The World Bank is hashing out its approach to Tunisia and Egypt as two of the most distressed sovereigns in the broader Middle East look for external financing in the face of relentless pressure on their economies.
(Bloomberg) — The World Bank is hashing out its approach to Tunisia and Egypt as two of the most distressed sovereigns in the broader Middle East look for external financing in the face of relentless pressure on their economies.
Ferid Belhaj, the lender’s vice president for the Middle East and North Africa, said it won’t back off from supporting Tunisia after temporarily pausing some discussions following an outbreak of violence against Black migrants that’s been blamed in part on comments made by President Kais Saied.
Speaking in an interview in Washington, he also had words of caution for Egypt, which he said needs to take “more and faster” steps toward reducing the state’s footprint in the economy.
Authorities in Egypt are “moving in the right direction but they never move fast enough when it comes to reforms,” Belhaj said on Wednesday. “What we see today in Egypt is a situation that is not as stable as we would like it to be,” he said, referring to the country’s currency, the pound.
Read: Egypt Pound Hedging Frenzy Unmasks Growing Devaluation Anxiety
Egypt has devalued the pound three times since March 2022 as it faces its worst foreign-exchange shortage in years. The country struggles to secure foreign direct investment and overseas inflows into its local debt market. While energy-rich countries, including Qatar and Saudi Arabia, have pledged more than $10 billion in investments, only a fraction of the funding has materialized.
Multilateral institutions like the World Bank are in the spotlight again as some developing nations face higher risks of debt distress just as they contend with slower economic growth while poverty and hunger are on the rise.
In the wider Middle East, Tunisia and Egypt are proving to be especially vulnerable as the global cost of commodities spiked in the wake of Russia’s invasion of Ukraine a year ago. Egypt has once more embarked on an economic revamp that aims to secure aid from the International Monetary Fund and regional allies.
Tunisian Deadlock
Tunisia meanwhile reached a staff-level agreement with the IMF in October, but the deal has yet to be reviewed for approval by the fund’s directors. In March, the World Bank said discussions on its partnership framework with Tunisia — which outlines “strategic directions for operational engagements” from 2023 to 2027 — have been paused.
In the interview, Belhaj said the bank is planning to revive those talks and the framework will be submitted to the board of directors in mid-June. For the fiscal year ending in June, the World Bank is looking at about $500 million of programs for the North African nation, he said.
“We are moving ahead with the country,” he said. “Relations with Tunisia have not changed. We are still going into financing for our operations.”
Egypt Urgency
In the case of nearby Egypt, Belhaj called on the government to be more decisive in loosening its grip on the economy.
Private businesses there have long complained that they face unfair competition from state enterprises — particularly those belonging to the military — thereby deterring large-scale foreign investment.
Last month, the World Bank approved a new five-year strategy for Egypt that aims to support private sector-led growth through steps such as encouraging greater transparency for state enterprises and working more on the rule of law.
“Those are very, very important to give more confidence to investors and people who would like to engage in the Egyptian economy,” he said.
Egyptian authorities revived a plan in February to sell stakes in state-controlled firms, including firms affiliated to the military. Similar efforts in the past have faced delays and skepticism remains about the government’s commitment to privatization.
“If you get into this kind of reforms, and if you’re serious about it, this is where you go,” Belhaj said. “If you don’t go that way, it means that you’re not serious.”
Belhaj also said:
- The World Bank has no immediate plans to reengage with Syria because its rules don’t allow for financing to countries in arrears, which are at about $15 million in Syria’s case
- After conducting a rapid assessment of the damage and needs following February’s earthquakes in Syria and Turkey, the lender estimates Syria requires around $5 billion
- For the fiscal year ending in June, the bank expects to channel $500 million into Lebanon, of which $300 million will go toward social protection and the rest for agriculture
- “We will be engaging, hopefully, in renewable energy, education and health in the coming years”
- Belhaj said it was difficult to determine yet how the overall effects of the latest production cuts by OPEC and its allies will play out
–With assistance from Dana Khraiche and Abeer Abu Omar.
(Updates to add currency context in fourth paragraph, currency performance in fifth paragraph.)
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.