Policies supported by the SBA loan to Egypt will focus on addressing the immediate COVID-19 crisis needs, including critical spending on health, social programmes to protect the most vulnerable, and assist directly affected sectors while safeguarding medium-term fiscal sustainability, Deputy Managing Director and Acting Chair of the IMF Antoinette Sayeh said in a statement on Saturday.
The International Monetary Fund (IMF) Executive Board approved on Friday Egypt’s request to acquire a $5.2 billion loan under a standby agreement (SBA) to address the repercussions of the COVID-19 pandemic.
The fund's approval allows Egypt to obtain $2 billion immediately, while the remainder will be phased over two reviews.
The loan also aims at anchoring inflation expectations and preserving exchange rate flexibility, Sayeh added.
“Egypt was looking to broaden and deepen structural reforms begun under the Extended Fund Facility (EFF), but the COVID-19 pandemic has temporarily refocused government priorities to address the economic and health crisis. The government has responded decisively to the crisis with a comprehensive package that supports healthcare needs, the economy, and the most affected individuals and sectors. The Central Bank of Egypt has also taken several actions to support economic activity and borrowers,” said Sayeh.
She added that the structural reforms aim to continue strengthening the frameworks for public finances, improve governance and transparency, and reduce barriers to competition to ensure a path towards sustainable and inclusive private sector-led growth.
“Over the past few years, Egypt saw strong growth, falling unemployment, moderate inflation, buildup of strong reserve buffers, and significant reduction in public debt,” she pointed out.
She clarified that the new SBA, together with the $2.4 billion loan that was handed to Egypt in May under the rapid facility instrument (RFI), supports the authorities’ ongoing efforts to mitigate the economic and social impact of the coronavirus crisis while maintaining macroeconomic stability and safeguarding past achievements. Together with the support of Egypt’s development partners, disbursements from the SBA will help address large financing needs.
Sayeh said that as the economic recovery takes hold, fiscal policy will need to work towards resuming the downward trajectory of public debt.
In this regard, Sayeh stated that the Central Bank of Egypt aims to continue to provide a stable anchor for inflation expectation and financial stability while rebuilding reserve buffers and allowing orderly exchange rate adjustments.
"Achieving programme objectives is subject to risks. At the global level, uncertainty about the severity and length of the downturn remains exceptionally high. On the domestic side, the authorities will need to continue their strong track record of steadfast policy implementation,” she declared.
"Maintaining social cohesion during this crisis period will be paramount for the success of the programme. Enhanced communication and transparency around the policies and their implementation will be crucial to ensure broad support for the government’s reform efforts on behalf of the Egyptian people,” according to Sayeh.