Egypt’s Cabinet reshuffle sends negative message to IMF

The recent reshuffle of Egypt’s cabinet could have negative impact on Egypt’s loan talks with IMF and potential investors, who may perceive frequent post-revolution cabinet changes as sign of political instability, economists warn.

The cabinet reshuffle included an overhaul of the government’s entire economic team and replacing the finance minister for the fourth time since January 2011.

“IMF officials have told me that each time they get used to a minister, he disappears”, Samir Radwan, Egypt’s first post-revolution finance minister, told Gulf News.

“We now have our fifth finance minister since the revolution; this is a sign of instability. The recent reshuffle failed to respond to popular demands for better qualified ministers, did not satisfy the opposition, and is not helping negotiations with the IMF or restoring investor confidence,” Radwan warned, adding that Tuesday’s government reshuffle appeared to be merely a cosmetic change.

The change of finance minister is particularly puzzling, since Al Mursi Hegazy was only in office for five months after being appointed in the last cabinet reshuffle in January. Both the previous finance minister and his newly appointed successor – Fayyad Abdul Moneim – are specialised in Islamic finance; both were largely unknown among eminent Egyptian economists.

“It is astonishing that President Mohammad Mursi would change key figures amid the IMF negotiating process, especially after the mysterious departure of finance minister advisor Hani Kadry Dimian,” Hani Genena, head of research at the Cairo-based Pharos Investment Bank said.

Dimian, a key Egyptian negotiator, resigned as deputy finance minister late last month. Up until then, he had been seen as the crucial point man in Egypt’s protracted negotiations with the IMF.

“The finance ministry is in charge of executing economic reforms,” said Genena.

“The timing of the reshuffle, and the fact that none of the new economic ministers are opposition figures, runs counter to the political stability and reconciliation demanded by the IMF as a requirement to implement the necessary economic reforms,” he added.

Delays in concluding the IMF loan have partly been an outcome of the IMF’s adoption of a new approach to negotiations, which no longer simply rely on government authorities but now involve outreach to opposition groups and the general public to explain the need for certain reforms.

President Mursi replaced on Tuesday, nine ministers, including the ministers of finance, planning, investment and petroleum, in a widely anticipated reshuffle aimed at placating the opposition and breaking the political deadlock. This is the second cabinet reshuffle since Mursi took office last June.

Two of the new appointees with economic portfolios are members of the Muslim Brotherhood; one has a background in Islamic finance and another is seen as a technocrat.

The new Finance Minister, Fayyad Abdul Moneim, a relative unknown with a PhD in economics from Al Azhar University, is Egypt’s fifth finance minister since the revolution. He is seen as similar to the outgoing Al Mursi Hegazi (who held the job for less than five months) in that he is an academic with no official affiliation to the Muslim Brotherhood but with expertise in Islamic finance and Sharia-compliant banking.

The new Planning Minister, Amr Darrag, a founding member of Muslim Brotherhood’s Freedom and Justice Party (FJP), will also be a key figure in IMF talks. He told reporters on Wednesday that negotiations were continuing and that there was no disagreement on the structure of subsidy reform, a cornerstone of Egypt’s economic reform programme.

The new Investment Minister, Yahia Hamed, is a member of the Islamist FJP and a former adviser to President Mursi who also worked on his election campaign. He will be tasked with regaining foreign investor confidence and is seen as lacking investment experience.

Cabinet spokesperson Alaa Al Hadidy said the reshuffle would have no bearing on IMF negotiations. “A change in some of the individuals in the government does not at all mean a change in the government’s policies, its financial and economic reform plan,” Al Hadidy told media on Tuesday.

However, economists warn that the new cabinet will face the same challenge of winning opposition’s support for unpopular but urgent reforms. The new appointments, related to economic portfolios, would mean that IMF negotiations would essentially start afresh, which could signal a new impetus for the talks, according to a report issued Tuesday by forecasters at Capital Economics in London. But without political consensus for cuts to the subsidy regime, a quick breakthrough in the talks seems unlikely, the group’s report added.

“The reshuffle of Egypt’s cabinet doesn’t change the bigger picture that achieving support from across the political spectrum for much-needed economic reform will be extremely difficult,” research consultancy Capital Economics said in a report published on Tuesday.

Capital Economics said that because the new cabinet consists of more Brotherhood-affiliated members than the previous one it “increases the risk of political polarisation.”

Beside opposition figures, who criticised the second cabinet reshuffle under President Mursi, some political players allied with Muslim Brotherhood saw it as a mere change of personnel that will not alter the government’s direction or policies.

The vice-president of the Wasat Party and former parliamentary affairs minister Mohammad Mahsoub said in comments reported by Al Ahram Arabic news website that the cabinet reshuffle was not satisfactory or appropriate, and was not compatible with the people’s ambitions and the needs of this phase.

“We need a brave government to tackle our security, economic, and social problems. We need leadership to reform the government’s institutions. This will not happen as long as the policies do not have a vision,” Mahsoub added.

— Ayman Sharaf is a journalist based in Cairo.