Egypt signs expanded $8 billion loan deal with IMF
By Aidan Lewis
(Reuters) -The International Monetary Fund (IMF) said on Wednesday it would increase its current loan programme with Egypt by $5 billion, as the central bank let the pound plummet and said it would allow the currency to trade freely.
The new agreement is an expansion of the $3 billion, 46-month Extended Fund Facility that the IMF struck with Egypt in December 2022, a key plank of which was meant to be a shift to a more flexible exchange rate system.
The programme stalled when Egypt reverted to keeping its pound at a tightly managed rate over the past year, and amid delays to an ambitious programme to divest state assets and boost the role of the private sector.
Egypt is also seeking a separate loan from the IMF’s Resilience and Sustainability Facility which promotes climate transition financing. Egyptian Prime Minister Mostafa Madbouly said that loan would be $1.2 billion, but the IMF’s Egypt mission chief, Ivana Vladkova Hollar, said discussions about that request would continue separately.
Vladkova Hollar told reporters that the IMF was not seeking a “specific cheapening” of the pound, but to “move sustainably” to a unified market determined exchange rate. She added that the central bank’s move on Wednesday was a strong step towards that goal.
“So under this framework, you would observe not just devaluations, but you would observe two-way movements in the exchange rate as it moves in response to economic conditions,” she said.
The IMF said in a statement that it had reached agreement with Egypt on the policies needed to complete the delayed first and second reviews under the programme, which can unlock disbursements of funding subject to approval by the fund’s executive board.
“The comprehensive policy package seeks to preserve debt sustainability, restore price stability, and reinstate a well-functioning exchange rate system, while continuing to push forward deep structural reforms to promote private sector-led growth and job creation,” it said in a statement.
Policy discussions included commitments to a flexible exchange rate, monetary tightening and fiscal consolidation, social spending to protect vulnerable groups, and to reforms to eliminate privileges for state-owned enterprises – all pillars of the original programme.
They also included “a new framework to slow down infrastructure spending including projects that have so far operated outside regular budget oversight”, the IMF statement said.
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Such projects, including a new capital city east of Cairo, have been a centrepiece of policy under President Abdel Fattah al-Sisi, who has defended them as providing jobs and boosting growth even as Egypt’s debt burden has surged.
Egypt negotiated the original programme, the latest in a series of support packages from the fund, after the economic fallout from the war in Ukraine prompted investors to pull $20 billion from Egypt within weeks, bringing the country’s financial troubles to the fore.
Since then, spillover from the war in the neighbouring Gaza Strip has brought new risks to Egypt’s dollar revenues, including those from shipping in the Suez Canal, which dropped by about a half early this year due to Houthi attacks on vessels in the Red Sea.
Annual headline inflation accelerated to a record 38% last September, before easing slightly.
IMF officials have said additional financing for Egypt’s programme is critical for its success following the external shocks, and that Egypt’s stability matters for the whole region.
Wednesday’s deal comes less than two weeks after Egypt announced a deal with the Emirati sovereign wealth fund ADQ that it said would deliver $35 billion in investments by late April.
A senior IMF official said the deal was separate from its own negotiations, but Wednesday’s IMF statement acknowledged that it had alleviated near-term financing pressures.
“Egypt’s international and regional partners will play a critical role in facilitating the implementation of the authorities’ policies and reforms,” the statement said.
