INTERVIEW: IMF Senior Resident Representative to Egypt Said Bakhache explains fund facilities for Egypt, region in response to coronavirus

The International Monetary Fund (IMF) has reached a staff-level agreement regarding Egypt’s request to acquire a loan under the standby agreement (SBA), after the fund gave Egypt a $2.77 billion loan under the rapid finance instrument (RFI) to address the COVID-19 implications.

In an exclusive interview with Ahram Online, IMF Senior Resident Representative to Egypt Said Bakhache unveiled the measures of disbursing the two loans, saying the fate of the SBA loan will be decided in the coming weeks.

Bakhache noted that Egypt has made significant progress in the first wave of reforms needed to achieve macroeconomic stability, which helped put the country on solid ground to face the ongoing crisis, stressing that a second wave of reforms is needed to sustain strong and inclusive private sector-led growth to further reduce poverty and absorb the large number of new entrants to the labour force expected over the next decade.

 What are the repaying conditions of the RFI loan?

The Rapid Financing Facility is part of the IMF’s emergency financing to support its 189 member countries to address the effects of COVID-19. As you know, this emergency financing helps countries meet immediate balance of payments needs which arise from the health and economic crises without the need to have a full-fledged programme in place. In response to members’ large and urgent COVID-19-related financing needs, access limits have been increased from 50 to 100 percent of quota per year, and from 100 to 150 percent of quota on a cumulative basis.

Repayment terms for the emergency financing are quite flexible. For the RFI payment is due within 3¼-5 years of disbursement. https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/19/55/Rapid-Financing-Instrument#:~:text=The%20Rapid%20Financing%20Instrument%20(RFI,diverse%20needs%20of%20member%20countries.

Given that the IMF’s Egypt mission has reached a staff-level agreement with the Egyptian authorities regarding Egypt’s request to acquire a loan under the SBA, what is the expected sum to be disbursed, its terms and measures?

The proposed size of the one-year programme is $5.2 billion. The amount and programme terms are subject to the IMF’s Executive Board's approval. The programme will focus on supporting Egypt’s ongoing efforts to maintain macroeconomic stability, protect the poor and vulnerable, and maintain the structural reform momentum to further promote the role of the private sector in the economy.

 When is the IMF’s Executive Board expected to discuss Egypt’s SBA request? 

The Executive Board is expected to discuss the request in the coming weeks.

Is Egypt committed to certain procedures regarding any of the two loans as was the case with the $12 billion EFF loan?

As mentioned earlier, the RFI is part of the IMF’s emergency financing for its member countries. It is for immediate payment and the only conditions attached are that the country’s debt should be sustainable and that it has sound economic fundamentals.

In the case of Egypt, the funds are expected to support high priority spending to address the health crisis, the poor and vulnerable, and the directly impacted sectors. Transparency and accountability on the use of the emergency financing is expected of all borrowing countries.

Regarding the SBA loan, it is a continuation of the authorities’ reform efforts which they started in 2016. The programme is set to achieve a number of objectives including to maintain macroeconomic stability, protect the poor and vulnerable and help strengthen the role of the private sector to achieve more inclusive and sustainable growth.

How do you see the COVID-19 repercussions on Egypt’s economic and social fronts?

Like many other countries, Egypt is hit by COVID-19 pandemic. The bold economic reforms that Egypt implemented prior to the COVID-19 crisis put the country on solid ground to face this crisis. While the crisis is having a significant impact on the population and the economy, the authorities launched a comprehensive response to contain the spread of the virus and its health implications as well as lessen the impact of the economic shock, including important measures to expand the ability of the healthcare system to deal with it.

On the economic policies front, fiscal, monetary, and financial sector measures were put in place to support the health sector, cushion the directly impacted sectors, and expand support to the poor and vulnerable. The Central Bank of Egypt initiated measures to ease pressures on domestic liquidity and credit conditions. It is important to ensure that these measures are transparent, well-targeted to address social needs and can be rolled back as conditions normalise so that the government retains fiscal space for other high priority spending.

 What kind of procedures does Egypt need to adopt to deal with the repercussions of the coronavirus?

The immediate priorities are to address health risks, support the poor and vulnerable, and support businesses directly impacted by the crisis and minimise job losses. The government has taken measures to contain the effect of the crisis on all these fronts.

Additional allocations have been made for healthcare, the coverage of Takaful and Karama [social protection programmes] has been broadened, support is being provided to the informal sector, and the Central Bank of Egypt is supporting businesses and individuals through temporary moratoria on credit facilities. With inflation remaining low, the Central Bank of Egypt has also lowered interest rates to support activity while preserving financial stability.

The challenge is to strike the right balance between providing the necessary support and avoiding a buildup of unsustainable imbalances so that the economy is well placed for a healthy and speedy rebound as the crisis passes. Therefore, it is critical that the measures taken during the crisis are timely, targeted, temporary, and transparent. It will be important to roll back these measures when conditions allow.

Could the COVID-19 crisis affect Egypt’s efforts that have been implemented to achieve its economic, social, and structural reforms?

Egypt made significant progress in the first wave of reforms needed to achieve macroeconomic stability. This helped the country face the crisis. A second wave of reforms is needed to sustain strong and inclusive private sector-led growth to further reduce poverty and absorb the large number of new entrants to the labour force expected over the next decade. Deepening and broadening reforms that were begun under the Extended Fund Facility to enhance state-owned enterprise (SOE) transparency, improve competition, and facilitate trade are critical for incentivising private sector participation.

While Egypt’s current reform efforts are focused on containing the impact of the COVID-19 crisis, they also include measures to help maintain the structural reform momentum including strengthening transparency of SOEs, reforming the competition law, and improving the business climate. Once the impact of the crisis abates, further attention on these and related reforms will be necessary.

What about the total facilities that the IMF has disbursed for MENA and African countries to help them address the crisis?

Since this is a crisis like no other, the IMF created what we call a policy tracker, which you can find on our website. This tool tracks all policies adopted by countries. There is also ready information about IMF emergency financing extended to our members on our website.

With regards to sub-Saharan Africa, between 35 and 40 Sub-Saharan African countries have made a request for emergency assistance from the IMF, and 28 countries so far have received financing from the fund for a total of about $10 billion.

Emergency financing arrangements do not have the traditional IMF conditionality and funds are disbursed immediately. The $10 billion disbursed is about 10 times more than what the IMF has been disbursing to the region on average, on an annual basis. More requests for emergency financing are expected.

Additionally, 20 Sub-Saharan Africa countries have received debt relief under the Catastrophe Containment and Relief Trust. 

In North Africa and the Middle East, Tunisia, Jordan and Egypt received emergency financial assistance.