IMF approves $8B loan to boost Egypt's economy

Updated 3/7/2024 2:27:00 AM

Arab Finance: The International Monetary Fund (IMF) and Egyptian authorities have reached a significant agreement aimed at bolstering the country's economic outlook, as per a statement from the IMF.

The agreement, subject to approval by the IMF Executive Board, entails a substantial augmentation of IMF support to Egypt from $3 billion to an impressive $8 billion.

Egypt is also working to secure an additional $1.2 billion from the IMF's Resilience and Sustainability Trust (RST).

This comes at a critical time, as Egypt faces mounting macroeconomic challenges exacerbated by recent conflicts affecting tourism and Suez Canal revenues.

Led by Ivanna Vladkova Hollar, the IMF mission held discussions in Cairo from January 17th to February 1st, with subsequent virtual meetings to finalize crucial aspects of the deal.

The comprehensive policy package focuses on preserving debt sustainability, restoring price stability, and reviving a robust exchange rate system. Moreover, it emphasizes deep structural reforms to foster private sector-led growth and job creation.

Key pillars of the agreement include transitioning to a credible flexible exchange rate regime, tightening monetary policy to combat inflation, and implementing fiscal consolidation measures. Additionally, measures to curb infrastructure spending and enhance social protection for vulnerable groups are highlighted.

The agreement also underscores the importance of international and regional partnerships in supporting Egypt's economic reforms. Recent investments, such as the deal in Ras El-Hekma, are cited as examples of external support alleviating near-term financing pressures.

“The IMF team would like to thank the authorities for the constructive dialogue, warm hospitality and strong cooperation to finalize the reform package in support of the completion of the first and second reviews under the EFF arrangement. A Board meeting is expected before the end of March,” Hollar said.

Earlier in March 6th, the Central Bank of Egypt’s (CBE) Monetary Policy Committee (MPC) hiked the interest rates by 600 basis points (bps) at its special meeting.

Following the CBE's announcement, the Egyptian Pound breached the 50 mark against the US Dollar in trading at Egyptian banks.

In January, the IMF lowered its forecast for Egypt’s real gross domestic product (GDP) for the current fiscal year (FY) 2023/2024 to 3% from a previous outlook of 3.6%.

In October 2023, Egypt reached an agreement with the IMF over the four-year international financing program worth a total of $9 billion, including $3 billion under the Extended Fund Facility (EFF), along with $1 billion from the IMF's Resilience and Sustainability Trust (RST) and $5 billion from international partners.