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IMF Eases Effects of Egypt’s Economic Reforms


Egypt’s poorest and most vulnerable people are receiving special care. This is the result of the country’s fundamental economic reforms, made possible with the help of a $12 billion loan from the International Monetary Fund (IMF). Egypt’s economic reforms are creating some short-term difficulties, including high inflation, but ultimately should lead to greater growth and more jobs for the nation.

The reforms are intended to solve long-term economic challenges in Egypt. The challenges include an overvalued exchange rate, large deficits in the Egyptian budget, high unemployment, and slow growth. To address these challenges, Egypt’s government is pursuing economic reforms including a floating exchange rate, a value added tax (VAT) and a reduction of fuel subsidies.

Egypt’s economic reforms should produce long-term benefits for the country, in particular, increasing economic growth and job creation. They should also help limit inflation to single digits.

As anticipated by the government, the reforms are creating immediate challenges for Egypt’s businesses and consumers. Businesses are feeling the effects of the Egyptian pound’s devaluation as production costs have risen sharply. Consumers are being hit with a spike in short-term inflation, along with the new VAT.

Helped by the IMF loan, the government is taking steps to mitigate these short-term effects on Egypt’s poor and vulnerable populations, especially women and children. The Egyptian government has committed to spending an additional percentage point of its GDP — about 33 billion Egyptian pounds — on programs for the poor and vulnerable.

These funds will be used to increase food subsidies, provide for cash transfers to low-income families and the elderly and other targeted social programs. These additional social programs include free school meals, vocational training for youth, and support for children’s medicines and infant milk. Additionally, the government will provide gas connections in poor districts.

As the IMF points out, the government intends for Egypt’s economic reforms to benefit all the people of Egypt. The reforms will cause some short-term disruption and difficulties to them, especially the poor and vulnerable. However, the government is addressing those difficulties by strengthening the country’s social safety net so all Egyptian citizens can make the transition to a better life.

– Robert Cornet

Photo: Flickr

Budget Reforms Could Affect U.S. AID

USAID
Barack Obama has called for reforms to the in-kind American food aid system. If enacted, these budget reforms could dramatically change how the world’s largest donor operates abroad.

The reforms, included in the President’s 2014 budget proposal, would significantly roll back requirements that American food aid is bought and shipped from the US. Instead, more funding than ever would be available for recipients to buy food closer to where it’s needed, or send cash or vouchers instead.

The administration’s proposals would entirely end “monetisation” programs where aid groups receive US food commodities in place of cash, which they then sell in local markets to fund other development projects such as clinics and schools. USAid said the reforms would enable it to reach an additional two to four million people each year. “Rather than limiting the United States to a tied, commodities-only approach, these reforms will enable experts to select the right tool to most efficiently meet the needs of hungry and vulnerable people,” it said.

However, if the reforms are passed, they may take a toll on the maritime unions and US based farmers that depend on the current food aid system. USA Maritime, a coalition of maritime unions, called on Congress to reject the reforms. “The administration’s proposals … will be harmful to our US merchant marine, harmful to our national defense sealift capability, harmful to our farmers and millers and bad for our economy,” said chairman James L Henry.

The administration’s proposal includes $25 million in additional funding for the department of transportation’s maritime administration, which would lose significant business under the reforms. This would support “certain militarily useful ships, and will facilitate the retention of US mariners”, it said.

Congress must now decide whether to fund these programs and accept the proposed changes. Analysts expect months of increased lobbying both from supporters and detractors.

-Kira Maixner

Source: The Guardian