IMF board approves agreement for $3 billion loan to Egypt

Agreement includes a flexible exchange rate regime and broadening support for vulnerable Egyptians

An outdoor food market in Cairo, Egypt, where inflation reached nearly 19 per cent year-on-year in November. AFP

The International Monetary Fund’s executive board has approved a $3 billion support package for Egypt, whose economy has been hit hard by the fallout from the Russia-Ukraine war and the coronavirus pandemic.

The approval of the 46-month loan will catalyse additional funding of about $14 billion, the Washington-based lender said in a statement.

The package provides for a flexible exchange rate regime and enhanced social safety nets to protect the most vulnerable among Egypt’s 104 million people.

The agreement, reached at a staff level on October 27, provides for an immediate disbursement of nearly $350 million to help support Egypt's balance of payments and its general budget, according to the statement.

It is expected to catalyse additional financing of about $14 billion, including investments, from Egypt’s international and regional partners.

It includes a programme of structural reforms that will "reduce the state footprint and level the playing field between the public and private sector".

The agreement also provides for upfront monetary policy tightening and fiscal consolidation.

In a statement issued on Saturday, Egypt's Cabinet said the deal with the IMF amounted to "additional confirmation of the support by the international community and development partners of the Egyptian economic reform programme."

The government was acting quickly to issue a document outlining economic sectors from which the state would withdraw, said the statement. The Cabinet approved a final draft on November 30, it said.

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 $5 billion in new financing for the fiscal year ending in June 2023.

Egypt turned to the IMF for help when the war in Ukraine prompted foreign investors to pull out about $20 billion from its once-lucrative debt market.

Since the start of the war nearly 10 months ago, the Arab world’s most populous nation devalued its currency twice, reducing the value of the pound by 36 per cent since March.

However, a foreign currency crunch has persisted, leading to import restrictions that impacted a wide range of industries and given rise to a dollar black market where the US currency is sold for 32-33 pounds compared to an official rate of 24.7.

News of the agreement will probably make authorities allow the pound to further slide in value, a move that’s virtually certain to unleash a new wave of domestic price increases.

Inflation stood at nearly 19 per cent year on year in November, its highest in five years.