The International Monetary Fund has approved a deal that will provide a $3bn support package to cash-strapped Egypt over almost four years, with the agreement expected to draw in an additional $14bn in financing for the country.
The support package announced late on Friday – known as an Extended Fund Facility Arrangement – will not require the Egyptian government to cut spending on subsidies but will strengthen the social protection network for citizens, an Egyptian cabinet report released on Saturday said.
Egypt’s economy has been hit hard by higher oil and food prices following the coronavirus pandemic and the war in Ukraine, with the Egyptian pound losing 36 percent of its value against the dollar since March.
About a third of Egypt’s 104 million people live in poverty, according to government figures, and many Egyptians depend on the government to keep basic goods affordable through state subsidies and other similar schemes.
The package covers a period of 46 months and will give the Egyptian government immediate access to about $347m, which will help the debt-ridden nation bolster its balance of payments and budget, the IMF said in a statement.
It also aims “to catalyze additional financing of about $14 billion from Egypt’s international and regional partners” and introduce sweeping economic reforms, including a ‘’durable shift to a flexible exchange rate regime” and a ‘’monetary policy aimed at gradually reducing inflation”.
The announcement comes after a preliminary agreement was reached in October between Egypt and the fund, following reforms by Egypt’s central bank that included a hike in key interest rates by roughly 2 percentage points.
In a background document on Egypt, the IMF said the new programme would fund some of the country’s foreign currency financing gap, and that Cairo had secured $5bn in new financing for the fiscal year ending in June 2023.
Of that, $2bn would come from the sale of equity in private sector companies and $3bn from multilateral support, separate from the rollover of deposits by Gulf states in Egypt’s central bank.
The IMF said its programme aimed to support plans by authorities to reduce the state’s footprint in the economy, increase transparency around state-owned enterprises (SOEs), and create a level playing field for all economic actors.
Egypt has struggled to attract investment due to the prominent role of the state and the military in the economy and the advantages afforded to SOEs over private sector firms.
Egyptian authorities also committed to the publication of data including audit reports on fiscal accounts, procurement contracts of more than 20 million Egyptian pounds ($811,380), and an annual report on tax breaks, exemptions and incentives, the IMF added.