The executive board of the International Monetary Fund (IMF) on Monday approved Egypt’s request, submitted two weeks ago, for emergency financial assistance to cover urgent balance of payments needs resulting from the outbreak of the coronavirus pandemic.
Egypt will receive $2.772 billion, equivalent to 100 per cent of its IMF quota, as a result of the IMF approval.
The spread of the coronavirus had led to “a tourism standstill, significant capital flight, and a slowdown in remittances, resulting in urgent balance of payments needs” in Egypt, Geoffrey Okamoto, the IMF’s first managing director, said in the statement following the executive board meeting.
The overall drop in tourism receipts, remittances from abroad, and Suez Canal receipts due to a decline in international trade would translate to a current account deficit of more than $14 billion in Egypt on a rolling 12-month basis, according to a research team at Al-Naeem Brokerage.
Foreign investments in Egyptian treasury bills also witnessed a 50 per cent decline during the height of the emerging-markets sell-off in March. Investors sold around $10.4 billion of Egyptian treasury bills during the month, more than half of the $20 billion invested at the end of February. Total investment in both Egyptian treasury bills and bonds fell by around 40 per cent in March.
In order to meet repatriation requests from foreigners liquidating their investments in Egyptian treasuries, the Central Bank of Egypt (CBE) had to withdraw from its international reserves. It used a further $1.6 billion of the reserves to repay a bond that matured last month and to import strategic commodities, pushing the reserves down for two consecutive months.
Egypt’s foreign reserves fell by $5 billion and $3.1 billion in March and April, respectively, to stand at $37 billion.
Emergency support for Egypt under the IMF’s Rapid Financing Instrument (RFI) will help to limit the decline in international reserves and provide financing to the budget for targeted and temporary spending aimed at containing and mitigating the economic impacts of the pandemic, according to the IMF statement.
The $2.72 billion bailout “will help alleviate some of the most pressing financing needs, including for spending on health, social protection, and supporting the most impacted sectors and vulnerable groups,” it noted.
The money is expected to become available within the coming days.
Deputy Finance Minister Ahmed Kouchouk said in a televised interview on Monday that negotiations with the IMF for an extra $5 billion under a standby arrangement would start the following day. The Institute of International Finance said in a research note last week that overall Egypt could receive up to $8.4 billion (or 300 per cent of its IMF quota) under both arrangements.
Official figures do not fully reflect the depth of real losses taking place in the economy as a result of the pandemic, but the indicators are worrisome. According to Finance Minister Mohamed Maait, the coronavirus pandemic has caused a LE75 billion shortfall in state revenues since the beginning of the outbreak, LE65 billion of which has come through lower-than-expected tax receipts.
The impacts of the virus are also obvious in the lives of many, since more than 30 per cent of Egypt’s population lives under the poverty line, and more than five million people work as day labourers in the informal economy, often without social protection.
Abu Yasser, a 52-year-old waiter in a popular café in the poorer neighbourhood of Al-Sayeda Eisha, said he could not afford to buy his blood pressure medicine from the tips he receives. “I can hardly put food on the table for my kids, so getting the medicine is a luxury now,” he said, adding that he had been relying on food banks since the beginning of Ramadan.
While the state has asked its employees to work half time to guarantee social distancing and is paying them full salaries, private firms have not been able to provide the same treatment for their employees.
Sayed Gheith, the manager of a furniture showroom in Heliopolis, said that due to the low number of customers since the outbreak of the virus the store had decided to close for the time being. “The owner was generous enough to pay my full salary in February and March, but I got only half in April. I don’t know how I am going to make ends meet from now on, especially with the increase in the prices of food during Ramadan,” he said.
Egypt’s annual urban consumer price inflation increased to 5.9 per cent in April from 5.1 per cent in March on the back of rising food prices.
The government has responded to the crisis with a comprehensive package aimed at tackling the health emergency and supporting economic activity. It has allocated a LE100 billion stimulus package to revitalise the economy and support the most-affected sectors. The stimulus includes a tax-relief package for businesses that allows companies in sectors including aviation, tourism, journalism and media, sports, and manufacturers to pay income taxes in three instalments ending 30 June.
The authorities have acted swiftly to allocate resources to the health sector, provide targeted support to the most severely impacted sectors, and expand social safety net programmes to protect the most vulnerable, according to the IMF statement.
But “additional expeditious support from multilateral and bilateral creditors will be needed to close the remaining balance of payments gap, ease the adjustment burden, and preserve Egypt’s hard-won macroeconomic stability,” it said.
Egypt signed a three-year $12 billion Extended Fund Facility with the IMF in November 2016, under which its currency was devalued by half, a value-added tax was introduced, and subsidies were partially lifted on fuel.
*A version of this article appears in print in the 14 May, 2020 edition of Al-Ahram Weekly