The International Monetary Fund (IMF) will increase its current loan programme with Egypt by $5 billion, the country’s prime minister said yesterday, as the central bank let the pound plummet and said it would allow the currency to trade freely.
The new agreement is an expansion of the $3bn, 46-month Extended Fund Facility that the IMF struck with Egypt in December 2022, a key plank of which was meant to be a shift to a more flexible exchange rate system.
The programme stalled when Egypt reverted to keeping its pound at a tightly managed rate over the past year, and amid delays to an ambitious programme to divest state assets and boost the role of the private sector.
By the time the markets closed yesterday, the pound was trading at a record low of around 50 to the US dollar, after more than a year of a stabilised official exchange rate of around 30.9 against the greenback.
As part of the new agreement, Egypt will also receive a loan of about $1.2bn from a separate facility that promotes environmental sustainability, Prime Minister Mostafa Madbouly said.
The IMF said it had reached agreement with Egypt on the policies needed to create the delayed first and second reviews under the programme, which can unlock disbursements of funding subject to approval by the fund’s executive board.
“The comprehensive policy package seeks to preserve debt sustainability, restore price stability, and reinstate a well-functioning exchange rate system, while continuing to push forward deep structural reforms to promote private sector-led growth and job creation,” it said in a statement.
Policy discussions included commitments to a flexible exchange rate, monetary tightening and fiscal consolidation, social spending to protect vulnerable groups, and to reforms to eliminate privileges for state-owned enterprises – all pillars of the original programme.
They also included “a new framework to slow down infrastructure spending including projects that have so far operated outside regular budget oversight”, the IMF statement said.
Such projects, including a new capital city east of Cairo, have been a centrepiece of policy under President Abdel Fattah Al Sisi, who has defended them as providing jobs and boosting growth even as Egypt’s debt burden has surged.
Egypt negotiated the original programme, the latest in a series of support packages from the fund, after the economic fallout from the war in Ukraine prompted investors to pull $20bn from Egypt within weeks, bringing the country’s financial troubles to the fore.
Since then, spillover from the war in the neighbouring Gaza Strip has brought new risks to Egypt’s dollar revenues, including those from shipping in the Suez Canal, which dropped by about a half early this year due to Houthi attacks in the Red Sea.
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