IMF and Egypt agree to take steps to reach staff-level agreement on rescue loan soon

Implementation of reforms to enhance competitiveness of economy and improve business climate, lender says

A woman walks out of a currency exchange shop in the Zamalek district of Cairo. AFP

The International Monetary Fund (IMF) and Egypt have agreed to finalise work to reach a staff-level agreement on a loan “very soon”, the multilateral lender said on Saturday.

“IMF staff and the Egyptian authorities have held very productive in-person discussions on the margins of the IMF and World Bank annual meetings and made substantial progress on all policies,” Gerry Rice, director of communications at the IMF, said.

“The implementation of the authorities’ comprehensive structural reform agenda would gradually enhance the competitiveness of the economy, reduce the role of the state in the economy, level the playing field for the private sector, improve the business climate and foster transition towards a greener economy.”

The Arab world’s third-largest economy is seeking a new loan for up to $8 billion as part of an economic restructuring programme to be agreed with the IMF.

The North African country has been hit hard by the fallout from the Russia-Ukraine war, forcing the government to respond with a series of austerity measures as well as additional spending to shield the poor against higher food prices.

Higher energy prices and supply chain disruptions caused by the Covid-19 pandemic are also combining to raise the price of food items, especially wheat-based products such as bread, a main staple for most of its 104 million population.

Egypt, where about 30 per cent of the population lives below the poverty line, buys 80 per cent of its wheat imports — 13 million tonnes in 2021 — from Russia and Ukraine.

The Arab world’s most populous nation has approached the IMF twice before, seeking help since 2016, when it secured a $12bn loan as part of a far-reaching reform programme that featured a devaluation of its currency, the lifting of state subsidies on essential services and the introduction of a wide range of taxes.

The measures triggered a wave of price increases that hit the middle and working classes the hardest, but won accolades from donors and international financial agencies.

In 2020, Egypt received a $5.2bn standby arrangement from the IMF along with $2.8bn under the lender’s Rapid Financing Instrument to cope with the fallout from the pandemic.

Meanwhile, Egypt’s Gulf allies pledged as much as $22bn in April this year to help the country cope with the effects of the war in Ukraine. The aid from Qatar, Saudi Arabia and the UAE will come in the form of central bank deposits and investments.

The government has made “substantial progress” on a continued fiscal consolidation path that will safeguard public debt sustainability and ensure a steady decline of the debt-to-GDP ratio over the medium term, the IMF said.

It has also worked on additional fiscal and related structural policies that will further expand the social safety net for the most vulnerable, improve the budget composition and enhance fiscal transparency.

“Egyptian authorities have made substantial progress on monetary and exchange rate policies that would anchor inflation expectations, improve monetary policy transmission, improve the functioning of the foreign exchange market and bolster Egypt’s external resilience,” the Washington-based fund said.

“This would enable Egypt to gradually and sustainably rebuild foreign reserves.”

Also affected by the Russia-Ukraine war is Egypt’s vital tourism sector that contributes more than 10 per cent of its gross domestic product.

Although tourist numbers are back to healthy levels after the slump caused by the pandemic, Egypt is still feeling the pinch from the loss of Russian and Ukrainian tourists, who normally account for 30 per cent of its foreign visitors.

President Sheikh Mohamed with Abdel Fattah El Sisi in Egypt — in pictures

Since March, the Egyptian pound has depreciated by about 20 per cent.

Its value is expected to further slide in the remainder of the year — from the current 19.60 Egyptian pounds to the dollar to around 22 to 23 Egyptian pounds to the dollar by the beginning of next year.

A shortage of US dollars, partially caused by a soaring import bill and the flight of billions of dollars from Egypt’s once lucrative debt market, has hit local industries hard.