Egypt expected to announce IMF loan deal within hours
Egypt is expected to announce a new loan agreement with the International Monetary Fund (IMF) on Thursday, sources familiar with the matter told Daily News Egypt.
Sources did not reveal the exact amount of the loan, but it is expected to be between $3 billion and $5 billion. The deal comes as the country faces higher food and fuel import costs due to the twin shocks caused by the pandemic and the war in Ukraine.
Over the past two months, Egypt’s allies in the Gulf Cooperation Council have increased their support for the country by injecting and pledging around $22 billion in investments and deposits.
Negotiations with the IMF on the Extended Financing Facility started in March. One of the stumbling blocks in the talks was the exchange rate of the Egyptian pound against the US dollar.
In November 2016, Egypt has successfully secured IMF approval for a three-year, $12 billion loan deal which involved currency devaluation and sweeping reforms.
Since then, the Egyptian economy has been on an upward trend. The country’s economy grew by 6.6% in the 2021/22 financial year which ended on June 30, with growth accelerating from 3.3% in the previous year, the activity having resumed after the coronavirus pandemic before slowing down again due to the impact of the war in Ukraine.
In 2020, Egypt secured a stand-by arrangement of $5.2 billion as well as $2.8 billion under the IMF’s rapid financing instrument to help the authorities deal with the crisis. coronavirus impact.
Egypt aims to improve its business climate by implementing reforms aimed at eliminating bureaucracy, easing the procedures required to obtain project licenses and making finance accessible to small and medium-sized enterprises (SMEs). This is an effort to increase job creation to reduce the current high unemployment rates in Egypt.
Hany Genena, an economist and assistant professor at the American University in Cairo (AUC), believes that reaching an agreement with the IMF has many positives.
“The most important thing is to provide a direct source of funding through the first immediate tranche that Egypt will receive after the agreement,” he explained.
Genena added that the deal would allow Egypt to reissue international bonds to ensure its return to global markets.
He pointed out that the structural reforms agreed with the fund through the extended credit program are an important element for the Egyptian economy.
He stressed the need for Egypt to adhere to the post-loan prescription of the reform to maintain the results of the reform for a long period to ensure that it does not have to resort to borrowing again. Genena stressed the need to move pricing mechanisms, whether for US dollars or petroleum products, from fixed to free.
Furthermore, he explained that Egypt’s previous experience in controlling the EGP exchange had a negative impact on the economy, not on the terms of the IMF loan, especially since it led to speculative money entering the Egyptian economy instead of real investment opportunities.
Ayman Abouhend, chief investment officer at Zilla Capital, said Egypt’s agreement on the IMF loan gives investors greater confidence, especially after the recent increase in insurance risks on Egyptian debts. .
He added that the deal will also help Egypt provide dollar liquidity alongside recent investments in the Gulf.
Abouhend stressed that exchange rate liberalization must go through a managed floating exchange rate system, “especially after the stability over the three years, which contributed significantly to the aggressive appreciation of the USD against at the EGP in the last six months”.
He explained that Egypt needs to take some steps in the next period, including better governance of spending and examining the feasibility of return before implementing projects, especially in the infrastructure sector.
He stressed that the North African nation needs to diversify its investments, boost private sector participation and gradually exit certain sectors.
Abouhend explained that the tax reduction would increase local investments and attract foreign investors to Egypt, which would help increase the volume of tax revenue, stressing the need for Egypt to reduce its expenditure and debts during the period. coming.