IMF agrees on a $5.2bn financial aid package for Egypt

The new deal will safeguard the country's economic gains of the past three years and place it on a 'strong footing' for a sustained recovery amid Covid-19

A man wearing a protective face mask to prevent the spread of the coronavirus disease (COVID-19) walks next to a wall painted with the colors of Egypt's flag, after the government made wearing masks mandatory in public places and public transport, in Cairo, Egypt May 31, 2020. Picture taken May 31, 2020. REUTERS/Amr Abdallah Dalsh
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The International Monetary Fund has agreed on a financial package worth $5.2 billion (Dh19bn) for Egypt to help the country counter the economic fallout from the coronavirus pandemic.

The new deal was reached after virtual meetings between the Egyptian authorities and the IMF team, led by Uma Ramakrishnan, which ran from May 19 to June 5, according to a statement from the Washington-based lender on Friday.

“The Egyptian authorities and the IMF team have reached staff-level agreement on economic policies that could be supported by a 12-month Stand-By Arrangement (SBA),” Ms Ramakrishnan said.

“This will safeguard the gains achieved by Egypt over the past three years and put the country on a strong footing for sustained recovery as well as higher and more inclusive growth and job creation over the medium term.”

The new funding comes on top of the $2.8bn the IMF board approved last month to help it cope with the fallout from the Covid-19 pandemic.

The coronavirus outbreak has devastated the global economy, which is set to slide into the deepest recession since the 1930s Great Depression. The pandemic has upended global trade and brought travel and tourism to a halt across continents.

“The SBA will also aim to support health and social spending, improve fiscal transparency, and advance further reforms to spur private-sector-led growth and job creation. The arrangement is also expected to catalyse additional bilateral and multilateral financial support,” Ms Ramakrishnan said.

In May, Moody’s Investors Service affirmed Egypt’s B2 rating on the resilience of its credit profile despite the coronavirus crisis.

“At this stage, Moody's assesses that a track record of economic and fiscal reform implementation and demonstrated capacity to manage significant shocks reduce the likelihood of global financial market disruption severely affecting Egypt,” the ratings agency said.

“In particular, a broad domestic funding base and robust foreign exchange reserves in excess of maturing liabilities provide buffers against significant capital outflows from emerging markets in the wake of the coronavirus pandemic.”

Egypt entered into a three-year programme with the IMF in 2016, gaining access to a $12bn Extended Fund Facility after agreeing to a series of reforms that included a free float of its currency. The reforms helped to end a major dollar shortage, repaired overburdened finances and pulled the country out of an economic crisis, although Egyptians felt pressured by some of the austerity measures.

Egypt's non-oil private sector has rebounded from a record low in April, with the headline IHS Markit Egypt Purchasing Managers’ Index rising to 40.7 in May from 29.7 in April as restrictions imposed amid the Covid-19 pandemic began to ease.

Output levels in the Arab world's third largest economy continued to contract midway through the second quarter, although the rate of decline eased considerably from April when businesses were mainly shut to comply with coronavirus containment measures.