Explainer: Egypt achieves no tangible progress in 2023 regarding its IMF loan deal

Asmaa Mostafa, Saturday 16 Dec 2023

Despite Egypt’s racing time to fulfill its commitments under the $3 billion loan deal with the International Monetary Fund (IMF), 2023 witnessed no progress from the Egyptian side in terms of the completion of the first and second reviews under the programme.

IMF HQ in Washington. Official Website.
IMF HQ in Washington. Official Website.


Saturday marks a year since the IMF approved the 46-month loan deal on 16 December 2022, handing Egypt the first tranche of $347 million out of the loan’s total $3 billion value.

In the following lines, Ahram Online sheds light on Egypt’s endeavors to make progress regarding the deal amid severe global and regional economic and geopolitical tensions that impact the country’s economy.

This loan, granted under specific conditions, aimed at supporting Egypt's economy to recover from the adverse impacts of the COVID-19 pandemic and the Russia-Ukraine war.

IMF's primary commitments to Egypt focused on implementing a flexible regime for interest rates and exchange rates, enhancing the private sector's role, reducing both debt and inflation levels to pre-pandemic figures by the end of the program, and offering stakes in 35 state-owned companies to strategic investors by 2024.

The IMF’s approval of the loan served as a testament to the international community's confidence in Egypt's economic prospects and its capacity to overcome the economic crises it faced in the aftermath of the pandemic and the Russia-Ukraine war.

Flexible exchange rates

In January 2023, Egypt deppreciated its currency, resulting in a decline in the Egyptian pound’s value from EGP 24.63/$1 to EGP 30.8/$1, a 25 percent loss in the currency's value.

Before the loan agreement, Egypt had already floated its currency twice in March and October 2022, causing the exchange rate of the Egyptian pound against the dollar to double from EGP 15.77/ $1 to the rate of EGP 25.

Currency devaluation aligns with the IMF's requirement of a flexible exchange rate regime, aiming to create a more dynamic and market-oriented environment. Looking ahead, economic experts and international institutions, including Fitch Solutions, anticipate a potential future devaluation of the Egyptian currency in early 2024, following the presidential elections.

However, Egypt's delay in fully liberalizing the exchange rate regime poses a challenge to meeting the IMF's requirements and has primarily contributed to the postponement of the two scheduled reviews in March and September.

The delay in devaluing the Egyptian pound is attributed to the dollar liquidity crisis and the shortage of foreign exchange in Egypt.

As a result, global rating agency Fitch downgraded in November Egypt's long-term foreign currency issuer default rating (IDR) from B to B-, changing the outlook to stable, due to increased risks in Egypt's external financing, macroeconomic stability, and the trajectory of the already-high government debt.

In October, the credit rating agencies Moody's and S&P Global Ratings downgraded Egypt's credit ratings from B to B1 and from B3 to Caa1, respectively, with both saying the outlook was stable.

To tackle the lack of US dollar liquidity in the local market, the government unveiled its plan to attract $191 billion annually within three years, mainly from Suez Canal revenues, remittances, and commodity exports, among other resources.

Reducing inflation rates

Since December 2022, the annual headline inflation rate experienced a significant rise, reaching its peak in September at 40.3 percent. However, a decline was observed in October, with inflation settling at 36.4 percent by November.

The annual inflation rate during the period between December 2022 and November 2023 witnessed an overall increase of 14.5 percent.

Notably, the current inflation rates are considered well above the 7 percent (±2 percent) on average by the fourth quarter of 2024 and 5 percent (±2 percent) on average by the fourth quarter of 2026 targeted by the Central Bank of Egypt (CBE).

As examples of price hikes, the prices of sugar and onions skyrocketed in the past few weeks; however, the government is still intensifying efforts to return prices to their normal path.

With inflation well above the targeted range, the government exerts efforts and implements effective measures to curb inflationary pressures and stabilize prices, including suspending duties and customs on several goods in October for six months.

This initiative targets reducing the prices of seven basic commodities such as beans, dairy products, white cheese, mixed oil, pasta, sugar, lentils, poultry products, eggs, and rice by 15-25 percent.

Egypt’s IPO programme

In parallel, Egypt launched its IPO programme in February to offer state-owned companies to strategic investors by the end of June 2024.

Initially, a list of 32 companies was released, with three additional companies –Eastern Company, Al Ezz Dekheila, and Telecom Egypt – being included later in 2023.

However, the programme has encountered delays in its implementation, particularly regarding the offering of seven state-owned hotels, petrochemical companies, and Wataniya fuel stations, which were scheduled for IPO by the end of 2023.

The Egyptian government is now intensifying efforts to expedite the implementation of the IPO programme.

In early December, Minister of Planning and Economic Development Hala El-Said emphasized the government's commitment to finalizing the sale of stakes in seven state-owned hotels before the end of 2023.

Additionally, the sale of Wataniya fuel stations, originally scheduled for the end of December, is expected to be completed in the coming weeks. Following this, the government plans to offer stakes in state-owned Chillout fuel stations during the first quarter of 2024.

The delays in implementing the IPO programme have been significant a factor contributing to the postponement of the second reviews in March and September.

Nonetheless, Egypt has made progress in collecting funds, having generated $5 billion from the IPO programme thus far, aiming to finalize an additional $5 billion in deals by mid-2024, for collecting $2.27 billion in additional revenues from the IPO programme during FY2023/2024.

Managing external debt

Egypt continues to take strides in managing its external debt, with the country's total debt levels showing a decline in the last quarter of FY2022/2023 (from April 2023 to June 2023).

The latest figures indicate that Egypt’s total external debt decreased to $164.7 billion, compared to $165.3 billion in the previous quarter (from January 2023 to March 2023). This decrease brings the debt-to-GDP ratio to around 40.3 percent, which is below the threshold of 50 percent, considered by the IMF as a manageable debt level.

During FY2022/2023, Egypt made payments towards its debt, totaling about $25.4 billion. Notably, in the fourth quarter alone, the country paid $7.6 billion, as reported by the CBE’s statistical bulletin.

Looking ahead, Egypt is projected to pay approximately $32.79 billion in debt service in 2024, according to the CBE’s latest data.

However, the annual debt service bill is expected to decrease to $19.26 billion in 2025 before experiencing a slight increase to $24.88 billion in 2026.

Egypt, by addressing its debt obligations, aims to create a favorable environment for economic growth, attract foreign investment, and strengthen its overall fiscal resilience.

During the COP28, which concluded last week in UAE, the IMF managing director stated that the deal could witness progress soon, expecting the fund to raise the financing for Egypt amid the ongoing war in Gaza.

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