Egyptian government temporarily halts IMF loan negotiations

Egyptian government temporarily halts IMF loan negotiations

On

Wed, 28/08/2013 - 19:29
 
According to minister of finance, Ahmed Galal, the Egyptian government currently has no intention of carrying forward talks with the International Monetary Fund (IMF) for $4.8 billion in aid, as the country no longer bears austerity policies. 
 
Speaking in an interview with Dream satellite channel on Tuesday, Galal said the government is seeking to achieve an economic policy that could balance the requirements of economical discipline while injecting new investments into the market.
 
"No one could support us except ourselves," Galal said. He continued, "We could boost our own economy by supporting domestic investments and production, as well as rationing energy, so that the next government would be able to endure."
 
Galal pointed that recently, the government is adopting numerous initiatives to achieve social justice, including an initiative to financially support poor families and another initiative to boost non-official businesses by exempting them from taxes for a specific period of time.
 
According to a press statement issued on Wednesday, the minister emphasized that the current government is conducting an expansion policy which mainly focuses on new investments in order to bolster the state's ailing economy. The Egyptian economy has experienced a slowdown over the past period.
 
The statement pointed out that public deficit represented 14 % of the GDP in fiscal year 2012-2013 and that the general debt climbed to about 92 % of the GDP.
 
The minister noted that although these indices may raise people's concerns, the economic developments following 30 June revolt seemed positive and signals that the domestic economy is able to get over all troubles.
 
"The recent Gulf financial packages are expected to help the government to guarantee petroleum products which are needed by society, with no crisis or more pressure on the foreign cash reserves," Galal said.
 
The government will inject $6 billion worth of deposits into the Central Bank of Egypt in an effort to bolster foreign cash reserves.
 
Several Gulf countries, including Saudi Arabia, Kuwait, Bahrain and the United Arab Emirates, meanwhile offered financial aid and fuel supplies to Egypt following the overthrow of former President Mohamed Morsy.
 
Galal said that the government is contemplating taking two steps: increasing sales taxes from 10% to 12.5 % and imposing a progressive tax and construction tax.
 
The minister emphasized that no further tax categories would be imposed since it weighs on the poor but that the government would rely more on the value added tax system (VAT).
 
Commenting on the minister's statements, the chairman of Abu Dhabi Islamic Bank (ADIB) capital, Karim Helal said, "I believe this decision sounds good especially as it is a feedback of the statement released by the IMF managing director, Christine Lagarde, days ago." 
 
On Friday, Lagarde said that the circumstances in Egypt do not yet allow the resumption of negotiations on the package the fund intends to submit to Cairo. Violence has racked the country since Morsy was toppled.
 
"The IMF is more likely a guarantee to attract foreign investors, so I expect the negotiations to continue within this year." said Helal.
 
Helal welcomed the decision of the VAT tax system. He believes the government of former Prime Minister Hesham Qandil was mostly dependent on imposing huge taxes to tackle the deficit, a policy which has not met much success.