The International Monetary Fund (IMF) announced Wednesday an expansion of its loan program with Egypt, increasing the total amount from $3bnto $8bn. This move comes alongside the Central Bank of Egypt’s decision to allow the Egyptian pound to trade more freely.
The original $3bn agreement, reached in December 2022 under the Extended Fund Facility (EFF), aimed to support Egypt’s economic stability through a shift towards a flexible exchange rate system. However, progress stalled due to delays in implementing reforms, including asset divestment and private sector development, and Egypt’s continued tight control over the pound.
The additional $5bn, along with a $1.2bn loan from the IMF’s green facility, will bolster Egypt’s efforts to achieve its economic goals. The IMF highlighted the agreement’s focus on “preserving debt sustainability, restoring price stability, and reinstating a well-functioning exchange rate system.” Additionally, it emphasizes reforms intended to “promote private sector-led growth and job creation.”
Negotiations for this expanded program were prompted by the economic hardships Egypt faced following the war in Ukraine, which triggered investor flight and exposed the nation’s financial vulnerabilities. The conflict in neighboring Gaza further exacerbated these challenges, impacting vital revenue streams like Suez Canal shipping.
The IMF considers this agreement crucial for Egypt’s continued stability, which holds significance for the entire region. Notably, this agreement comes shortly after Egypt secured a $35bninvestment deal with the Emirati sovereign wealth fund, ADQ. While separate from the IMF negotiations, this investment alleviates some near-term financial pressures.
The revised program emphasizes several key areas of reform:
- Exchange Rate Flexibility: The Egyptian pound will be allowed to trade more freely, aligning with the original EFF goals.
- Monetary Tightening: Measures will be implemented to control inflation.
- Fiscal Consolidation: Responsible government spending will be prioritized.
- Social Spending: Vulnerable groups will be protected through continued social safety nets.
- State-Owned Enterprise Reform: Privileges for state-run businesses will be eliminated to create a fairer business environment.
- Infrastructure Investment Management: A new framework will be established to oversee and control infrastructure spending.
The IMF acknowledges the critical role of Egypt’s international and regional partners in supporting the implementation of these reforms. Additionally, the Egyptian government has committed to providing adequate social spending to protect vulnerable populations during this period of economic adjustment.
