Egypt reaches a staff-level agreement with IMF over $12 bln fund facility

Ahram Online , Thursday 11 Aug 2016

The agreement is yet to be approved by the IMF's executive board

IMF loan
The International Monetary Fund head of delegation for Egypt, Chris Jarvis (L), Egypt’s Minister of Finance Amr al-Garhy (2-L) and Central Bank of Egypt chief Tarek AmeR (C) attend a joint press conference in Cairo on August 11, 2016 (AFP)

Egypt and the International Monetary Fund have reached an initial financing accord, but it still needs to be approved by the fund's executive board, which is expected to consider the request in the coming weeks, the IMF stated Thursday on its official website.

The IMF mission, led by Chris Jarvis, ended its visit on Thursday to Cairo that began on 30 July to discuss support for Egypt's economic reforms through a three-year extended fund facility (EEF) programme worth about $12 billion (SDR 8.5966 billion or 422 percent of Egypt's quota).

The reform programme "aims to improve the functioning of the foreign exchange markets, bring down the budget deficit and government debt, and to raise growth and create jobs, especially for women and young people. It also aims to strengthen the social safety net to protect the vulnerable during the process of adjustment," Jarvis was quoted as saying according to the IMF.

The Central Bank of Egypt (CBE) devalued the local currency by 13.5 percent to register EGP 8.78 to the dollar in mid-March, in an attempt to crush a burgeoning black market.

“We (Egypt and IMF) haven’t agreed on the amount of the first tranche of the loan, and it’s expected to be delivered once the fund’s executive board approves it,” Finance Minister Amr El-Garhy told reporters during a press conference at the ministry.

The mission stated that it expects Egypt's public debt to go down from 98 percent of GDP to about 88 percent within the programme.

The Washington-based fund also referred to the implementation of the value-added tax (VAT) after parliamentary approval, adding that the Egyptian government "will continue the programme begun in 2014 to rationalize energy subsidies."

“The CBE monetary and exchange rate policy will aim to improve the functioning of the foreign exchange market, increase foreign reserves, and bring down inflation to single digits during the programme," Jarvis said. "Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs."

"We at the IMF are ready to partner with Egypt in this programme. We will also encourage other multilateral agencies and countries to support Egypt. We have talked to our colleagues in the World Bank and the African Development Bank and they are willing to help. It would also be very helpful for Egypt’s bilateral partners to step forward at this critical time," Jarvis said. 

Egypt’s economic reform programme will help to ease the current price hikes and to mitigate the exchange rate levels, the governor of the Central Bank of Egypt said on Thursday.

“Egypt deserves a better position and that would be achieved through fiscal and a monetary structural reform,” said Tarek Amer during a press conference at the cabinet headquarters to announce an initial finance agreement with the International Monetary Fund.

“The IMF deal has been reached upon an Egyptian programme, which gives the message that Egypt is serious in implementing economic reforms,” Amer said.

Amer expects Egypt to recover foreign investments inflows, which will double the country’s development proportions after the reform plan is concluded.

It is not the first time Egypt has reached a staff-level agreement with the IMF; both sides signed a similar accord in 2012 for $4.8 billion, but the talks were stalled due to the lack of consensus among political parties after several economists criticised the pre-conditions such as phasing out subsidies and implementing the VAT.

However, in July 2014 Egypt embarked on a fiscal reform programme in an attempt to curb the growing state budget deficit -- estimated at 11.5 percent of GDP in 2015/16 -- that included cutting subsidies and the introduction of new taxes, including the VAT planned for implementation in September of this year.

The government will slash its total subsidy bill in the 2016/17 budget, which began in July, by 14 percent compared to the last fiscal year’s bill, estimated at EGP 154 billion.

The negotiations with the IMF started in the second week of April and the visit of the fund’s mission to Cairo at the end of July was already planned, according to minister El-Garhy.

Governor Amer had dismissed reports in March about Egypt seeking a loan from the IMF.

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