What are likely scenarios for Egypt’s ongoing IMF loan deal amid war in Gaza?

Asmaa Mostafa, Saturday 16 Dec 2023

Amid the escalating geopolitical tensions due to the Gaza war, different scenarios emerged regarding Egypt’s $3 billion loan.

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

 

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

The fund is currently discussing with Egyptian authorities providing additional financing to ensure the successful implementation of the policy package to help it withstand the repercussions of the recent conflict in the Middle East, the IMF’s Director of Strategic Communications (COM) Julie Kozack said.

Moreover, the current $3 billion loan may rise significantly, potentially reaching $12 billion soon amid the current geopolitical challenges in the Middle East as a result of the war in Gaza, Ahmed El-Sayed, an economist and financing expert, explained.

El-Sayed also emphasized that the Egyptian pound no longer requires an immediate devaluation. “If any devaluation does occur, it is expected to be partial, with the currency value remaining within the range of EGP 31/$1,” he added.

Regarding Egypt's request for an additional $1 billion loan through the IMF's Resilience and Sustainability Trust, El-Sayed stated that it stands a high chance of approval.

He explained that if the IMF indeed intends to assist Egypt, it is highly probable that the $1 billion loan will be accepted, accompanied by an increase in the original $3 billion loan.

El-Sayed also highlighted Egypt's intensified efforts to finalize its Initial Public Offering (IPO) programme, which involves offering 35 state-owned companies to strategic investors by the end of June 2024.

However, banking expert Hany Abul-Fotouh stated that the current $3 billion loan's value is unlikely to be increased, as it is already approved and sealed based on this amount.

“Instead, Egypt may receive a new financing programme from the IMF due to the prevailing geopolitical tensions and the ongoing war on its borders,” Abul-Fotouh added.

Abul-Fotouh concurred with El-Sayed's view that there is no immediate need to devalue the currency, suggesting that such a step could be postponed.

He indicated that recent statements from IMF officials, expressing their intention to continue supporting the Egyptian economy, reflect the country's intensive reform efforts amid the current global crises and geopolitical tensions.

Egypt had initially entered into an IMF programme in December 2022, which included a $3 billion loan disbursed over 46 months in eight instalments.

However, due to Egypt's delay in fully complying with the fund's requirements, the programme was temporarily frozen, resulting in the postponement of the first and second reviews scheduled for March and September.

To date, Egypt has received only one payment worth $347 million.

Nevertheless, recent indications suggest that the IMF is now considering renewed support for the Egyptian economy due to the backdrop of the ongoing war on Egypt's borders and the prevailing geopolitical tensions in the region.

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