IMF backs $3.1 billion loan for Egypt

The International Monetary Fund executive board approved a 46-month loan for Egypt, totalling more than $3.1 billion, on December 16. The fund will immediately disburse almost $347 million.

As part of the loan conditions, Egypt has committed to “a permanent shift to a flexible exchange rate regime to increase resilience against external shocks and to rebuild external buffers”.

Egypt announced it would float the pound at the end of October. The country has faced high inflation and diminishing reserves throughout 2022, partly because the Russia-Ukraine war has forced up commodity prices. Egypt has long relied on the two countries for grain and fertiliser.

The Central Bank of Egypt has raised the policy rate three times this year, from 8.25% to 13.25%. Nevertheless, inflation has continued to climb, with the urban inflation rate hitting 18.7% in November. Between January and late October, the pound fell 34% against the dollar.

As part of the package, Egypt committed to “strengthening [monetary] policy transmission, including by transitioning away from subsidising lending schemes”. Egypt also pledged to undertake “fiscal consolidation” and “wide-ranging structural reforms”.

A Reuters poll predicted the central bank would add another 200bp at a December 22 meeting.

Kristalina Georgieva, the IMF’s managing director, welcomed the decision to adopt floating exchange “and to unwind prior policy distortions”, supported by an upfront monetary policy tightening and further enhancements to the social safety net.

She highlighted Egypt’s “strong ownership and track record under previous IMF-supported programs and political support for the policy package” as signs the package has a strong chance of succeeding.

The fund expects that Egypt will be able to obtain an additional $14 billion in funding on the back of the IMF loan. Saudi Arabia deposited $5 billion with the Egyptian central bank in March, on top of $5.3 billion of earlier support.

Egypt has also applied for about $1.33 billion in long-term IMF financing under the Resilience and Sustainability Facility. This mechanism, launched earlier this year, provides credit for structural projects that guard against climate change, pandemics and other systemic threats.