The IMF deal along with a mammoth United Arab Emirates investment are the cornerstones of a $57 billion global bailout that’s offering the Middle East’s most populous nation a fresh start after two years of uncertainty.
Egypt Gets $820M as IMF Increases Facility by $5bn
The Executive Board of the International Monetary Fund (IMF) completed the first and second reviews of Egypt’s Extended Fund Facility arrangement with Egypt. It approved an augmentation of the original program by about US$5 billion.
This enables the authorities to draw about US$820 million, according to an official statement from the multilateral lender.
- Egypt’s 46-month EFF arrangement was approved on December 16, 2022.
- In completing the review, the Executive Board assessed that all but one of the quantitative performance targets for end-June 2023 were met, the official release added.
- Since the program’s approval, the macroeconomic environment has been difficult due to rising inflation, a lack of foreign exchange, high debt levels, and financing requirements.
The difficult external environment generated by Russia’s war in Ukraine was subsequently aggravated by the conflict in Gaza and Israel, as well as tensions in the Red Sea.
- These developments increased the complexity of macroeconomic challenges and called for decisive domestic policy action supported by a more robust external financing package, including from the IMF.
In this setting, economic activity was affected by delayed policy adjustments and external shocks.
- Growth slowed to 3.8 percent in FY2022/23 due to weak confidence and foreign exchange shortages and is projected to slow further to 3 percent in FY2023/24 before recovering to about 4½ percent in FY24/25.
- Although inflation is still high, it should start to decline in the medium run as the tightening of policy takes effect.
Nonetheless, steadfast implementation of the economic policies under the program remains critical to sustainably address Egypt’s macroeconomic challenges, as does robust delivery on structural reforms to allow the private sector to become the engine of growth.
Ms. Kristalina Georgieva, Managing Director and Chair, stated following the Executive Board’s discussion:
- “With the fallout from the recent conflict in Gaza and Israel, Egypt is facing significant macroeconomic challenges that have become more complex to manage.” The disruptions in the Red Sea are also reducing Suez Canal receipts, which are an important source of foreign exchange inflows and fiscal revenue.
- “The authorities’ commitment to use a large part of the new financing from the Ras El-Hekma deal to improve the level of reserves, fast-track the clearance of foreign currency backlogs and arrears, and reduce government debt upfront is prudent.
- “Implementation of the newly established framework to monitor and control public investment will help manage excess demand. The pursuit of a revenue-based fiscal consolidation will put debt firmly on a downward path and provide resources for expanding the social safety net. In this regard, it remains essential to replace untargeted fuel subsidies with targeted social spending as part of a sustained fuel price adjustment package.
- “Achieving these goals is subject to risks. Externally, uncertainty remains high. Domestically, sustaining the shift to a liberalized foreign exchange system, maintaining tight monetary and fiscal policies, and integrating transparently off-budget investment into macroeconomic policy decision-making will be critical.
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#Egypt Gets $820m as IMF Increases Facility by $5bn
A woman stands next to a currency exchange point, displaying an image of the U.S. dollar, in Cairo, Egypt, March 6, 2024. (Reuters)
Published: 30 July ,2024: 01:22 PM GSTUpdated: 30 July ,2024: 01:30 PM GST
The Washington-based lender in March increased Egypt’s existing $3 billion loan deal to $8 billion, as the IMF weighed the impact of the Israel-Hamas war on some of Egypt’s key streams of foreign revenue such as tourism and Suez Canal fees.
The IMF, which releases the financing in tranches after periodic reviews, said last month Egypt should maintain its focus on trimming its deficit and providing targeted social spending. Changes are already underway for subsidy programs used by a majority of the country’s 105 million-plus people as the government reins in spending.
- Authorities last week hiked the prices of a range of fuel products by as much as 15 percent, part of incremental increases they signaled will continue until December 2025.
- The price of subsidized bread was also raised in June for the first time in decades, while an increase in electricity tariffs is widely expected.
The IMF has reiterated the importance of maintaining what it calls a flexible exchange rate regime.
- Authorities allowed the Egyptian pound to lose nearly 40 percent of its value against the US dollar in early March, just before the IMF deal was announced.
“With signs of recovery in sentiment, private sector growth should be poised for a rebound.”
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Egypt’s President Al-Sisi to visit China, marking a decade of strategic partnership
Egyptian President Abdel Fattah Al-Sisi will embark on a state visit to China at the invitation of President Xi Jinping, the Egyptian Presidency announced on Monday. The visit, coinciding with the tenth anniversary of the elevation of bilateral relations to a comprehensive strategic partnership, will include a summit meeting between the two leaders and discussions with senior Chinese officials.
The talks are expected to focus on strengthening cooperation in various fields and addressing regional and international issues of mutual concern. Foremost among these is the ongoing war in Gaza and ways to restore stability in the region, ensuring the well-being and development of its people.
In addition to meetings with political leaders, President Al-Sisi will also engage with the heads of several major Chinese companies across various sectors. The discussions will center on attracting further investments to Egypt, aligning with the country’s emphasis on localizing industry and transferring technology through collaboration with the private sector and foreign direct investment.
The visit will culminate with President Al-Sisi’s attendance at the opening session of the tenth ministerial meeting of the China-Arab States Cooperation Forum on May 30th. The meeting, attended by Chinese President Xi Jinping and several Arab leaders, will delve into various aspects of Arab-Chinese relations and explore avenues for their enhancement.
The Egypt-China relationship has experienced significant growth over the past decade, marked by the rapid development of economic, trade, military, and cultural ties. Egypt plays a strategic role within the Belt and Road Initiative (BRI), a project with the potential to elevate bilateral relations further. Both countries are also members of BRICS, an economic bloc comprising Brazil, Russia, India, China, and South Africa.
This expansion in ties reflects a strategic pivot by Egypt to diversify its international partnerships and reduce reliance on traditional Western allies, particularly following the 2013 events and subsequent strains in relations with key partners like the United States.
In December 2014, shortly after assuming office, President Al-Sisi visited China and signed a comprehensive strategic partnership (CSP) agreement with President Xi Jinping, ushering in a new era of enhanced bilateral relations.
Since then, China has become one of Egypt’s largest trading partners and investors, with Chinese companies injecting billions of dollars into Egyptian infrastructure projects.
These include the construction of the New Administrative Capital, power plants, and industrial zones. The two countries have also concluded several agreements to bolster trade and economic cooperation in energy, agriculture, and manufacturing.
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