IMF approves $12 bn loan to support Egypt's economy
IMF would release $2.75 billion immediately, while disbursements will depend on Egypt's economic performance and agreed milestones implementing reforms Photograph: (AFP)
The International Monetary Fund on Friday approved a three-year, $12 billion loan for Egypt to help the country recover from its economic crisis amid soaring inflation and deficits.
The IMF executive board said it would release $2.75 billion to Egypt immediately, while further disbursements will depend on the country's economic performance and agreed milestones in implementing the reforms.
The program "will help Egypt restore macroeconomic stability and promote inclusive growth," the board said in a statement.
"Policies supported by the program aim to correct external imbalances and restore competitiveness, place the budget deficit and public debt on a declining path, boost growth and create jobs while protecting vulnerable groups."
The move comes after Cairo took crucial preliminary reform steps in recent weeks to meet IMF requirements, including cutting fuel subsidies and floating the Egyptian pound, which subsequently lost 45 percent of its value against the US dollar.
Egypt is reeling after six years of political and economic turmoil involving the ousters of two presidents. Police had to put down some small protests Friday against rising prices, and analysts warn the government will continue to face challenges.
Cairo governments had avoided implementing the economic reforms for years fearing unrest, but President Abdel Fattah al-Sisi said Egypt no longer has the luxury of postponing them.
The IMF said Egypt's economic program will be subject to five reviews over the life of the loan. The reviews are traditionally held every quarter, after which another tranche of the loan is released.
The IMF last month forecast the country's economy will grow 3.8 percent this year and 4 percent next year, but inflation is approaching 14 percent and was expected to surge above 17 percent in 2017. This is amid a budget deficit of 12 percent.
The loan approval came hours after Standard and Poor's announced it was upgrading the outlook on Egyptian sovereign debt to stable from negative, while keeping the rating at B-.
"A more competitive exchange rate could benefit Egypt's export of goods and services, particularly the depressed tourism sector, if the security environment stabilizes further," S&P said.
The Egyptian central bank's move last week to sharply increase the key interest rates was aimed at to containing further inflation pressures, the ratings agency said.
However, S&P cautioned that floating the currency will increase inflation in the short term and "subsidy cuts on top of recent interest rate hikes will weigh on domestic consumption and may raise social tensions."
The IMF is fully aware of the potential for unrest, and has said repeatedly that social protection measures in the Egypt loan deal "are a cornerstone of the program, not an add-on or afterthought," and include providing for increases in food subsidies even while advocating budget cuts.
"Even if the IMF has changed and is no longer imposing the same austerity measures, the reality in the ground is that it's a very difficult agreement to implement," Bessma Momani, expert on the Arab world at the Centre for International Governance Innovation, told AFP.
Loans from Saudi Arabia and China will help Egypt gather the $5-$6 billion in additional financing required to complement the IMF loan.