Egypt: IMF approves $12bn loan

Egypt has won International Monetary Fund approval for a three-year, $12bn bailout programme aimed at reviving the struggling economy, bringing down public debt and controlling inflation.

The IMF said its executive board’s approval on Friday immediately disbursed an initial loan tranche of $2.75bn to Egypt’s central bank.

The remainder will be phased out over the next three years and are subject to five reviews on required reforms.

The injection of new funds increased the Central Bank of Egypt’s foreign reserves to $23.3bn, state television said in Cairo.

Christine Lagarde, IMF managing director, described the Egypt bailout as a “homegrown economic programme” that the IMF will support “to address long-standing challenges to the economy”.

“These include a balance-of-payments problem manifested in an overvalued exchange rate and foreign exchange shortages, large budget deficits that led to rising public debt, and low growth with high unemployment,” Lagarde said.

“The authorities recognise that resolute implementation of the policy package is essential to restore investor confidence.”

Egypt has struggled to attract US dollars and revive its economy since tourists and investors fled after the 2011 uprising that ended Hosni Mubarak’s 30-year rule.

The country has recently faced mass protests due to poor economic conditions and rising costs.

Facing a widening budget deficit, shrinking foreign reserves and a growing currency black market, Egypt agreed to the IMF loan in August but had to secure around $6bn in bilateral financing for the deal to be completed.

Egypt made the final push for the loan after the central bank abandoned its currency peg of 8.8 Egyptian pounds to one US dollar last week, in a devaluation move welcomed by the Fund and World Bank.

The pound traded at just over 16 to the dollar on Friday.

Fiscal savings

The government of Egyptian General Abdel Fattah el-Sisi also took other key steps required by the IMF, including the passage of a value-added tax to raise revenues and reductions in fuel subsidies.

The programme also requires legislation to reduce Egypt’s public-sector wage bill.

The IMF said the programme is projected to reduce Egypt’s debt-to-GDP ratio, now near 100 percent, by about 10 percentage points over three years.

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But it is hoped that some of the fiscal savings from austerity measures will be used to strengthen social safety nets, including by increasing food subsidies and direct transfers to the poor.

Lagarde also emphasised that Egypt needs to make structural reforms to its economy, such as streamlining regulations for business start-ups and passing insolvency and labour reforms. 

The $12bn IMF programme also will be accompanied by about $6bn in bilateral financing contributed by China, the United Arab Emirates, G7 countries, bank loans and bond issues.

Those transactions are expected to be announced separately.