Egypt seeks $9bn in aid from IMF and other institutions

Egypt faces an estimated $10bn funding shortfall this year as its economy is battered by coronavirus.

Egypt economy
Some of Egypt's main sources of foreign currency - such as tourism, remittances and Suez Canal receipts - are being disrupted by the coronavirus pandemic [File: Amr Abdallah Dalsh/Reuters]

Egypt is seeking more than $5 billion from the International Monetary Fund under a stand-by arrangement and $4 billion from other institutions, an official said.

The borrowing would come in addition to the $2.8 billion received this week under the IMF’s emergency Rapid Financing Instrument, part of the North African nation’s plan to cover its funding gap.

Egypt is targeting as much as $8.5 billion in total from the Washington-based lender, according to the official, who asked not to be identified as the matter is confidential. The person didn’t specify the institutions being sought to provide the other $4 billion.

The Arab world’s most populous nation, which emerged from a sweeping IMF-backed program last year, is confronting a funding shortfall that’s estimated at about $10 billion in 2020 by investment banks EFG Hermes and Goldman Sachs Group Inc. Some of Egypt’s main sources of foreign currency -tourism, remittances and Suez Canal receipts -are facing disruptions caused by the virus.

The IMF’s mission chief for Egypt, Uma Ramakrishnan, said the RFI funding will “ease the immediate balance-of-payments pressure and catalyze donor financing,” and the value of the stand-by arrangement would depend on factors including the “strength of the macroeconomic policies” and additional financing from other sources.

Egypt’s “external financing need is too large to be filled by any single source,” she said in an emailed response to questions. “It will require joint efforts by the authorities, bilateral partners, multilateral development banks, and of course the IMF.”

The IMF’s board will discuss additional financing in June, Egypt’s state-run MENA news agency reported Tuesday, citing an unidentified central bank official. A stand-by arrangement needs a set policy framework and targets, with funds disbursed in installments.

Asked about the $9 billion figure in an interview with Saudi TV channel Al-Arabiya on Wednesday, the central bank’s deputy governor, Rami Abulnaga, said the eventual number “could be close,” but discussions were still under way.

The country’s funding gap will be “totally covered” by the IMF’s financing, other multilateral institutions or bilateral agreements, he said. Egypt will work with the IMF to identify the shortfall, Abulnaga said.

Egypt launched a prior three-year IMF program in late 2016, taking a $12 billion loan and steeply devaluing the currency and cutting subsidies. Those moves helped rekindle investor interest battered in the aftermath of the 2011 uprising- a revival most notable in the debt market, where record-high interest rates made the country an emerging-market darling.

Reserves Decline

Net international reserves, which were at a record high at the start of 2020, have declined by almost a fifth to $37 billion over the past two months. The central bank partially covered the pullback of overseas portfolio capital through its repatriation mechanism, which guarantees investors can withdraw profits in hard currency.

Egypt sees the stand-by arrangement as a preemptive step that’ll last one year and be coupled with a sovereign bond issuance program to fend off any future gaps in the current account, an official said last week.

Moody’s Investors Service on Monday affirmed Egypt’s long-term foreign and local currency issuer ratings at B2, with a stable outlook.

The country’s “economic, fiscal and monetary reforms in recent years shore up the sovereign’s credit profile in the current environment,” Moody’s said. But it noted Egypt’s exposure to potential liquidity and external financing shocks, and said that its debt affordability is weak and susceptible to a sharp rise in financing costs.

International reserves are likely to stabilize at about $30 billion at the end of the current fiscal year in June, remaining enough to cover “the economy’s upcoming annual external liabilities over the course of the next few years,” it said.

(Updates with central bank deputy governor’s comment to TV in ninth paragraph)

–With assistance from Farah Elbahrawy.

Source: Bloomberg