt, but the reforms and some economic changes are needed in the country. Egyptian side in cooperation with the IMF technical teams has been working on the plan of the needed reforms which included the recommendations of the IMF.

On the eve of the IMF delegation’s visit Egyptian government announced about the implementing of some key economic reforms in order to improve the deteriorating situation in the country.

Here is the article originally published on Ahram Online here, which highlights the most important points of the reforms to be implemented in Egypt, and I’d like to share this information here.

Government unveils modified economic recovery programme that aims to meet IMF's pre-conditions for proposed $4.8 billion loan to Egypt

Bassem Abo Alabass, Karim Hafez, Monday 25 Feb 2013

The government has revealed 24 new measures as part of an economic reform programme aimed at kick-starting Egypt's struggling economy, which will be presented to the International Monetary Fund in order to obtain approval of a badly needed $4.8 billion loan.

Ahram Online has obtained a copy of the economic programme, which was drafted following an 'economic initiative' conference in late December launched by the Egyptian Cabinet, in cooperation with private-sector representatives and economy experts.

The following are the most significant measures to be implemented according to the new programme.

Tax reform

The programme raises the minimum monthly salary eligible for income tax exemptions from LE9000 to LE12,000 as of October 2013.

The first bracket of the new income tax structure, which will pay 10 percent in income tax, will be extended to LE30,000 per month from a previous LE20,000.

"The increase means that employees whose monthly salaries range between LE20,000 and LE30,000 will only pay 10 percent in taxes, compared to the previous 15 percent," Assistant Finance Minister Hani Kadry told Ahram Online.

The increase, according to Kadry, will be implemented once Egypt's Shura Council (the upper house of parliament) approves it.

Additionally, a 0.001 percent tax will be imposed on all stock market transactions, while a corporate tax will be standardized at 25 percent for all companies.

As it currently stands, Egypt's corporate tax ranges between 20 and 25 percent, based on respective companies' financial situations.

Social justice

The reform programme will also raise the total number of beneficiaries of monthly social security pensions (LE300) to 1.5 million people by June of this year and 2 million people by June 2014.

The reform programme also calls for the government to adopt an emergency plan to develop Egypt's railway system at a cost of some LE1.2 billion during the current and coming fiscal years.

It also calls for developing 68 shantytowns nationwide at a total cost of some LE600 million during the 2012/13 and 2013/14 fiscal years.

The economic recovery measures also call for raising the local price of one ardeb (198 kg) of wheat by LE20 to LE400 in order to boost local production.

Foreign reserves & GDP

The Egyptian government forecasts that successful implementation of its economic recovery programme would lower Egypt's budget deficit by the end of the 2014/15 fiscal year to LE183 billion, constituting almost 7.7 percent of GDP – compared to the 10.9 percent forecast for the current fiscal year.

Egypt's GDP is expected to rise to almost LE2.3 billion by the end of the 2014/15 fiscal year, compared to LE1.5 billion in the 2011/12 fiscal year.

Egypt's current budget deficit stands at LE170 billion, approximately 10.8 percent of the country's GDP.

If the programme is successfully implemented, Egypt's foreign currency reserves – which currently stand at an alarming $13.6 billion – are expected to rise to $22 billion by the end of the current fiscal year.