The International Monetary Fund approved a new 12-month $5.2 billion (Dh19bn) loan for Egypt to help it cope with challenges posed by the Covid-19 pandemic and finance its budget deficit and balance of payments shortfalls.
The approval of the Fund's Stand-By Agreement (SBA) allows for the immediate disbursement of about $2bn, which will help Egyptian authorities preserve the macroeconomic achievements made over the past four years. The arrangement will also support health and social spending to protect vulnerable groups, and advance a set of key structural reforms to put the country on a strong footing for a sustained recovery with higher and more inclusive growth and job creation over the medium term.
"Over the past few years, Egypt saw strong growth, falling unemployment, moderate inflation, build-up of strong reserve buffers, and significant reduction in public debt. The authorities were looking to broaden and deepen structural reforms begun under the Extended Fund Facility, but the Covid-19 pandemic has temporarily refocused government priorities to address the economic and health crisis,” Antoinette Sayeh, deputy managing director and acting chair of the IMF’s executive board, said in a statement on Friday.
“The government has responded decisively to the crisis with a comprehensive package that supports health care needs, the economy, and the most affected individuals and sectors. The Central Bank of Egypt has also taken several actions to support economic activity and borrowers.”
Egypt's economic policy framework, supported by the new IMF arrangement, aims to maintain the country's macroeconomic stability with priorities to protect necessary social and health spending. It also aims to avoid an excessive build-up of public debt, anchor inflation expectations and safeguard financial stability while maintaining a flexible exchange rate.
The initiative will also help implement key structural reforms to strengthen transparency, governance, and competition, according to the IMF.
After a strong track record of successfully completing a home-grown economic reform programme supported by the IMF’s Extended Fund Facility in 2016-2019, Egypt was one of the fastest growing emerging markets prior to the Covid-19 outbreak. However, the significant domestic and global disruptions caused by the pandemic have worsened the country's economic outlook and reshuffled policy priorities.
"As the economic recovery takes hold, fiscal policy will need to work towards resuming the downward trajectory of public debt. The Central Bank of Egypt aims to continue to provide a stable anchor for inflation expectation and financial stability while rebuilding reserve buffers and allowing orderly exchange rate adjustments," Ms Sayeh said.
"Achieving programme objectives is subject to risks. At the global level, uncertainty about the severity and length of the downturn remains exceptionally high. On the domestic side, the authorities will need to continue their strong track record of steadfast policy implementation."
The economies of the Middle East and Central Asian countries are projected to shrink by an average of 4.7 per cent, more than the earlier 2.8 per cent contraction forecast, according to the IMF.
Last week, Egypt significantly eased regulations against the spread of the coronavirus, cancelling the overnight lockdown, reopening mosques and churches and allowing patrons back into restaurants and cafes but with limited capacity. Cinemas and theatres can also reopen, but beaches and public parks will remain shut.
"Maintaining social cohesion during this crisis period will be paramount for the success of the programme. Enhanced communication and transparency around the policies and their implementation will be crucial to ensure broad support for the government’s reform efforts on behalf of the Egyptian people,” Ms Sayeh said.
Moody’s Investors Service last month affirmed Egypt’s B2 rating on the resilience of its credit profile after the IMF approved $2.77bn of emergency funding to help it cope with the fallout from the Covid-19 pandemic.