The argument by the Organisation for Economic Cooperation and Development (OECD) that tightening South Africa’s wealth tax regime would rebalance ... generational inequality has a fundamental flaw: it targets a “flighty” base, says an expert from the African Tax Institute.
The 46-month Extended Fund Facility (EFF) arrangement of $3bn “aims to safeguard macroeconomic stability and debt sustainability”. The deal could also see the most populous Arab nation receive an additional $6bn.
“The IMF arrangement is expected to catalyse a large multi-year financing package, including about $5bn in FY2022/23 that reflects broad international and regional support for Egypt,” the Fund says in a statement.
“The Egyptian authorities have also requested financing under the newly-created Resilience and Sustainability Facility (RSF), which could unlock up to an additional $1bn for Egypt”, to which the Fund has disbursed loans worth $20bn since 2016.
Value of the deal
Veteran Egyptian economist Hany Genena, a former assistant sub-governor of the banking sector reform department at the Central Bank of Egypt (CBE), says “the value of the deal is small” given Egypt’s financial obligations, with the debt service and current account deficit amounting to $25bn-$30bn next year.
“What we have secured from the Fund through this package, $9bn, will not be disbursed in a single year, so it’s just a partial financing for the financial gap of next year,” he tells The Africa Report.
The IMF agreement means that Egypt’s external funding situation, at least for FY22/23, is fairly secure.
However, an upside of the new IMF agreement is that it would enable Egypt to attract more financing after suffering an exodus of non-resident investors, causing some $22bn worth of holdings to vanish on the back of the war.
“The IMF agreement means that Egypt’s external funding situation, at least for FY22/23, is fairly secure,” Krisjanis Krustins, director of sovereigns at Fitch Ratings, tells The Africa Report.
“The IMF programme, coming alongside a steady stream of GCC investments and support, will catalyse other funding, including from other multilaterals and potentially funding from international debt markets or non-resident portfolio investors. The latter will be helped by exchange rate reform and higher rates.”
Meanwhile, Genena says the government must expedite its IPO programme to fill its financing gap. “This [the agreement] will greatly encourage the government to withdraw from different economic sectors as planned, which will increase competition across the board” and boost the investment appetite, he says.
The IPO programme, which aims to list over 20 company stakes on the Egyptian Exchange, started with the floating of a 4.5% stake in the tobacco monopoly Eastern Company in March 2019. It was resumed after a 2.5-year hiatus following the listing of a 26.1% stake in fintech giant e-finance in October 2021.
Weakening Egypt pound
The weakening Egyptian pound will certainly increase the appeal of the Egyptian assets put up for sale for foreign investors, mostly from energy-rich Gulf nations, whose deposits and investments have been estimated at around $22bn since the the beginning of the Russian invasion of Ukraine.
Egypt’s local currency plunged on Thursday to around 23 to the US dollar from nearly 19.70, a new record low. This comes after the pound was devalued by 15% last March, and has been declining since then.
Genena believes the Egyptian pound could reach up to 27 against the US dollar in the near future, saying that it has been “fully liberalised” pursuant to the IMF’s requirements. However, he thinks that the 200 basis point rate hike will keep the inflation, which rose to 15% in September, from soaring uncontrollably.
For his part, Krustins says “it is a bit too early to tell where the EGP, inflation, or rates will settle”.
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