IMF approves $12bn loan to support Egypt economy

AFP

The International Monetary Fund
approved a three-year, $12 billion loan for Egypt to help the country recover from its economic crisis amid soaring inflation and deficits.
The IMF executive board said it would release $2.75 billion to Egypt immediately, while further disbursements will depend on the country’s economic performance and agreed milestones in implementing the reforms. The program “will help Egypt restore macroeconomic stability and promote inclusive growth,” the board said in a statement.
IMF Managing Director Christine Lagarde said the IMF would be supporting an Egyptian “homegrown economic program” that addresses a huge budget deficit, rising debt, slow growth and high unemployment.
“The authorities recognize that resolute implementation of the policy package under the economic program is essential to restore investor confidence, reduce inflation to single digits, rebuild international reserves, strengthen public finances, and encourage private sector-led growth,” she said in a statement.
She said that there were “significant” risks to implementing the program, but that those risks were mitigated by key actions already being taken by the government and “broad political support” for the loan program’s goals.
The loan announcement by the global crisis lender comes after Cairo took crucial preliminary reform steps in recent weeks to meet IMF requirements, including cutting fuel subsidies, announcement of a value added tax, and floating the Egyptian pound, which subsequently lost 45 percent of its value against the
US dollar.
Egypt is reeling after six years of political and economic turmoil involving the ousters of two presidents. Police
had to put down some small protests Friday against rising prices, and analysts warn the government will continue to face challenges.
Cairo governments had avoided implementing the economic reforms for years fearing unrest, but President Abdel Fattah al-Sisi said Egypt no longer has the luxury of postponing them. The IMF said Egypt’s economic program will be subject to five reviews over the life of the loan. The reviews are traditionally held every quarter, after which another tranche of the loan is released.
The IMF last month forecast the country’s economy will grow 3.8 percent this year and 4 percent next year, but inflation is approaching 14 percent and
was expected to surge above 18 percent in 2017. This is amid a budget deficit of 12 percent.
The loan approval came hours after Standard and Poor’s announced it was upgrading the outlook on Egyptian sovereign debt to stable from negative, while keeping the rating at B-. “A more competitive exchange rate could benefit Egypt’s export of goods and services, particularly the depressed tourism sector, if the security environment stabilizes further,” S&P said.