The International Monetary Fund (IMF) is currently engaged in negotiations with Egypt, Tunisia, and Lebanon, aiming to provide assistance to these nations in addressing their challenges, enhancing their circumstances, and navigating their crises. These countries are grappling with a combination of external shocks and internal difficulties, which have further complicated their situations.
Egypt
Regarding the situation in Egypt, Jihad Azour, the director of the Middle East and Central Asia (MECA) department at the IMF, has commented on the ongoing program that was initiated nine months ago. This program encompasses various key aspects, such as the private sector and its significance in facilitating investment, the role of the State and the public sector in creating an environment conducive to investment, and measures aimed at transforming public institutions. Additionally, the program addresses monetary policy and tackles relevant issues in order to improve the overall economic situation in Egypt.
The Egyptian economy has faced significant pressures due to external shocks. In such circumstances, the resilience of the economy can be strengthened by implementing a flexible exchange rate system.
Significant progress has been achieved on certain fronts, while others require further attention and effort. It is essential to build upon this progress in order to successfully conclude the first and second review, as stated by Azour.
Economy Middle East has received information that the IMF is scheduled to conduct its second review with Egypt in the mentioned week, following a significant delay of several months. The review, which was initially planned for March, will now take place during this period.
When discussing the Egyptian pound’s exchange rate, it was emphasized by Azour that the objective is to maintain a flexible exchange rate rather than intentionally devaluing the currency. Adopting a monetary system that embraces flexibility allows the exchange rate to adjust in response to market volatility instead of following a rigid procedure. Prices are determined by the interplay of supply and demand, which helps mitigate the impact of external shocks on the economy.
According to Azour, there have been certain improvements in Egypt’s credit rating. He also emphasized that the Egyptian economy possesses robust capabilities and growth potential. In order to further enhance this potential, a comprehensive set of policy and economic reforms need to be implemented.
He highlighted that the economy is shifting towards a greater emphasis on exports, as it provides an opportunity to acquire foreign currency without relying on attracting volatile short-term investments that can sometimes have negative consequences. This change allows for a more stable and sustainable approach to obtaining hard currency.
“We maintain our commitment to Egypt, and it remains ongoing. In the near future, a mission will be dispatched to Egypt to finalize the consultations. We are currently in the process of wrapping up these consultations,” Azour added.
He clarified that the key reforms in Egypt’s program primarily revolve around enhancing economic activity. One crucial aspect is promoting competition between the public and private sectors, achieved through a set of laws that create an equal business environment for both sectors. This approach aims to foster a more balanced and dynamic economic landscape.
In addition, there have been revisions made to certain public enterprise laws to align them with the regulations applicable to the private sector. Previously, there were disparities where some public institutions were exempt from paying taxes and fees that the private sector is obligated to pay. By subjecting public enterprises to the same requirements as the private sector, these discrepancies are being addressed. The goal is to create a more equitable and fair business environment.
There is also a need to reassess the size of the State in order to encourage greater direct investment. In the realm of finance, efforts have been made to stabilize the State’s finances, and expenditure has been redirected towards social protection initiatives, ensuring the well-being of the society.
When it comes to monetary policy at the central bank, it is of utmost importance to implement measures that are geared towards maintaining low levels of inflation. This objective can be accomplished through the efficient utilization of the structure of interest.
Tunisia
Regarding Tunisia, Azour disclosed that a mission is scheduled to take place in the upcoming weeks, before the year comes to a close. The purpose of this mission is to assess the country’s economic performance and examine the anticipated economic developments in the subsequent phase.
This provides us with an opportunity to understand the economic developments, challenges, and potential outcomes almost a year after reaching a preliminary agreement, Azour said. He further noted that the IMF has agreed upon a range of measures to initiate and follow through on what has been mutually consented to.
He further commented that while certain events unfolded differently than anticipated, the IMF remains committed to providing support. The Fund maintains an open and unwavering stance, never closing the door.
Read more: IMF warns sovereign debt will soon exceed 100 percent threshold
Lebanon
But the crucial question remains: Is there any headway being made regarding Lebanon’s situation, and is Lebanon on the verge of collapse as a state?
Lebanon has been grappling with a crisis for the past four years—a financial and economic crisis that, due to the failure to address it effectively, has exacerbated into a social crisis, an inflation crisis, and widespread poverty. However, at its core, the crisis, Azour said, can be identified as a crisis of trust.
The lack of confidence between the State and investors, as well as the strained relationship between the State and its citizens, has resulted once again in a crisis of trust regarding the economy’s potential for growth, he highlighted.
Despite some improvements, the failure to effectively address the underlying causes and maintain stability over the course of four years has led to a further deterioration of the situation. Additionally, Lebanon faces additional challenges such as global economic fluctuations, rising prices due to inflation, and regional issues, all of which contribute to the complexity of Lebanon’s transition process, Azour noted.
Therefore, the recommendation stands the same for Azour: to expedite the process, avoid wasting time, and earnestly work towards addressing these issues, which represent some of the most challenging problems Lebanon has faced in its recent history.
Azour said the IMF has reached a preliminary agreement and have finally completed the review (item IV) as well as a staff visit. Several crucial elements are required for the reform process to kick off, and without them, progress cannot be realized.
There has been a notable lack of progress, and the reasons behind it remain unclear. It is important to note that I am not implying that the Lebanese State is on the verge of collapse. However, the crisis has deepened due to the delayed response in addressing it. Since 2019, external challenges have exacerbated the scale of the crisis and have had significant repercussions. It is imperative to initiate the necessary steps to kickstart the process. To endorse the program, a specific set of actions must be implemented and approved, without delay, concluded Azour.
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