Egypt announces reaching $3 billion loan deal with IMF

Doaa A.Moneim , Thursday 27 Oct 2022

Egypt has reached a 46-month staff-level agreement with the International Monetary Fund (IMF) under the Extended Fund Facility (EFF) with a loan worth about $ 3 billion.

PM Madbouly and Minister of Finance Mohamed Maiit at the presser to annouce the new MF laon deal. Snapshot state TV


In a press conference held on Thursday in Cairo, Egypt’s Minister of Finance Mohamed Maait explained that the IMF’s $3 billion loan is a part of a $9 billion finance scheme that is expected to include one billion dollars from the sustainbility fund and $5 billion by the country’s development partners.

Prime Minister Mostafa Madbouly, Minister of planning and Economic Development hala El-Said and the Governor of the Central Bank of Egypt Hassan Abdalla attended the conference.

"The programme aims to provide Egypt with balance of payments and budget support while catalyzing additional financing from Egypt’s international and regional partners to maintain economic stability, address macroeconomic imbalances and spillovers from the war in Ukraine, protect livelihoods, and push forward deep structural and governance reforms to promote private sector-led growth and job creation," according to IMF Mission Chief for Egypt Ivanna Vladkova Hollar.
"Egypt’s international and regional partners will play a critical role in facilitating the implementation of the authorities’ policies and reforms, revealing that additional financing of about $5 billion is projected to be provided through multilateral and regional partners during current  FY2022/2023, which ends in June 2023, which will help strengthen Egypt’s external position," read a statement released by the IMF on Thursday.
Earlier on Thursday,  in an unscheduled meeting , the Monetary Policy Committee (MPC) of the Central Bank of Egypt (CBE) announced raising the key interest rates by two percent (200 bps) to reach 13.25 percent, 14.25 percent, 13.75 percent, and 13.57 percent for the overnight deposit rate, the overnight lending rate, the rate of the main operation, and the discount rate, respectively.
In a statement, the CBE attributed its decision action to elevated global and domestic prices that are expected to keep headline inflation above the MPC’s preannounced target of seven percent (±2 percent) on average in through the fourth quarter of 2022.

The decision aims to uphold the CBE’s mandate of ensuring price stability in the local market over the medium term, the statement noted.

It also aims to anchor inflation projections and also to contain demand side pressures and higher broad money growth as well as the second round effects of supply shocks.

Following the decision, the Egyptian pound slumped its lowest level against the US dollar since the implementation of the economic reform programme in November 2016, with the exchange rate surpassing EGP 20 to the dollar.

Meanwhile, the National bank of Egypt (NBE) issued new three-year-maturity saving certificates with an annual yield of 17.25 percent.

Banque Misr also has raised the annual yield of the three-year saving certificates to 17.25 percent

The CBE also announced in the statement that it will begin a process of phasing out  letters of credit (LCs) for import finance by December 2022.

On Wednesday, the government raised the minimum wage for public employees from EGP 2,700 to EGP 3,000 to meet cost of living increases.

The government also froze household electricity prices through June 2023. 

Egypt’s annual headline inflation rose to 15.3 percent in September, up from eight percent in September 2021, the highest level seen since recording 15.7 percent in November 2018.

October agreements on economic reform program

In mid-October, Egypt announced that it has reached an agreement with IMF on new economic reform programme on structural policies and reforms for the country's new IMF-backed economic reform programme.

Egypt had filed a request with the IMF in March to secure a new loan under a fresh economic reform programme to address the harsh impacts of the Russian-Ukrainian conflict on the Egyptian economy.

According to a finance ministry statement, which was released after Egyptian officials met with IMF officials for extended talks in Washington DC, the new reform programme rests on three cornerstones: Egypt will implement financial policies reforms, monetary policies reforms and a package of structural reforms for the Egyptian economy.

In financial policies, the government targets reaching an annual initial surplus and keeping the public debt-to-GDP ratio below 80 percent over the short term.

It also targets prolonging government debt maturity and diversifying financing resources.

The government also targets improving the efficiency of both the budgetary revenues and expenditures as well as raising spending on human development.

It aims to continue expanding social protection programmes, including raising the incomes of  state employees’ incomes and increasing allocations to pensions and insurance that benefit over 10 million households and individuals.

It also targets strengthening the Takaful and Karama programme that benefits around five million households and to the Decent Life programme that aims to improve infrastructure and standards of livings in rural areas.

The government will also continue to enhance transparency and financial disclosure efforts.

In monetary policies, the government targets continuing efforts to curb inflation and ensure price stability in the local market.

It also targets improving the efficiency of Egypt’s current monetary policy tools and shore up the country’s banking sector.

The agreement also aims to improve the efficiency of the exchange rate market.

In structural reforms, the government targets implementing measures to raise the competitiveness of the Egyptian economy, improve the business climate, increase productivity and export rates, boost green activities, increase the share of private sector and create more of job opportunities.

It will fast track the release of the State Ownership Policy in its final draft in a way that reflects the Egyptian state’s desire to stimulate and attract private sector investments.

The government also aims to boost competitiveness in the Egyptian market and simplify trade and investment in a way that attracts more local and foreign investments.

“IMF staff and the Egyptian authorities have held very productive in-person discussions on the margins of the IMF and World Bank annual meetings and made substantial progress on all policies including a continued fiscal consolidation path that will safeguard public debt sustainability and ensure a steady decline of the debt-to-GDP ratio over the medium term. Additional fiscal and related structural policies that would further expand the social safety net for the most vulnerable, improve the budget composition, and enhance fiscal transparency,” Gerry Rice, the IMF’s director of communications, said after meeting with Egyptian officials in Washington DC.

Rice added that monetary and exchange rate policies would anchor inflation expectations, improve monetary policy transmission, improve the functioning of the foreign exchange market, and bolster Egypt’s external resilience.

“This would enable Egypt to gradually and sustainably rebuild foreign reserves,” he added.

“The implementation of the authorities’ comprehensive structural reform agenda would gradually enhance the competitiveness of the economy, reduce the role of the state in the economy, level the playing field for the private sector, improve the business climate, and foster transition towards a greener economy,” according to Rice.

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