What does the final review of the IMF's $5.2 bln loan mean for Egypt’s economy?
Doaa A.Moneim, , Wednesday 26 May 2021
Egypt will receive the final tranche in June if the IMF approves the results of the review

The International Monetary Fund (IMF) reached a staff-level agreement on the third review of Egypt’s $5.2 billion loan, approved under its stand-by agreement (SBA), the fund announced on Tuesday.

According to the agreement, Egypt will receive the third and final tranche of the loan in June if the IMF’s executive board approves the results of the review.

In May 2020, the IMF approved Egypt's requests to obtain two loans under two separate programmes to address the repercussions of the coronavirus.

In an interview with Ahram Online in October, the IMF’s Director of the Middle East and Central Asia Department Jihad Azour said that Egypt does not need additional loans after the completion of the IMF-backed reform programme. The programme was implemented under its extended fund facility (EFF), with a total loan of $12 billion, which helped put the country’s macroeconomic performance on the right track.

However, the pandemic and the associated pressure on Egypt’s budget drove it to file for the loans to meet its financial needs, according to Azour.

Egypt embarked on an economic reform programme in 2016 and concluded it in 2019.

The two loans included a one-tranche $2.7 billion loan under the rapid finance instrument (RFI) to address the economic repercussions of the pandemic and provide the required liquidity for the market to boost its resilience.

It also included a $5.2 billion loan under the SBA programme, which marked the 11th financial deal Egypt has signed with the fund since it becoming a member in 1945.

After receiving the IMF’s executive board approval in June 2020, Egypt received the first tranche of $2 billion as an immediate disbursement and the second $1.6 billion tranche in January following the approval of the first review of the programme.

The programme's main objectives included helping Egypt to cope with the coronavirus challenges by meeting Egypt’s balance of payment needs, financing the budget deficit, maintaining the achievements made over the past four years under the country’s economic reform programme, and providing finances for implementing Egypt’s second wave of economic reforms that focus on structural reforms.

The SBA loan has helped Egypt replenish its international reserves that were severely hit by the pandemic, declining to $36 billion in March, down from $45.5 billion by the end of February 2020.

With the disbursement of the RFI loan and the two tranches of the SBA loan, in addition to other factors, Egypt’s international reserves have started its increase since June 2020 to post $38.2 billion.

According to the third review of the SBA loan, Egypt’s economy has shown resilience and balanced policy response.

Egypt’s fiscal and monetary policies should continue to support the economic recovery in the near term, preserving its macroeconomic stability. Nonetheless, the country needs to broaden its structural reforms to solidify the recovery, address post-coronavirus challenges, strengthen buffers, and ensure higher and more inclusive growth, according to the results of the review.

Egypt’s success in meeting the terms of the IMF programmes strengthen its position in case it needs to file for other loans in the future.

In its updated report on the MENA region’s economic outlook, the IMF expected Egypt’s real GDP growth to approach the pre-pandemic levels in FY 2021/2022 to reach 5.7 percent, after its decline to 2.5 percent in FY 2020/21, which ends in June.
It also projected Egypt’s inflation rate ito decline to 4.8 percent in 2021, down from 5.7 percent in 2020, before soaring to 7.2 percent in 2022.
Egypt’s account balance is expected to continue to see a negative performance estimated at -4 percent in 2021 and 2022, up from -3.1 percent in 2020, according to the IMF.
“The IMF’s recent review on the SBA loan programme expected Egypt to attain a budget initial surplus at two percent of GDP as of FY2021/22 on the back of Egypt’s economic recovery and the down trajectory of its public debt,” Maait said on Wednesday.

He added that the results of the review will reflect positively on Egypt’s investment and doing business climate.