On Friday, the International Monetary Fund’s Executive Board approved Egypt’s request for a $5.2 billion loan under the Stand-By Agreement (SBA) instrument. Below is everything you need to know about the conditions of the new loan.

What is the duration of the programme?

The loan will cover a 12-month period.

When are the loan’s tranches expected to be disbursed?

The loan approval provides an immediate disbursement of $2 billion, while the remainder will be phased over two reviews. The loan will be repaid in eight equal quarterly instalments beginning 3.25 years after the disbursement takes place.

What is the average of the interest rate?

The interest rate is 3.082 percent on each tranche.

Which kind of support does the SBA provide for Egypt?

The loan programme supports the second wave of Egypt’s economic reform, with special focus on structural reforms.

The programme provides much-needed support to the most-affected individuals and sectors to help confront Egypt’s health and economic crisis. This includes additional allocations for health spending, an expansion of the Takaful and Karama cash transfer social programmes, and targeted, temporary support for the most harshly impacted sectors, according the IMF.

It also targets maintaining Egypt’s macroeconomic stability, prioritising protecting necessary social and health spending while avoiding an excessive build-up of public debt, keeping low inflation and financial stability while maintaining a flexible exchange rate and implementing key structural reforms to strengthen transparency, governance, and competition.

Does the SBA loan stipulate new increases in fuel prices?

The IMF stressed that there are no additional measures on fuel pricing, adding that fuel indexation mechanism that was introduced in 2019 ensures that retail fuel prices remain at cost recovery and that the budget is unaffected through regular quarterly adjustments to reflect changes in world oil prices and movements in the exchange rate.

What are the reasons behind IMF’s approval of the loan?

The IMF cites the successful completion of Egypt’s home-grown economic reform programme, supported by the fund’s Extended Fund Facility in 2016-2019. Despite some remaining structural challenges, Egypt was one of the fastest growing emerging markets prior to the COVID-19 outbreak. The significant domestic and global disruptions from the pandemic have worsened the economic outlook and reshuffled policy priorities.

Does the SBA programme include measures regarding the public debt?

The IMF said that Egypt’s high public debt and large financing needs remain a risk and create a vulnerability to changes in financial market conditions. It said that prior to the COVID-19 crisis, the authorities had made significant progress in reducing public debt from nearly 104 percent of GDP in FY2016/2017 to 85 percent of GDP in FY2018/2019, but the crisis has put considerable stress on public finances, and debt is projected to rise to about 93 percent of GDP by the end of FY2020/2021.

Lending under the SBA will help reduce Egypt’s financing needs under volatile market conditions. Restoring a primary surplus of 2 percent of GDP and putting public debt back on a downward path are essentials, the fund said.

Does the SBA programme include measures regarding the interest rates?

The Central Bank of Egypt will continue to pursue a data-driven monetary policy based on anchoring inflation expectations within the target range of 9 percent (±3 percent) on average for the fourth quarter of 2020.

An elastic market-driven exchange rate remains an important part of the programme to help absorb external shocks and safeguard competitiveness, with intervention limited to disorderly market conditions.

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