The International Monetary Fund has granted a request from Egypt for emergency financial assistance to help cope with the economic fallout from the Covid-19 pandemic.
The Washington-based lender is providing $2.77 billion (Dh10.17bn) through a Rapid Financing Instrument, allowing it to “correct large external and domestic imbalances”.
The pandemic poses “an immediate and severe economic disruption that could negatively impact Egypt’s hard-won macroeconomic stability if not addressed”, the lender said in a statement announcing the funding.
“The Covid-19 pandemic has drastically disrupted people’s lives, livelihoods, and economic conditions in Egypt,” said Geoffrey Okamoto, first deputy managing director and acting chair of the IMF’s executive board, adding that tourism had been brought to a standstill, remittances had slowed and that the country had witnessed significant capital flight.
The Egyptian government had “acted swiftly” in responding to the crisis, allocating resources to take the health emergency and providing targeted support to the areas of the economy most affected, he said, as well as expanding social safety net programmes for the most vulnerable. Egypt’s Central Bank has also cut interest rates and postponed repayments of existing credit facilities to allow banks to keep lending.
However, Egypt faces a marked economic slowdown as a result of the measures introduced to stop the spread of the virus, most notably in its tourism sector. The IMF last month said Egypt’s growth rate is set to slow to just 2 per cent this year, from 5.6 per cent in 2019. Last week’s Purchasing Managers’ Index – a snapshot of the performance of the non-oil private sector economy – fell to 44.2 in April, from 47.1 in March. A score above 50 represents economic expansion, and below 50 contraction.
“Emergency support under the Rapid Financing Instrument will help limit the decline in international reserves and provide financing to the budget for targeted and temporary spending,” Mr Okamoto said. He added that additional support from both multilateral and bilateral creditors would also be needed to help Egypt close its balance of payments gap.
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 will need to take measures to lower debt once more once the crisis abates, Mr Okamoto said, and to continue implementing structural reforms "to increase the role of the private sector to achieve higher and inclusive private sector-led growth and job creation".