Egypt in discussions with IMF for additional funding

Doaa A.Moneim , Thursday 7 Dec 2023

The IMF is currently discussing with Egyptian authorities providing additional financing to ensure the successful implementation of the policy package for Egypt to help it withstand the repercussions of the recent conflict in the Middle East and its potential adverse impact on tourism revenues, Julie Kozack, the IMF’s Director of Strategic Communications (COM), told Ahram Online.

Julie Kozack, the IMF’s Director of Strategic Communications (COM) speaks during the regular press briefing the IMF held on Thursday 7 December, 2023.

Kozack made these remarks during the regular press briefing the IMF held on Thursday. 

She was responding to a question by Ahram Online about the latest updates on the Extended Fund Facility (EFF) loan program with Egypt in light of the IMF’s managing director's statements at COP28. 

The director had stated that she expects the IMF to increase the amount of the loan granted to Egypt per the program, given the ongoing Israeli war on Gaza.

“The exact size of financing is part of the ongoing discussions that IMF staff is having with the Egyptian side,” Kozack told Ahram Online.

“The Egyptian economy is facing significant macroeconomic challenges that have become more complex to manage given the recent conflict in Gaza,” she asserted.
Kozack also noted that the IMF is currently discussing with the Egyptian authorities policies that could support the completion of the first and second reviews under the $3 billion EFF loan program with Egypt.

“This strong engagement with the authorities has helped achieve important progress in the discussions, which will continue in the coming weeks to operationalize key policy priorities. These include the need to tighten monetary and fiscal policy together with a flexible exchange rate system in support of Egypt’s commitment to reduce inflation and gradually move to an inflation targeting regime,” she noted.

In December 2022, the IMF approved a 46-month EFF loan program for Egypt. According to the agreement, The IMF would review Egypt's economy periodically to ensure the implementation of the Fund's recommendations and to release further tranches of the loan. 

Due to complex challenges facing the Egyptian economy, the IMF has not completed the first and second reviews of the program, thus delaying the disbursement of two more tranches of the loan that Egypt should have received in March and September of this year.  

Under the fund's EFF loan program, Egypt committed to implementing flexible interest and exchange rate regimes, promoting private sector participation in the economy, and reducing debt and inflation levels to pre-pandemic figures by the programme's end.

Furthermore, Egypt committed to offering stakes in 35 state-owned companies to strategic investors by 2024.

By implementing these policies, the IMF believes Egypt will be able to bridge the $17 billion financing gap in the economy through 2026 and control inflation and debt levels.

On the other hand, Egypt is also discussing a $1 billion loan with the IMF under the Fund’s Resilience and Sustainability Trust. 

In response to Ahram Online's question about the impacts of the ongoing conflict in Gaza on the economies of neighbouring countries, particularly Egypt, Kozack explained that the IMF has called not only for the end of this conflict but for all conflicts.

“Unfortunately, this conflict is yet another example that we live in a very uncertain and shock-prone world. From a global perspective, the economic impact of the conflict has so far been relatively contained, but things remain highly uncertain,” she added.

Kozack also stressed that the economies of Israel and those of the West Bank and Gaza will receive the hardest blow, affirming that the ultimate impact will depend on the duration and intensity of the conflict.

“We do expect the conflict to severely depress economic activity in both the West Bank and Gaza, where, even before the conflict, GDP growth was projected to decline over the medium term,” she explained.  

In this respect, Kozack revealed that per capita income in Gaza had been declining by an average of 2.5 percent annually since 2007. Before the recent conflict, the per capita income in Gaza stood at less than 30 percent of that of the West Bank.

“Looking beyond this epicentre, the conflict may affect the immediate region in many ways. For instance, the conflict may take a heavy toll on tourism by reducing the number of tourists visiting neighbouring countries. The conflict also increases the potential for higher oil and gas prices, disruptions to financial markets and regional trade routes, and the potential for higher trade costs.”

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