The IMF has provided extensive technical assistance in drafting amendments to the Central Bank of Egypt (CBE) Law to develop legislation that is in line with best international practices, and meets the needs of a modern central bank, the IMF’s staff report stated.
The new law was scheduled to be approved by parliament before end-March 2019, according to the IMF’s staff report, yet the law is still at the cabinet.
“We are revamping the current legal framework for the banking sector, which covers both the central bank and commercial banks. We submitted the draft to the cabinet in December 2018,” authorities said over the staff report.
Some of the key objectives of the revisions are to define price stability as the primary objective of monetary policy; strengthen the CBE’s operational autonomy; limit monetary financing of the deficit; ensure that the CBE lending to banks is only for short-term liquidity support, and phase out any
development lending by the CBE.
The new law aims to ensure that the CBE Law prevails against any contradicting provisions in other laws; clarify the terms of the board’s appointment and provision of a non-executive majority; include a double veto procedure and objective dismissal grounds for all board members; strengthen the board oversight over CBE management and ensure clear division of labour; as well as to strengthen the rules related to the CBE recapitalisation, and the distribution of unrealised profits.
The law’s objective also includes specific mechanisms for CBE recapitalisation, if required, financed by the government; clarifying the CBE’s role and framework in providing emergency liquidity assistance to solvent and viable banks; working toward a framework where solvency support to state-owned banks and the use of public funds for resolution funding will primarily be covered by budgetary outlays; publish the audited financial statements of the CBE, and further define a supervisory framework for early intervention and the resolution of banks.
Moreover, the monetary policy framework during the programme period will remain based on
money targeting, the report cited, explaining that reserve money will be an indicative target and reflect the authorities’ projections of market liquidity, consistent with the chosen inflation path.