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Egypt reaches $4.8bn loan agreement with IMF

Agreement is reached with IMF technical team for $4.8 billion loan facility, fund announces Tuesday

Ahram Online, Tuesday 20 Nov 2012
 Egypt signs initial loan agreement with IMF
Egypt's President Morsi meets with IMF Managing Director Lagarde at the Presidential Palace in Cairo , August 2012 (Photo: Reuters )
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Egypt has reached a staff-level agreement with the International Monetary Fund's technical team, currently on a visit to Cairo, for a $4.8 billion loan, the fund announced Tuesday.

The agreement is expected to open the door to some $14.5 billion in financing to allow Egypt to implement an economic programme that it has proposed to the IMF.

The IMF said in a statement that agreement had been reached for "a 22-month Stand-By Arrangement (SBA) in the amount of about $4.8 billion (equivalent to about 3.16 billion SDR [Special Drawing Rights], or 335 per cent of Egypt's quota in the IMF)."

The loan proposal will be presented to the IMF's board of directors for final approval on 19 December, according to Hany Kadry, assistant to Egypt's finance minister who is responsible for IMF negotiations.

The first tranche of the loan is expected to be disbursed immediately after the board's approval is secured.

The loan will bear an interest rate of 1.06 per cent. Additional fees will also be attached to the facility, Reuters reported.  

An IMF technical team arrived in Cairo some two weeks ago to discuss Egypt's economic programme, which will accompany the loan agreement.

To date, the Egyptian government has not disclosed any details of the programme.

Ashraf El-Arabi, Egypt's minister of planning and international cooperation, said the government would announce details of the loan on Wednesday.

The IMF, for its part, described what Egypt could expect following finalisation of the loan agreement.

"The [Egyptian] authorities' programme will be supported by a financing package of $14.5 billion in loans and deposits on favourable terms from a range of bilateral and multilateral partners, including the IMF," Andreas Bauer, chief of the IMF's Middle East and Central Asia department, said in a Tuesday statement.

To cover its widening budget deficit, Egypt currently borrows from the local market at rates as high as 15 or 16 per cent.

Fiscal consolidation is a "key pillar" of the economic programme, which would be carried out by instituting tax reforms and restructuring subsidies, according to the IMF.

Egypt's cabinet said in a statement on Tuesday that its programme aimed to cut the budget deficit to 8.5 per cent of GDP by 2013/14, down from the 11 per cent expected in the current 2012/13 fiscal year.

"The top tax rate will not change, but new tax brackets will be added and the exemption level will increase," the finance ministry's Kadry told Ahram Online.

Earlier this month, Egypt's cabinet approved a new tax bracket of 22 per cent for annual incomes between LE1 million and LE10 million.

Kadry explained that the other main feature of Egypt's economic programme was its focus on cutting fuel subsidies, a policy that the current cabinet has discussed intensively since its appointment this summer.

As for monetary policy, Kadry declined to comment, saying the matter was in the hands of the Central Bank of Egypt.

The IMF did not reveal any details of the proposed monetary measures, including the prospect of a possible devaluation of the Egyptian pound.

"Monetary and exchange rate policies will be geared towards ensuring declining inflation over the medium term; enhancing Egypt's international competitiveness to stimulate trade and attract capital inflows; and increasing international reserves to protect against external shocks," the IMF statement read.

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