Ukraine’s crisis must be a game-changer in IMF-Egypt negotiations
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Egypt is hit hard by the global implications of the Russian invasion of Ukraine, but a new loan agreement between the International Monetary Fund (IMF) and Egypt is not necessarily good news for the country’s poorest.
As the world’s largest importer of wheat, 80% of which comes from Ukraine and Russia, Egypt is experiencing a looming food security crisis. The country was already suffering an economic crisis as a result of COVID-19: inflation rates reached almost 9% last February, food prices are skyrocketing and a third of Egyptians (30 million people) live below the poverty line, resulting in the government asking the IMF for renewed financial support on 23 March.
The IMF has given large loans to Egypt in the past aiming to boost growth and create jobs while protecting vulnerable groups, but it has failed to push for much-needed concrete reforms that could help the country’s people in the long run. On the contrary, previous loan agreements have created austerity measures that, since 2016, increased Egypt’s cost of living and economic inequality.
International loan agreements are well-known mechanisms for demanding reforms, but if the aim is to alleviate a poverty crisis in the country, the IMF must ask for reforms that strengthen Egypt’s ability to provide social security rather than demanding privatisation and public sector cuts.
Ensuring social welfare for a population of 103 million is a major task, however there are resources to be found, including through fighting corruption and reforming the tax system. In 2016, it was reported that the poorest spent twice as much as the richest 10% share on a VAT tax introduced as part of an IMF programme, allowing the richest to have a very low-income tax, thus avoid paying their fair share to the community.
Tax has been recognised by the UN as a key tool for achieving human rights, as it has poverty- and inequality-reducing potential, and is invaluable in achieving the right to health, social security, education, and food. It is therefore necessary for the IMF to combine a loan with a requirement for progressive tax reform in Egypt.
IMF loans have in the past meant that the poorest in Egypt were hit even harder due to austerity measures. It is time to demand reforms that will build up public funds so that everyone in Egypt can one day benefit from social and food security.
On 4 April 2022, seven organisations, including EuroMed Rights, called on the IMF to use its loan negotiations with Egypt to promote socio-economic rights.