Key Points Discussed

1. Trust & Confidence: Ministry of Finance Reforms

The Minister emphasized that the government’s efforts are primarily aimed at rebuilding trust and confidence in the economic system. The fiscal reforms, particularly those implemented by the Ministry of Finance, were discussed in depth.

• Tax Reforms: A comprehensive tax system overhaul is being introduced, aimed at simplifying the process for businesses, SMEs, and individuals. New measures are designed to ensure fairness, transparency, and predictability, showing taxpayers exactly how much they need to pay. Key reforms to support startups, freelancers, and small investors include delaying the first tax audit for five years and including payroll tax returns in the annual settlement. Additionally, startups and small businesses will be exempt from withholding tax requirements and advance payments, with only four VAT returns required annually. These initiatives aim to reduce the administrative burden on new businesses and stimulate entrepreneurship.
• Process Improvement: The Ministry’s approach focuses on easing bureaucratic hurdles and eliminating inefficiencies. One of the primary goals is to create a more business-friendly environment by reducing the obstacles businesses face in Egypt.
• Three Enablers for Success:

1. Third-Party Evaluation: The need for external assessments to validate reform progress and ensure impartiality.
2. Diverse Communication: A robust communication strategy with multiple channels to engage different stakeholders.
3. Liquidity Support for Firms: Ensuring that businesses have access to necessary liquidity to maintain operations and growth.

2. Debt Management and Fiscal Consolidation

A central issue discussed was Egypt’s debt management strategy, particularly regarding fiscal consolidation.

• Debt Reduction Strategies: The Minister highlighted Egypt’s ongoing efforts to reduce its debt stock. Despite external shocks, debt management has improved, with a specific focus on keeping debt in the short term to manage liquidity more effectively.
• Fiscal Consolidation: The Minister reaffirmed the government’s commitment to fiscal consolidation, which aims to streamline public spending, increase efficiency, and reduce unnecessary fiscal commitments. A critical step in this process is placing a stringent ceiling of EGP 1 trillion on public investments in the upcoming fiscal year 2024/25, while also capping public debt. This approach ensures that both new guarantees and future public investments are tightly controlled and transparent.

3. IMF Relations and Program Delivery

Since 2016, H.E. Ahmed Kouchouk has played a pivotal role as Egypt’s official negotiator with the IMF, overseeing the delivery of three major economic programs over six years. These programs, which have been implemented without delays, focus on stabilizing Egypt’s economy, achieving macroeconomic targets, and improving Egypt’s standing in international financial markets.

• Positive Negotiations: The Minister shared that the negotiations with the IMF are proceeding positively, with clear communication and mutual understanding between the government and international lenders. There is no concern regarding potential delays in future program deliveries, as Egypt has proven its commitment and capacity to meet program objectives.

4. Fitch Rating Implications

A significant portion of the discussion focused on Egypt’s credit rating and its implications for the country’s economy.

• Fitch Rating and Market Impact: The Minister acknowledged that credit ratings like those from Fitch are an important tool for evaluating Egypt’s economic health. However, he also noted that ratings can sometimes be backward-looking, based on past data, while current improvements might not be immediately reflected. This mismatch can sometimes cause a disconnect between Egypt’s actual progress and its perceived creditworthiness in global markets.
• The Minister’s View on Ratings: He suggested that Fitch and similar agencies should adjust their methodologies to better account for real-time improvements and reflect the forward-looking stability of the economy.

5. COP29 and Financing Challenges

COP29 and Financing Challenges: The Minister also discussed Egypt’s engagement with global climate issues, particularly in light of COP29, where he attended as part of the country’s commitment to climate goals.

• Financing for Climate Action: A key theme discussed was the importance of securing financial backing for Egypt’s climate goals. The Minister emphasized that without adequate financing, even the most ambitious climate policies cannot be implemented effectively.
• Private Sector Involvement: The Minister underscored the critical role the private sector must play in Egypt’s climate agenda. He advocated for greater market openness to encourage investment, while also highlighting Egypt’s efforts to represent the specific needs of African nations in international climate discussions.

6. Private Sector and Economic Recovery

For Egypt’s economic recovery to be robust and sustainable, the private sector’s involvement is crucial.

• Support for Private Sector Growth: The Ministry of Finance has committed to prioritizing policies that foster a conducive environment for private businesses. The Minister discussed recent projects approved by the government, including nine recently approved ventures, which aim to further stimulate private sector engagement in Egypt’s economy.
• IMF Praise for Government Plans: The IMF has expressed positive feedback on Egypt’s economic plans, recognizing their potential to drive sustainable growth and economic stability. The Minister reiterated Egypt’s readiness to continue working closely with international partners to achieve long-term economic goals.

7. Inflation Control and Hyperinflation Concerns

Concerns about inflation were addressed, especially in light of global economic pressures.

• Inflation Control Measures: The Minister reassured attendees that the government remains committed to tackling inflation, citing positive projections from global entities, which indicate that Egypt is on the right track to reducing inflation over the next few years.
• Hyperinflation Concerns: The Minister acknowledged the impact of inflation on the population but emphasized the government’s focus on stabilizing prices through fiscal and monetary measures.

Conclusion

The working dinner provided valuable insights into Egypt’s current economic strategies and future objectives. The Ministry of Finance’s focus on building confidence through comprehensive reforms, improving fiscal sustainability, and fostering private sector growth positions Egypt for a more resilient and diversified economy. Despite external challenges, the government’s commitment to fiscal consolidation, debt reduction, and inflation control is paving the way for sustained economic recovery. Furthermore, ongoing IMF negotiations and positive feedback from international bodies reflect Egypt’s continued progress on the global economic stage.

The private sector’s role is central to the country’s economic transformation, and Egypt’s future efforts will likely focus on expanding private sector opportunities, strengthening international partnerships, and addressing climate change challenges with adequate financing and innovation.

By: Ola Elhelw, Economic Researcher