Egypt’s hopes of attracting investment given timely boost by IMF

The IMF has endorsed Egypt’s economic reforms at the conclusion of an Article IV mission, giving Cairo a much-needed boost as it prepares to host a major investment conference in March aimed at attracting billions of dollars into large projects in a range of sectors.

“Policies implemented so far, along with a return of confidence, are starting to produce a turnaround in economic activity and investment,” said Chris Jarvis, who led the IMF mission. “We now project that growth will reach 3.8 per cent in [the financial year] 2014/2015.”

He welcomed measures to reduce the deficit while increasing spending on health education and infrastructure.

The IMF mission, the first of its kind since 2010, was invited by the government in a bid to increase confidence ahead of the March conference by providing a neutral and transparent assessment of the economy and of the official reform program.

The economy has been badly scarred by political upheaval since the 2011 revolt which toppled Hosni Mubarak as president. As growth and investment stalled, levels of poverty and unemployment increased.

While praising “bold” fiscal reforms such as cuts to Egypt’s hefty energy subsidy bill and tax increases, the IMF called for “a more flexible exchange rate policy” – code for allowing the currency to depreciate.

Jarvis said: “While there has been a notable movement of the nominal exchange rate over the past two years, a more flexible exchange rate policy focused on achieving a market-clearing rate and avoiding real appreciation would improve the availability of foreign exchange, strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs.”