Egypt on Friday won IMF approval for a three-year, US$12 billion bailout program aimed at reviving a struggling economy, bringing down public debt and controlling inflation while seeking to protect the poor.
The IMF said that its executive board’s approval immediately disbursed an initial loan tranche of US$2.75 billion to Egypt’s central bank.
The remainder is to be phased in over the next three years subject to five reviews on required reforms.
Photo: Reuters
The injection of new funds increased the Central Bank of Egypt’s foreign reserves to US$23.3 billion, state television said in Cairo.
IMF managing director Christine Lagarde described the Egypt bailout as a “homegrown economic program” that the IMF would support “to address longstanding challenges to the economy.”
“These include a balance-of-payments problem manifested in an overvalued exchange rate and foreign exchange shortages, large budget deficits that led to rising public debt and low growth with high unemployment,” Lagarde said. “The authorities recognize that resolute implementation of the policy package is essential to restore investor confidence.”
Import-dependent Egypt has struggled to attract US dollars and revive its economy since tourists and investors fled after the 2011 uprising that ended former Egyptian president Hosni Mubarak’s 30-year rule.
Facing a gaping budget deficit, plummeting foreign reserves and a burgeoning currency black market, it agreed the IMF loan in August, but had to secure about US$6 billion in bilateral financing for the deal to be completed.
Egypt made the final push for the loan after the central bank last week abandoned its currency peg of 8.8 Egyptian pounds to the US dollar in a dramatic devaluation move welcomed by the IMF and World Bank.
On Friday, the Egyptian pound traded at just more than 16 to the greenback.
The government of Egyptian President Abdel Fattah al-Sisi also took other key steps required by the IMF, including passage of a value-added tax to raise revenues and reductions in fuel subsidies.
The program also requires legislation to reduce the country’s public-sector wage bill.
The IMF said the program is projected to reduce Egypt’s debt-to-GDP ratio, hovering near 100 percent, by about 10 percentage points over three years.
However, some of the fiscal savings from austerity measures would be used to improve social safety nets, including increasing food subsidies and direct transfers to the poor.
Lagarde also said that Egypt needs to make structural reforms to its economy, such as streamlining regulations for business start-ups, passing insolvency reforms and labor reforms aimed at increasing labor participation.
The US$12 billion IMF program is to be accompanied by about US$6 billion in bilateral financing contributed by China, the United Arab Emirates, the G7 group of nations, bank loans and bond issues.
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