IMF Egyptian Reforms

Egypt has been struggling economically since the 2011 uprising, scaring away potential investors and other sources of FDI.  They are heavily importing but are trying to improve their exports.

The IMF has given Egypt a 12 billion dollar loan and are set to get the second installment.  The government is trying to gather public support with billboards on the side of their highways.

Reforms include reduced government spending, new taxes, and a "radical" currency revaluation.  Middle East economist, Jason Tuvey, says they are taking the conditions seriously such as floating the currency, undertaking subsidy cuts, and introducing VAT and other fiscal consolidation measures.

Controversy:

Some are not sure about the devaluation of the Egyptian pound.  After decades of strict bank control, they announced free float in November.  It helped investors but the average citizens are disliking their reduced purchasing power. For example, one US dollar was 18 Egyptian pounds compared to before the free float when it was pegged at 9 pounds.  That is a very large difference in exchange rate to happen so suddenly. Inflation is also estimated to be just over 30 percent.

At the same time, the government is in a tight bind with their reserves being depleting before implementing the free float.  It seems like it this is necessary for Egypt to get back on the right track.  The IMF hopes that it will strengthen their social safety net increasing food subsidies and direct transfers to the poor.  However, there is still hard ship.  For example, food subsidy cuts designed to reduce state-sponsored bread from 4000 to 500 loaves per bakery sparked protests.

The government is balancing what subsidies to cut and what to keep.  Executive chairman at Templeton Emerging Markets Group says that they should cut taxes and regulations instead.

He goes on to further say, that the IMF deal is not enough on it's own to reform the economy. 

Conclusion

When a nation is struggling economically it is a very hard situation to get out of.  Sometimes it must get worse to get better.  It's important to remember though, that economies are incredibly complicated and exactly what steps to take to improve an economy aren't always visible.  Devaluation of currency is something that can be used strategically to improve an economy or for other desires.  It's not something to be taken lightly though.