Answer to Question #308646 in Macroeconomics for roro

Question

"The International Monetary Fund has put some conditions to address Monetary, Fiscal and Structural problems that faced the Egyptian economy."

Discuss the last sentence, addressing the main problems at the Egyptian economy, and Egypt Compliance with the conditions, under IMF extended Fund Facilities.

Answer 1

The major problems that have affected Egypt's economy include high rates of open and disguised unemployment, debt service burden, high rates of inflation, substantial budget deficits, widespread price-control distortions, low productivity, and acute external imbalances. Egypt and IMF came to an agreement where IMF formulated structural reforms that Egypt would employ in place to sort out the issues pertaining to their economic problems. Egypt had to comply to several programs issued by IMF to their economy.

In monetary reforms, the Egyptian government limited dollar transfers abroad causing hoarding and rise in black market rates. IMF saw liberalizing Egypt's exchange-rate regime as a key component in offsetting the emergent problems. Devaluation led to Egypt's remittance reaching $8 billion in the second quarter of 2017. IMF also directed Egypt to liberalize foreign exchange system as it would spur investment and exports.

Fiscal reforms aimed at reducing the budget deficit by reducing government spending on subsidies. The government complied by cutting fuel subsidies with an effort of complying with EFF to decrease spending. Introduction of smart card system in Egypt also aimed at reducing spending by determining the allocation of subsidies. IMF stated that the smart card holders to be granted an increased subsidies of 21 EGP per person from 12.

Structural reforms eliminated some regulations of starting up a business, which was complicated, and involved a lot of regulations. A new investment law minimized the regulations and continued to provide free and highly discounted land for certain projects.