IMF likely to boost Egypt's loan programme amid economic crisis

IMF likely to boost Egypt's loan programme amid economic crisis
The IMF also lowered its projections for the country's real GDP growth in the incoming FY2024/2025 to 4.7 per cent.
3 min read
Egypt - Cairo
01 February, 2024
The Egyptian pound has been struggling against the US dollar for months, leading the prices of essential commodities to hike. [Getty]

The International Monetary Fund (IMF) is likely to raise the amount stipulated by a loan agreement signed with Egypt further to support the North African country's ailing economy.

"The loan could reach up to US$10 billion to help the Egyptian economy survive amid local and external factors, including the Israeli onslaught on the neighbouring Gaza Strip and tensions in the Red Sea negatively influencing the revenues generated by the Suez Canal," an official Egyptian source told The New Arab.

"The IMF dictates that Egypt was committed to fully devaluating the local Egyptian pound among other economic reform conditions, which is quite difficult at this stage given the price hikes of basic commodities," the source said anonymously for not being authorised to speak to the media.

The initial agreement dictated that Egypt would benefit from a US$3 billion loan over 46 months under the IMF's Extended Fund Facility (EFF), provided that the country loosens state and military control over the economy and adopt exchange rate flexibility, allowing market forces to determine the value of the local currency.

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An IMF delegation, led by the Mission Chief for Egypt, Ivanna Vladkova Hollar, has been in Cairo for almost two weeks for discussions over the first and second reviews of Egypt's reform programme supported by the fund's Extended Fund Facility (EFF).

The official visit coincided with a new report by the fund's World Economic Outlook, downgrading by three per cent its forecasts for Egypt's real Gross Domestic Product (GDP) for the fiscal year 2023/2024, compared to 3.6 per cent recorded in October last year.

The IMF also lowered its projections for the country's real GDP growth in the incoming FY2024/2025 to 4.7 per cent, down from the five per cent projected in October.

In November 2023, IMF's Managing Director Kristalina Georgieva said that the fund had been "seriously considering" boosting its loans to Egypt as the economic impact of Israel's war on Gaza took hold.

Meanwhile, unconfirmed reports said the IMF has extended the delegation's stay in Egypt for another week to reach an agreement.

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No public announcement has yet been made about the outcome of the visit till the time of publication.

Earlier this week, the cabinet lowered the state budget for public investments for the fiscal year (FY) 2023/2024 by 15 per cent.

The Egyptian government also postponed working on new projects until June, whether through tenders or no-bid contracts.

Local and international news outlets reported over the past 24 hours that the UAE is about to reach a deal with Egypt to buy vast lands in the Mediterranean Ras El-Hekma resort for $US 22 billion, which has reportedly impacted the informal value of the US dollar.  

The Egyptian pound has been struggling against the US dollar for months, leading prices of essential commodities to hike, especially wheat, rice, sugar, and cooking oil, which has taken a toll on low and average-income households.

One US dollar is worth about 30.95 Egyptian pounds, while the parallel market declined by 10 EGP to 60 EGP at the time of publication.

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"The black market is usually controlled by supply and demand. Though unconfirmed, news about the UAE deal indicates that a large amount of US dollars will be available for the government to handle the country's imports and financial burdens," an economic analyst told TNA.

"It is widely known that even state institutions and army-affiliated companies resort to the parallel market to secure their foreign currency needs amid a dire shortage at banks and the declining value of the local currency," added the analyst, who declined to be named.

Egypt has encountered an enormous financing gap surpassing US$8 billion for the fiscal year 2023/2024, which could amount to over US$20 billion in four years. The country's external debt soared by 5.1 per cent during the fourth quarter of 2022, reaching US$162.94 billion, a total of US$10 billion more than the previous quarter.