The International Monetary Fund (IMF) has approved a $3 billion loan for Egypt, a country that has been hit hard by soaring commodity prices following the outbreak of war between Russia and Ukraine.
The IMF Extended Facility Program (EFF) will run for 46 months, with an immediate disbursement of $347 million.
Likewise, the funding will seek to unlock nearly $14 trillion in loans from other states and multilateral organizations, particularly from Persian Gulf countries, according to the IMF in a statement.
The program goes hand in hand with the implementation of an economic program by the Egyptian government to “preserve macroeconomic stability, restore reserves and pave the way for sustainable, inclusive and private sector-led growth”.
Among the measures promoted by the Fund are the transition to a flexible exchange rate regime, a monetary policy aimed at gradually reducing inflation with a decrease in subsidized loans, fiscal consolidation with an increase in social spending and the protection of vulnerable subjects.
Likewise, “wide-ranging structural reforms will be implemented to reduce the state’s footprint, ensure a level playing field among all economic actors, facilitate private sector growth, and strengthen governance and transparency in the public sector”.
The Egyptian state has also requested 1,329 million dollars from the IMF as part of the Resilience and Sustainability Facility (RSF), a program designed for low- and middle-income countries, aimed in particular at resolving the problems associated with climate change; which the Fund will discuss in the next reviews it will carry out on the country.
The managing director of the IMF, Kristalina Georgieva, said that Egypt has begun to record “imbalances in the face of a rigid exchange rate, high public debt and delays in structural reforms”.
“Russia’s war in Ukraine has crystallized these pre-existing vulnerabilities, fueling capital flight and depleting central bank reserves, deepening the exchange rate misalignment,” he explained.
He then praised the change in the exchange rate policy and the tightening of monetary measures by Egypt, which – he considered – “are welcome steps”.
“Given the growing uncertainty and risks to the global economic outlook, the commitment of the authorities to stay the course on exchange rate flexibility, prudent macroeconomic policies and structural reforms is crucial,” added Georgieva.
Egypt, one of the world’s largest importers of grain, was hit hard by war-induced price increases and supply reductions, and has since experienced sharp devaluations of its currency, including an 18% one at the end of October, as reported by the Bloomberg news agency
In addition, there was a strong flight of capital with a withdrawal of US$ 22,000 million by foreign investors.
The North African country is one of the most indebted in the Middle East (debt represents 70.4% of its GDP), and has had to sell shares of its state-owned companies to the countries of the Persian Gulf.
Egypt has already suffered from a dollar shortage and in 2016 asked the IMF for a $12 billion loan.
Last month, Egypt’s finance minister, Mohamed Maait, said that the IMF loan could be of great help in the face of a financial need which – he calculated – will be 16 billion dollars over the next four years.
Regarding the inflow of capital into the local debt market, Maiait stressed that it is not a secure source of financing and that Egypt should focus on promoting direct investment and exports. (Telam)
