Investment

IMF: Prioritize Social Protection in Egypt Loan Talks

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

On March 23, 2022, the Egyptian government officially requested support from the IMF to help reduce the economic collapse related to Russia’s invasion of Ukraine. The IMF since 2016 has approved three loans to Egypt worth a combined US $ 20 billion.

“Despite $ 20 billion in lending to Egypt since 2016, the IMF has not achieved the reforms needed to significantly address the growing and irresponsible role of the military in the economy or to expand the social safety net to adequately protect human rights. people’s economy, ”said Sarah Saadoun, senior business and human rights researcher at Human Rights Watch. “Progress on necessary reforms remains elusive, and millions of Egyptians have been left increasingly vulnerable to external shocks in the global economy.”

The IMF and Egyptian authorities should not agree to any loan program that dramatically increases the cost of living without dramatically increasing investment in universal social protection programs to ensure the right to an adequate standard of living, including food, for all.

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 Public Mobilization and Statistics, and under only another third is considered weak, according to the World Bank. Egypt’s two cash transfer programs Takaful (“Solidarity”) and Karama (“Dignity”) only cover about 11 million people, leaving tens of millions living in or near poverty without support. even prices, especially for food, have risen sharply.

Takaful supports poor families with children under the age of 18 and conditioned on school attendance and health examinations, while Karama is an unconditional cash transfer program for low -income people over the age of 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 comprehensive economic and financial measures it implemented under an agreement with the IMF between 2016 and 2019. These reforms are noteworthy. -significantly increases the cost of living and increases poverty and inequality.

Expanding the scope and benefits of these programs is especially important because the government is taking measures that are particularly offensive to low -income people. Egypt subsidizes the import of staple foods to ensure affordable access to food for its more than 102 million residents. But in August 2021, even before the latest price shocks, President Abdel Fattah al-Sisi announced that the decades-old bread subsidy program, which an estimated 70 million Egyptians had hoped for, would be reduced. Last July, the government reduced the subsidy for sunflower and soybean oil by 20 per cent, and unblended vegetable oil by 23.5 per cent due to rising prices put in the government budget.

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

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 raid began, according to media reports. On March 20, Prime Minister Mostafa Madbouly issued a decree setting prices for unsubsidized bread as an emergency response to rapidly rising prices.

The government is expected to announce details on how much the bread subsidy will be paid by the end of March, but it is unclear whether these plans will continue due to the current crisis.

On March 21, the Ministry of Finance announced a raft of emergency measures to mitigate the economic impact of Russia’s aggression, including allocating an additional EGP 2.7 billion ($ 148 million) to add 450,000 new families. in Takaful and Karama programs, a 12 per cent increase. The measures also raised allocations per family by 1.5 percent. But the increase is still not enough to support the millions remaining extremely vulnerable.

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

The IMF should also include measures in any future arrangements with Egypt to restore judicial independence, which is key for economic growth and the fight against corruption. Egypt ranks 136th out of 139 countries in the World Justice Project’s Rule of Law Index for 2021, with a very low score on regulatory enforcement, civil justice, and criminal justice factors. The constitutional amendments passed by the Parliament of Egypt in 2019 further undermine the independence of the judiciary by giving the president uncontrolled powers over the administration of the judiciary and the public prosecutor, as well as the authority to appoint judges. head of judicial bodies and authorities.

The IMF has previously made the promotion of judicial independence an integral 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.

It is necessary for the IMF to include robust anti -corruption requirements, such as restoring the independence of Egypt’s Central Auditing Agency. The government continues to undermine 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 allowing him to remove the heads of several regulatory agencies, including the Central Auditing Agency, an independent body designed to act as a watchdog of corruption. The law previously prohibited the president from removing the heads of this agency without cause.

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

As part of its focus on corruption, the IMF should explicitly ensure that transparency measures related to state-owned businesses extend to military-owned businesses and it should independently verify that the This disclosure was made as part of its evaluations. Military-owned businesses do not have any independent or civilian oversight, leaving the Egyptian public without access to the information needed to evaluate the costs and beneficiaries of publicly funded projects. A comprehensive report in 2019 found that Egypt’s military-owned businesses run in almost total secrecy, hiding “inefficiencies and hidden losses,” despite taking “an unequal share of public revenues. “

The aggressive expansion of the military economy was accompanied by increasing political repression, including members of the business elite who were considered political opponents. In December 2020 and February 2021, National Security officials arrested Safwan Thabet and his son Seif Thabet, owners of Juhayna Company, a major dairy producer, after they reportedly refused to surrender the shares in their company in a state-owned business. The men have been confined alone ever since. At a minimum, the IMF should require transparency about the role of military-owned businesses in the Egyptian economy.

The issue of transparency is also closely connected to the role of civil society and the media – particularly given the uncertainty over the reliability of official statistics. The IMF should ask the Egyptian authorities to reverse the clampdown on freedoms of expression and association by releasing imprisoned journalists, parliamentarians, and human rights defenders as well as repealing the 2018 sentence in the former CAA leader Hisham Geneina.

“If the IMF is serious about helping improve Egypt’s governance and building an economy that works for all Egyptians, it will need to change its strategy,” said Timothy Kaldas, policy fellow at the Tahrir Institute for Middle East Policy. “It can no longer close its eyes to the tens of millions of Egyptians living in poverty and the widespread expansion of unclear military dealings with the economy.”

Signers:

  1. Human Rights Watch
  2. EuroMed Rights
  3. Civil Rights Defenders
  4. The Freedom Initiative
  5. The Tahrir Institute for Middle East Policy (TIMEP)
  6. Project on Middle East Democracy (POMED)
  7. Cairo Institute for Human Rights Studies (CIHRS)