IMF Confirms Increasing Egypt’s Bailout Loan to $8 Billion – The International Monetary Fund’s executive board has approved a deal with Egypt to boost its bailout loan from $3 billion to $8 billion, aiming to support the country’s economy amidst severe shortages of foreign currency and high inflation. This decision, announced late Friday, will immediately provide Egypt with around $820 million.
The agreement follows Egypt’s commitment to an IMF-endorsed reform plan focusing on currency flotation, reduced public spending, and promoting private sector growth. Egypt has already floated its currency and raised interest rates significantly, with banks now trading the U.S. dollar at over 47 Egyptian pounds, up from around 31 pounds previously.
These measures aim to tackle surging inflation and attract foreign investment. The Egyptian economy has faced challenges from government austerity measures, the COVID-19 pandemic, repercussions of Russia’s invasion of Ukraine, and the recent Israel-Hamas conflict in Gaza. Additionally, Houthi attacks on Red Sea shipping routes have impacted Suez Canal revenues, a vital source of foreign currency, redirecting traffic around Africa’s tip.
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“Egypt is facing significant macroeconomic challenges that have become more complex to manage given the spillovers from the recent conflict in Gaza and Israel. The disruptions in the Red Sea are also reducing Suez Canal receipts, which are an important source of foreign exchange inflows and fiscal revenue,” said IMF’s Managing Director Kristalina Georgieva.
According to the IMF, these external shocks, coupled with postponed reforms, have adversely affected economic performance. Growth decelerated to 3.8% in the fiscal year 2022-23 due to waning confidence and shortages of foreign currency. It is anticipated to further decline to 3% in the fiscal year 2023-24 before rebounding to approximately 4½ percent in 2024-25, as per the IMF statement.
In February, the annual inflation rate stood at 36%, but is predicted to gradually alleviate in the medium term, the IMF noted. The devaluation of the currency and the rise in interest rates have added to the hardships faced by Egyptians, who have already been grappling with soaring prices in recent years. Official figures indicate that nearly 30% of Egyptians live in poverty.
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Finance Minister Mohamed Maait remarked that the confirmation by the IMF’s executive board underscores the significance of the corrective measures implemented by the government. In addition, Egypt recently finalized an agreement with the European Union, securing a 7.4 billion-euro ($8 billion) aid package over a three-year period for the Arab world’s most populous nation.
To promptly infuse vital funds into Egypt’s struggling economy, the EU plans to expedite 1 billion euros ($1.1 billion) of the package using an emergency funding mechanism, bypassing parliamentary scrutiny and other safeguards, as stated by European Commission President Ursula von der Leyen.
