International Monetary Fund (IMF): Prioritize Social Protection in Egypt Loan Talks

International Monetary Fund

The International Monetary Fund (IMF) must ensure that any new loan program with Egypt expands social protection, strengthens judicial independence and addresses corruption and the need for transparency, including for military-owned companies, seven organizations said today.

On March 23, 2022, the Egyptian government officially requested IMF support to help mitigate the economic fallout related to the Russian invasion of Ukraine. The IMF since 2016 has approved three loans to Egypt worth a combined US$20 billion.

Sarah Saadoun

“Despite $20 billion in loans to Egypt since 2016, the IMF has failed to deliver the necessary reforms to meaningfully address the growing and irresponsible role of the military in the economy or to expand the safety net. to adequately protect people’s economic rights,” said Sarah Saadoun, senior business and human rights researcher at Human Rights Watch. “Progress on much-needed reforms remains elusive, and millions of Egyptians have become increasingly vulnerable to external shocks to the global economy.”

The IMF and the Egyptian authorities should not accept any loan program that further raises the cost of living without drastically increasing investment in universal social protection programs to guarantee the right to an adequate standard of living, including food, for all.

Central Agency for Statistics and Public Mobilization

Even before the pandemic, about one in three Egyptians (about 30 million people) lived below the national poverty line, according to CAPMAS, Egypt’s Central Agency for Statistics and Public Mobilization, and just under another third were considered vulnerable, according to the World Bank. . Egypt’s two cash transfer programmes, Takaful (“Solidarity”) and Karama (“Dignity”), cover only about 11 million people, leaving tens of millions living in poverty or almost without support, even when prices, particularly food prices, have increased dramatically.

World Bank

Takaful supports impoverished families with children under the age of 18 and is conditional on school attendance and health screening, while Karama is an unconditional cash transfer program for low-income people over 65, people with disabilities and orphans Egypt established these programs with the support of the World Bank in 2015 to mitigate the impact of the sweeping economic and fiscal measures it implemented under an agreement with the IMF between 2016 and 2019. These reforms dramatically raised the cost of living and increased poverty and poverty. inequality.

But in August

Expanding the coverage and benefits of these programs is especially important as the government takes steps that particularly hurt low-income people. Egypt heavily subsidizes staple food imports to ensure affordable access to food for its more than 102 million people. But in August 2021, even before the latest price shocks, President Abdel Fattah al-Sisi announced that the decades-old bread subsidy program, on which an estimated 70 million Egyptians depend, would be scaled back. Last July, the government reduced subsidies for sunflower and soybean oil by 20 percent, and unblended vegetable oil by 23.5 percent due to the pressure that rising prices put on the government’s budget. government.

The pandemic and, more recently, the impact of the Russian invasion of Ukraine have greatly exacerbated the economic difficulties of Egyptians, reinforcing the importance of significantly expanding the country’s social safety net. Inflation hit 8.8 percent in February, price shocks stemming from the Ukraine crisis.

Ukraine and Russia

Egypt is especially vulnerable to these shocks as the world’s largest importer of wheat, 80 percent of which comes from Ukraine and Russia. The price of unsubsidized bread has risen 50 percent in Greater Cairo since the start of the invasion, according to media reports. On March 20, Prime Minister Mostafa Madbouly issued a decree fixing the prices of non-subsidized bread as an emergency response to the sharp rise in prices.

The government was expected to announce details of how much the bread subsidy will be reduced by the end of March, but it is unclear whether these plans will go ahead given the current crisis.

Ministry of Finance

On March 21, the Ministry of Finance announced a series of emergency measures to mitigate the economic impact of Russia’s invasion, including the allocation of an additional 2.7 billion Egyptians ($148 million) to add 450,000 new families to the Takaful and Karama programs, an increase of 12 percent. The measures also increased allowances to each family by 1.5 percent. But the increase remains insufficient to support the millions who remain highly vulnerable.

Egyptian Initiative for Personal Rights

In considering measures to increase government revenues, reduce debt, and finance the expansion of social protection, the IMF should consider progressive taxation. A 2016 report by the Egyptian Initiative for Personal Rights, an independent human rights organization, found that the poorest 10% of Egyptians spend 6.4% of their income on a value-added tax (VAT) introduced as part of an IMF program, nearly double as much as the country’s richest, who spend 3.3 percent. The income tax law passed in April 2020 raised the tax rate for those earning EGP 400,000 ($25,000) or more from 22.5% to 25%, which is a step in the right direction, but relatively low according to international standards.

World Justice Project

The IMF should also include measures in any future agreement with Egypt to restore judicial independence, which is key to economic growth and the fight against corruption. Egypt was ranked 136th out of 139 countries in the World Justice Project’s Rule of Law Index for 2021, with abysmally low scores in the factors of regulatory compliance, civil justice, and criminal justice. Constitutional amendments passed by the Egyptian Parliament in 2019 further undermined judicial independence by giving the president unchecked supervisory powers over the judiciary and prosecutor, as well as the authority to appoint heads of judicial bodies and authorities.

In the past, the IMF has made advancing judicial independence a key part of its programs, for example in Ukraine. In February 2021, the IMF withheld the second tranche of a $5 billion loan to Ukraine in part because the government failed to make sufficient progress on judicial reform. Four months later, the Ukrainian parliament passed a bill reforming a council that selects and evaluates judges.

Central Audit Agency

It is imperative that the IMF include robust anti-corruption requirements, such as restoring the independence of Egypt’s Central Audit Agency. The government has systematically undermined the independence of its own anti-corruption entities and fails to enforce its anti-corruption laws. President al-Sisi issued a decree in July 2015 that allowed him to fire the heads of several regulatory agencies, including the Central Audit Agency, an independent body designed to act as a corruption watchdog. The law had previously prohibited the president from firing these agency heads without cause.

President Sisi

In March 2016, President Sisi fired Hisham Geneina, head of the Central Audit Agency, after he reported losses of EGP 600 billion (about $76 billion at the time) between 2012 and 2015 due to corruption. governmental. Later, in 2016, a court in Cairo convicted Geneina of spreading false information.

As part of its focus on corruption, the IMF should make explicit that transparency measures related to SOEs extend to military-owned companies and should independently verify that these disclosures are made as part of its reviews. Military-owned companies lack independent or civilian oversight, leaving the Egyptian public without access to the information needed to assess the costs and beneficiaries of publicly funded projects. A comprehensive 2019 report found that Egypt’s military-owned companies operate in near-total secrecy, concealing “hidden inefficiencies and losses”, despite capturing “a disproportionate share of public revenue”.

Safwan Thabet

The aggressive economic expansion of the military has gone hand in hand with increased political repression, including of members of the business elite who are perceived as political opponents. In December 2020 and February 2021, national security agents arrested Safwan Thabet and his son, Seif Thabet, owners of Juhayna Company, a major dairy producer, after they reportedly refused to hand over shares of their company to a state company. The men have been held in solitary confinement ever since. At a minimum, the IMF should demand transparency about the role of military-owned companies in the Egyptian economy.

Hisham Geneina

The issue of transparency is also closely related to the role of civil society and the media, even more so due to the uncertainty about the reliability of official statistics. The IMF should demand that the Egyptian authorities reverse their crackdown on freedom of expression and association by releasing jailed journalists, parliamentarians and human rights defenders and overturning the 2018 conviction of former CAA head Hisham Geneina.

Timothy Kaldas

“If the IMF really wants to help improve Egypt’s governance and build an economy that works for all Egyptians, it will have to radically change its approach,” said Timothy Kaldas, a fellow at the Tahrir Institute for Middle East Policy. “He can no longer close his eyes to the tens of millions of Egyptians living in poverty and the vast expansion of opaque military businesses in the economy.”

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