Letter to IMF Executive Board Re: Transparency for Egypt’s Military Firms

Letter to IMF Executive Board Re: Transparency for Egypt’s Military Firms

Dear IMF Executive Board,

We are writing regarding the first review of Egypt’s Stand-By Arrangement (SBA) concluded by International Monetary Fund staff on November 19, 2020.[1]

Under the terms of the program, the Egyptian government is required to “build on” a report on state-owned enterprises (SOEs) begun under the Extended Fund Facility, approved in 2016; and “publish an updated SOE report with complete detailed financial information disclosure for FY2018/19 on all SOEs.”[2] We are concerned because the government published, and IMF staff accepted, an SOE report that appears not to include any businesses owned by the Defense or Military Production Ministries, the main agencies that oversee the military’s economic activities.[3]

This omission undercuts a key stated objective of the program, namely “enhancing transparency and accountability, increasing competition, improving governance, and, thereby, reducing the scope for corruption.”[4] As such, we urge the IMF Board to insist that Egyptian authorities include military-owned businesses in all transparency requirements that apply to state-owned enterprises.

We have previously raised concerns about the SBA’s inadequate attention to anti-corruption, including the lack of reforms aimed at restoring the independence of the Central Auditing Agency.[5]

Nevertheless, we were hopeful that requirements included in the program, including transparency of SOEs, would be a step in the right direction toward bringing sorely needed governance reform to the Egyptian government, including the military’s sprawling and opaque economic activities.

As you are no doubt aware, Egypt’s military is a significant and expanding economic actor, spanning sectors as diverse as infrastructure, imports, chemical manufacturing, and production of food and household appliances.[6] However, even though the military economy “captures a disproportionate share of public revenues,” its financial dealings are completely shrouded from public view, making them ripe for corruption and wasteful investments, according to a 2019 Carnegie Middle East Center report.[7]

The report notes that “[t]he bulk of the formal military economic sector does not fall within the remit of Egypt’s audit and anticorruption agencies, whether de jure or de facto.”[8] Indeed, in 2017 President Sisi amended the laws governing the Administrative Monitoring Authority, the body charged with overseeing corruption in government agencies, to formally limit its scope only to civilian agencies.[9] Unsurprisingly, “anecdotal evidence, insider accounts, and public revelations … indicate extensive and routinized corruption within at least those parts of the defense sector concerned with procurement and supply, licensing civilian functions of any kind, and public contracting and services.”[10]

Managing Director Kristalina Georgieva has articulated a vision for rebuilding fairer economies and fighting inequality that includes “zero-tolerance of corruption.”[11] Recognizing the economic necessity of fighting systemic corruption, the IMF strengthened its commitment to improving governance by adopting a new framework in 2018.[12] Rigorously implementing this framework has taken on new urgency since the Covid-19 pandemic, and we are grateful that IMF leadership has emphasized the importance of fighting corruption to overcoming the current global economic crisis.

It is especially important for the IMF to take seriously its commitment to fighting corruption in Egypt. Even before the pandemic, the country’s 32 million people living in poverty – an official figure that may underestimate real levels of poverty – were struggling following IMF-led reforms that precipitated a rise in cost of living, which in turn increased poverty and made it even harder for people to afford food and other life necessities.[13] Opinion polls have shown that corruption is a top concern for Egyptians, with one 2017 study finding it is “nearly always the single most frequently-mentioned” issue motivating people to protest, and one of the key triggers for the Arab uprisings.[14]

Shedding light on military-owned businesses is a key step in addressing corruption and mismanagement that squanders valuable public resources that could otherwise be invested in securing rights such as health care, housing, food, and social protection.

Public oversight over the Egyptian military’s economic activities is also important for other reasons, such as maintaining civilian control and holding military officials accountable for abuses. Human Rights Watch research in other countries has found that “the more a military’s revenue and spending are outside civilian government control, and the more funds it raises itself, the harder it is for civil authorities to engage in meaningful oversight of the military.”[15] We have also extensively documented abuses by the Egyptian military, such as enforced disappearances and extra-judicial executions, as well as possible war crimes in counterterrorism operations, and the government’s unwillingness to hold those involved accountable.

We would welcome the opportunity to speak with you further about this important issue.

Thank you,

• Human Rights Watch
• Cairo Institute for Human Rights Studies
• The Freedom Initiative
  

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[1]  “Egypt: IMF Staff Reaches Staff-Level Agreement on the First Review for the 12-Month Stand-By Agreement,” International Monetary Fund news release, November 19, 2020, https://www.imf.org/en/News/Articles/2020/11/19/pr20346-egypt-imf-staff-reaches-staff-level-agreement-on-the-first-review-for-the-12-month-sba (accessed November 25, 2020).
[2]  https://www.imf.org/
[3] Arab Republic of Egypt, Ministry of Finance, “Report of the Financial Performance of State-Owned Companies: Final for the Period from 2015/2016 Until 2018/2019,” undated, http://www.mof.gov.eg/  (accessed November 25, 2020).
[4] International Monetary Fund, “Arab Republic of Egypt: Request for a 12-Month Stand-By Arrangement—Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt,” August 10, 2020, https://www.imf.org/  (accessed November 25, 2020).
[5] Human Rights Watch letter to International Monetary Fund, “IMF Engagement on Governance Issues and Corruption in Egypt,” June 23, 2020, https://www.hrw.org/ .
[6] See, for example, Yezid Sayigh, “Owners of the Republic: An Anatomy of Egypt’s Military: An Anatomy of Egypt’s Military Economy (Washington: Carnegie Endowment for International Peace, 2019), https://carnegieendowment.org/files/Sayigh-Egypt_full_final2.pdf  (accessed November 25, 2020).
[7] Ibid, p. 6. The report also notes: “The opacity or formal withholding of financial information prevents definitive conclusions about economic cost-effectiveness, but the evidence points to the inefficiencies and hidden losses typical of many state-owned enterprises in both the pre- and post-privatization eras in Egypt.”
[8] Ibid, p. 18
[9] Ibid, p. 310
[10] Ibid, p. 314
[11] Kristalina Georgieva, “No Lost Generation: Can Poor Countries Avoid the Covid Trap,” commentary, The Guardian, September 29, 2020, https://www.theguardian.com/business/2020/sep/29/covid-pandemic-imf-kristalina-georgieva  (accessed November 25, 2020).
[12] International Monetary Fund, “Review of 1997 Guidance Note on Governance – A Proposed Framework for Enhanced Fund Engagement,” April 22, 2018, https://www.imf.org/en/Publications/Policy-Papers/Issues/2018/04/20/pp030918-review-of-1997-guidance-note-on-governance  (accessed November 25, 2020).
[13] See, for example, “Egypt’s Economic Reforms Increased Poverty Rates, Social Solidarity Minister Admits,” Egyptian Streets, October 24, 2019, https://egyptianstreets.com/2019/10/24/imf-economic-reforms-increased-poverty-rates-social-solidarity-minister-admits/  (accessed November 25, 2020); see also Sarah Sabry, “How Poverty is Underestimated in Greater Cairo, Egypt,” Environment and Urbanization, vol. 22 (2) (2010), https://www.researchgate.net/publication/241646655_How_poverty_is_underestimated_in_Greater_Cairo_Egypt , p. 523-541 (accessed November 25, 2020).
[14] Adrea Teti et al., “Sinkholes of Insecurity: The Structural Weaknesses in Six Arab Countries,” Arab Transformations Policy Brief, vol. 11, https://www.researchgate.net/ .
[15] Human Rights Watch, Too High a Price: The Human Rights Cost of the Indonesian Military’s Economic Activities (New York: Human Rights Watch, 2006), https://www.hrw.org/ .