IMF: Delay Vote on Loan to Egypt

In Egypt /Road Map Program, Statements and Position Papers by CIHRS

Link Approval to Robust Anti-Corruption Measures

(Washington, DC, June 24, 2020) – The International Monetary Fund (IMF) should delay a vote on a US$5.2 billion loan to Egypt scheduled for June 26, 2020 until robust anti-corruption requirements are included in the program and the loan terms are public, eight human rights and good governance groups said yesterday in a letter to the IMF executive directors.

On June 5, the Egyptian government reached an agreement with the IMF for a $5.2 billion Stand-By Arrangement, a flexible instrument that provides loans over a shorter time period and with fewer requirements than traditional IMF programs. An IMF news release noted that the purpose of the loan is “to support health and social spending, improve fiscal transparency, and advance further reforms to spur private-sector-led growth and job creation.” On May 11, the IMF’s Executive Board approved a separate $2.77 billion in emergency assistance to Egypt under another loan facility to support the government’s response to the Covid-19 pandemic.

“The IMF has repeatedly said that anti-corruption and public engagement are key elements of its strategy in the Covid-19 related economic crisis,” said Sarah Saadoun, business and human rights researcher at Human Rights Watch. “Yet, it is lending billions of dollars to Egypt without making the terms public or accounting for the high corruption risk.”

The groups that signed the letter are the Cairo Institute for Human Rights Studies; the Committee for Justice; the Egyptian Human Rights Forum; EuroMed Rights; the International Federation for Human Rights; the Freedom Initiative; Human Rights Watch; and Project on Middle East Democracy.

The IMF has not yet published documents that describe the loan program, making it impossible for the public to assess whether the agreement includes requirements to ensure that money is used transparently and that it includes sufficient safeguards against corruption. The Fund should change its practice of releasing such documents only after board votes to allow for informed public engagement regarding a potential loan. Documents related to the $2.77 billion loan in May have yet to be published.

In recent years, the Egyptian government has undermined the independence of its anti-corruption entities and weakened the role of the judiciary, significantly exacerbating corruption risks in the country. As the US State Department Country Reports have noted, the government does not effectively enforce its anti-corruption laws. The military’s rapidly proliferating intervention in the Egyptian economy has also increased corruption risks as military-owned businesses lack any independent or civilian oversight, leaving the Egyptian public without access to information necessary to evaluate the costs and beneficiaries of publicly funded projects.

In March 2016, President Abdel Fattah al-Sisi fired Hisham Genina, the head of Egypt’s Central Auditing Agency, an independent body designed to act as a watchdog against corruption, after he reported that Egypt had lost EGP 600 billion (about $76 billion at that time) between 2012 and 2015, due to government corruption. Later, a court sentenced Genina to a year in prison for “spreading false news” regarding corruption in Egypt.

To ensure its independence, Egyptian law had provided the head of the Central Auditing Agency immunity from dismissal, but President Sisi issued a decree in July 2015, in the absence of the parliament, allowing him to dismiss the head of any agency.

In October 2019, the IMF released the final tranche of a $12 billion three-year loan to Egypt that was regarded as failing to address Egypt’s serious governance gaps. Austerity measures that the government made in addition to floating the Egyptian pound contributed to increased inflation rates and rising poverty with inadequate programs of social support.

After the loan was first approved in 2016, the IMF Executive Board adopted a new framework to improve how it addresses corruption in member countries. As recently as June 16, IMF Managing Director Kristalina Georgieva reiterated in an interview with Transparency International, an anti-corruption monitoring group, a commitment to consistently implement this framework. During that interview, she reiterated her view that “Entrenched corruption undermines sustainable and inclusive economic growth,” among other pernicious effects.

“Nearly 100 million Egyptians need to know that the IMF isn’t handing their government billions of dollars without proper controls to ensure that it actually goes to help those most hurt by the economic fallout of the pandemic,” Saadoun said. “The IMF’s Executive Board should live up to its commitment to transparency and fighting corruption and delay a vote until the terms are public and anti-corruption measures are in place.”

For more information, please contact:
In New York, for Human Rights Watch, Sarah Saadoun (English, French): +1-917-502-6694 (mobile); or [email protected]. Twitter: @sarah_saadoun
In Berlin, for Human Rights Watch, Amr Magdi (English, Arabic): +1-646-659-8020 (mobile); or [email protected]. Twitter: @ganobi
In Washington, DC, for Human Rights Watch, Joe Stork (English): +1-202-299-4925; or [email protected]
In North Africa, for Human Rights Watch, Ahmed Benchemsi (English, French, Arabic): +1-929-343-7973 (mobile); or [email protected]. Twitter: @AhmedBenchemsi
In Brussels, for EuroMed Rights, Maxence Salendre: +32-492-39-59-39; or [email protected]
In New York, for the Cairo Institute for Human Rights, Neil Hicks: +1-914-707-0762; or [email protected]

 

 

  • IMF Executive Board
  • 700 19th Street NW
  • Washington, DC 20431

Re: IMF Engagement on Governance Issues and Corruption in Egypt

Dear International Monetary Fund Executive Board:

We are writing regarding the $5.2 billion loan agreed between Fund staff and the government of Egypt on June 5, 2020, now awaiting the approval of the Executive Board.  These funds, made available under a Stand-By Arrangement, follow $2.77 billion in emergency pandemic assistance provided under the Fund’s Rapid Financing Instrument on May 11.

We are eight non-governmental organizations that have been monitoring and documenting restrictions on civil society, constraints on judicial independence, continuing corruption, and poor governance practices in Egypt.

Recent developments in Egypt regarding governance, transparency, rule of law and corruption lead us to believe that the IMF should include strict requirements to ensure that any additional funds disbursed to that country are used for their intended purpose of supporting inclusive growth, improving fiscal transparency, and increasing health and social spending. We are especially concerned that the IMF has yet to publish the project documents of the Stand-By arrangement, which reached staff-level agreement on June 5, nor has it published the project documents of the $2.77 billion emergency assistance agreement to Egypt under the Rapid Financing Instrument approved on May 11.

Without these documents, it is not possible for civil society to assess the proposed measures. This lack of transparency itself raises concerns, as does the lack of sufficient and well-implemented measures in previous loans, including a three-year $12 billion Extended Fund Facility approved in November 2016.

In light of these concerns, we are requesting that the IMF Executive Board delay its vote on the Stand-By Arrangement until the project documents have been published and civil society organizations have had time to read them and engage with the Fund to share their views.

We further urge the IMF to only approve the loan if there are sufficiently rigorous anti-corruption requirements in line with the Framework on Enhanced Governance adopted by the Fund in 2018, as well as its commitments to ensuring its response to COVID-19 consistently includes effective anti-corruption requirements and robust engagement with civil society.

The IMF has identified corruption as a key threat to achieving its mission of advancing economic stability in Egypt. According to the IMF press release announcing the staff-level agreement, one of the purposes of the Stand-By Agreement is “improving fiscal transparency,” as well as other measures that are closely related to governance, such as promoting inclusive growth and increasing social spending. These commitments echo those in the IMF’s Extended Facility Fund with Egypt, which promised “increased transparency and accountability in public finances and reduced opportunities for and rewards from rent-seeking” and corruption. Yet measures towards these ends specified in agreements for previous loans disbursed by the IMF have not been followed in full by the Egyptian authorities.

The lack of independence of Egyptian anti-corruption entities and the weakened role of the judiciary as well as abusive behavior by the security apparatus all represent high risks for the business and investment environment in Egypt. As the U.S. State Department Country Reports have noted, the government does not effectively enforce its anti-corruption laws.[1]  The military’s increasing intervention in the Egyptian economy has highlighted the prevalence of corruption as military-owned businesses lack any independent or civilian oversight, leaving the Egyptian public and experts without access to information necessary to evaluate the costs and beneficiaries of publicly funded projects. This increased military involvement has likely also worked to disincentivize significant domestic and foreign investment alike.

In March 2016, President Sisi fired Mr. Hisham Geneina, the head of the Central Auditing Agency, an independent body designed to act as a watchdog against corruption. The dismissal of Geneina came after he reported that Egypt had lost EGP 600 billion (about US$76 billion at that time) between 2012 and 2015, due to official corruption. Later, Geneina was sentenced to a year in prison for “spreading false news” regarding corruption in Egypt. To ensure its independence, Egyptian law had provided the head of the Central Auditing Agency immunity from dismissal, but President Sisi issued a decree in July 2015, in the absence of the parliament, allowing him to dismiss the heads of a number of regulatory agencies.

For the reasons outlined above, we believe that it is incumbent on the Fund to delay a vote on the loan until the project documents have been published and civil society groups have had the opportunity to engage with Fund staff and the Executive Board. At a minimum, we urge the Board to only approve a loan agreement that:

  1. Requires, as a prior action, the revocation of the July 2015 executive decree allowing the president to fire heads of regulatory agencies or a new decree or law that includes sufficient safeguards against dismissal of the head of the Central Auditing Agency for political purposes.
  2. Requires IMF funds to be kept in a separate account, and expenditures accounted for in a separate budget line. All expenditures should be subject to an independent ex-post audit every 6 months that is made public.
  3. Requires publication of all public contracts in full, including English translations when available, as well as the names of companies awarded contracts and beneficial ownership information.

We thank you for your consideration, and we would welcome the opportunity to discuss these matters with you further.  Please do not hesitate to contact us at [email protected] if you have any questions or to arrange a meeting.

Sincerely,

  1. Cairo Institute for Human Rights Studies
  2. The Committee for Justice
  3. Egyptian Human Rights Forum
  4. EuroMed Rights
  5. FIDH, International Federation for Human Rights
  6. The Freedom Initiative
  7. Human Rights Watch
  8. Project on Middle East Democracy

[1] U.S. State Department, Egypt 2018 Human Rights Report

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