INTERVIEW: IMF deal with Egypt will catalyze financing from country’s inter'l & regional partners

Doaa A.Moneim , Monday 7 Nov 2022

In an exclusive interview, Kristalina Georgieva, the Managing Director of the International Monetray Fund (IMF), told Al-Ahram she is confident that Egypt’s commitment to fiscal prudence under the new IMF-backed programme will contribute to maintaining market confidence and ensuring that public debt-to-GDP is on a downward trajectory, thereby helping to create room to expand the social safety net for vulnerable groups.



During the interview, Georgieva, who is in  Egypt to attend the UN’s Conference of Partners on Climate Change (COP27), discussed the new loan Egypt is set to receive from the IMF to tackle the severe impacts of the Russian-Ukrainian conflict.

On the climate crisis, Georgieva said no country on its own can win the fight against climate change.

She added that she feels encouraged to see that around 140 countries that account for 91 percent of global greenhouse gas emissions have proposed or set net-zero targets by 2050.

Al-Ahram: First, let me welcome you to Egypt and COP27. Can you elaborate on the IMF’s participation in COP27, priorities, and what to expect over the coming few days?

Kristalina Georgieva: I would like to thank Al-Ahram for the opportunity to engage directly with your readers. Since COP27 is about the implementation of the commitments we all made, I would like to start by reporting on IMF actions. 

Climate change has a tremendous impact on lives and livelihoods, and on the stability of our economic and financial systems. And this makes it the IMF’s business. We help our members across the whole spectrum of actions. We help them set up their climate goals and quantify and implement policies to cut emissions, and we assist them in adapting to more frequent and devastating climate events, in boosting resilience, in managing risks and in accessing finance.

To be able to do so, we are putting climate at the heart of our work, whether it’s policy analysis and advice, capacity development, analytical work, or macroeconomic and financial data. And we’re also putting climate at the heart of our work when it comes to our lending. We recently launched the IMF’s first-ever long-term lending facility, the Resilience and Sustainability Trust, securing $40 billion for the structural transformations countries need to pursue. Three countries—Barbados, Costa Rica, and Rwanda—have already reached agreements at an IMF staff level.

I am also here in Egypt to engage in discussions on the most important priorities for international cooperation.

First, we know that no country on its own can win the fight against climate change. Only globally-coordinated mitigation measures can slow the pace and control the depth of the climate crisis. It is encouraging to see that around 140 countries, accounting for 91 percent of global greenhouse gas emissions, have proposed or set net-zero targets by 2050.

But commitments still fall short of what is needed. Our research shows that current efforts would only deliver an 11 percent cut in emissions by 2030 compared to pre-2019 levels — whereas we need 25-50 percent cuts to limit further temperature rises to less than 1.5°C – 2°C and to avoid the destruction of climate change.

We need to close this gap. So, most countries, especially large economies, should step up their targets for cutting emissions and deliver on them by implementing a mix of policies to encourage the switch to low-carbon goods and services. 

Second, countries most affected by climate change need to accelerate adaptation. Climate smart agriculture or investing in infrastructure resilience can reduce losses and provide development opportunities. COP27 takes place on the African continent, where the focus on adaption is particularly important.

However, after three years of successive economic shocks, including the pandemic, many countries have very little fiscal space and lack the resources for climate investments. 

And therefore, the third priority is to increase financial support from the international community to help vulnerable countries pay for these efforts. Public money can support critical investment and also reduce risks for private finance, which is vital to reach the scale needed for mitigation and adaptation in developing countries.  

Al-Ahram: During the IMF and World Bank Annual Meetings, you spoke a lot about the global crises. Where does climate change rank?

KG: Policymakers gathering at COP27 in Egypt face a world that has changed dramatically in recent years. We have lived through shock upon shock — first, the pandemic, then Russia’s invasion of Ukraine. Our hopes for a steady post-pandemic economic recovery have been erased by rampant inflation and a cost-of-living crisis.   

These shocks have driven up the price of food and fuel everywhere. Their impact ranges from widespread hunger in far too many vulnerable countries to an energy crisis in Europe. And it is harder to tackle such challenges in a more fragmented world.

Climate change adds to these shocks. It presents an existential risk to humanity. This year alone, we have seen unprecedented floods in Pakistan, heatwaves in Europe, dry rivers in China, droughts in Africa, and more. And it will only get worse.  

This makes winning the fight against climate change an overwhelming global priority. It demands collaboration even in the context of geopolitical tensions — we need to act fast and act together. 

Al-Ahram: Egypt is the third African country, after South Africa and Morocco, to host COP. Do you see this as a sign of the importance of focusing on climate change issues in the African region?

KG: Let me start by acknowledging African leadership — as represented by the African Union, policymakers in national governments, businesses, and civil society — in integrating climate change into the region’s agenda for economic growth. While Africa has contributed only 3 percent of global emissions, it suffers disproportionately from climate vulnerabilities. This makes adaptation the natural number one priority for the continent.

I would like to stress the critical importance of international assistance to support Africa’s climate action. Africa urgently needs substantial climate financing, above and beyond existing commitments on development finance. 

But there’s some good news. Strong climate policies can help address other growth and development priorities. For example, climate-friendly management of public finances and investment programs promotes accountability, transparency, and more effective spending. This can increase domestic revenues and mobilize external funding from donors and the private sector. A win-win.

And climate-smart agricultural techniques and technology lead to increased yields, improved food security, better nutrition, and stronger exports. Again, a win-win.

Al-Ahram: What are the Fund’s estimates for a climate-related financial gap in emerging economies and Africa, including Egypt? And how can countries finance climate change-related investments?

KG: It is not possible to provide one exact number for the climate financing gap. There are many variables at play, including existing and new climate policies – both globally and at a regional level. The speed of policy implementation also matters. In broad terms, the stronger the policies and the faster they are rolled out, the less financing will be needed. That said, under any scenario, the climate financing needs in emerging markets and developing economies are massive—many hundreds of billions of dollars in this decade alone.

Between 2016 and 2019, advanced economies have provided $80 billion per year to all emerging markets and developing countries combined. But only a quarter of this went to Africa, and much of it replaced other development financing. As a start, it is crucial that advanced economies meet or exceed the pledge of $100 billion in climate finance for developing countries and ensure that a fair share goes to adaptation.

Private finance is paramount for achieving green transformation. Closer collaboration between the public and private sectors is needed, with a particularly important role for international financial institutions to mobilise private finance through equity investments and de-risking financial products.  

Al-Ahram: Now let me turn to the economic situation in Egypt. Can you give us an overview of the status of the Egyptian economy and the Fund’s engagement with Egypt, including on the economic reform program? What message do you have for Egypt and the Egyptians?

KG: Let me start with your last question. Egypt is an amazing country with wonderful people and great potential for entrepreneurship and growth. I wish you wholeheartedly success in fully realising this potential. 

The slowdown of the global economy, combined with tighter financial conditions and high commodity prices, are having challenging economic consequences in many countries in the world, and Egypt is not an exception. This is why we are working closely with the government on reforms to boost growth and create jobs, maintain economic stability, protect the vulnerable members of society, strengthen the resilience of the economy and deliver strong and inclusive growth.

Our team working with Egypt recently reached a staff-level agreement with the government on a comprehensive set of economic policies and reforms under a 46-month Extended Fund Facility Arrangement of about US$3 billion. The program, subject to approval by the IMF’s Executive Board, will help to catalyze additional financing from Egypt’s international and regional partners, in support of the implementation of policies and reforms.

I am confident that Egypt’s commitment to fiscal prudence will contribute to maintaining market confidence and ensuring that public debt-to-GDP is on a downward trajectory, thereby helping to create room to expand the social safety net for vulnerable groups.

In addition, with inflation expected to remain high in the near term, monetary policy must retain focus on price stability, aiming to gradually reduce inflation, which disproportionately affects poor households.

Exchange rate flexibility will be essential to help absorb external shocks and safeguard foreign exchange reserves during these uncertain times.

I’ve covered a lot of technical policy points in what I have just said, but the central aim of why the IMF is engaging in Egypt to support this program is to accelerate Egypt’s economic growth.

This brings me back to my first point: the potential of Egypt and its people. And the fact that we are all here for COP27 under Egypt’s leadership is a testimony to this potential.

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