The executive board of the International Monetary Fund confirmed a deal with Egypt to increase its bailout loan from $3 billion to $8 billion.
This is a move that is meant to shore up the North African country’s economy which has been beset by a shortage of foreign currency and soaring inflation.
In a statement on late Friday, the IMF board said its decision would enable Egypt to immediately receive about $820 million bailout as part of the deal which was announced earlier this month.
The bailout deal was achieved after Egypt agreed with the Bretton Woods institution on a reform plan that is centered on floating the local currency.
The statement also added that the plan includes reducing public investment and allowing the private sector to become the engine of growth.
Egypt has already floated the pound and sharply increased the main interest rate. Commercial banks are now trading the US dollar at more than 47 pounds, up from about 31 pounds.
The measures are meant to combat soaring inflation and attract foreign investment.
The Egyptian economy has been beset by years of government austerity, the coronavirus pandemic, the fallout from Russia’s invasion of Ukraine, and most recently, the Israel-Hamas war in Gaza.
Also, the Houthi attacks on shipping routes in the Red Sea have slashed Suez Canal revenues, which is a major source for foreign currency.
The attacks forced traffic away from the canal and around the tip of Africa.
The IMFs Managing Director, Kristalina Georgieva said such external shocks, coupled with delayed reforms, have negatively impacted economic activities.
Growth slowed to 3.8% in the financial year 2022-23 due to weak confidence and foreign currency shortages, and is projected to slow further to 3% in the fiscal year 2023-24 before recovering to about 4½ per cent in 2024-25.
The IMF projected that the annual inflation rate was 36% in February, but is expected to ease over the medium term.
The currency devaluation and interest rate hike have inflicted further pain on Egyptians already struggling with skyrocketing prices over the past years.
According to official figures, nearly 30% of Egyptians live in poverty.
Finance Minister Mohamed Maait said the confirmation by the IMF’s executive board “reflects the importance of the correcting measures” taken by the government.
Egypt also, this month, signed a deal with the European Union that includes a 7.4 billion-euro ($8 billion) aid package for the most populous Arab country over three years.
To quickly inject much-needed funds into Egypt’s staggering economy, the EU intends to fast-track 1 billion euros ($1.1 billion) of the package, using an urgent funding procedure that bypasses parliamentary oversight and other safeguards.
This is according to European Commission President Ursula von der Leyen.
First tranche: Egypt will receive the first tranche of an expanded loan agreement with the International Monetary Fund (IMF) next week, Prime Minister Mostafa Madbouly said during a news conference on Saturday.
Madbouly was not specific with the figure, but the IMF said on Friday the expanded $8 billion financial support programme enables the immediate release of $820 million.
The agreement expands a $3 billion, 46-month Extended Fund Facility signed in December 2022 which was put on hold after Egypt did not follow through on pledges to unpeg its currency, speed up the sale of state assets, and implement other reforms.
The IMF agreed to widen the agreement after Egypt’s economy was further hurt by the Gaza crisis, which slowed growth in tourism and triggered attacks from Yemen on shipping in the Red Sea, halving the Suez Canal revenue.
Tourism and shipping are two of Egypt’s main sources of foreign exchange.
