Egypt bags additional IMF loan on the back of economic reforms
Egypt’s request for an additional emergency loan under RFI (rapid financing instrument) to meet the urgent balance of payment needs was approved by the Executive Board of the International Monetary Fund (IMF). Coming at a time when the economy of the country is under major stress because of the effects of the pandemic, the loan that is part of a one-year support programme will help finance some of its urgent needs including healthcare and social protection for its most vulnerable groups.
According to a press note by the IMF, “The pandemic and global shock pose an immediate and severe economic disruption that could negatively impact Egypt’s hard-won macroeconomic stability if not addressed.”
Egypt achieved a remarkable turnaround prior to the COVID-19 shock, carrying out a successful economic reform program supported by the IMF’s Extended Fund Facility (EFF) to correct large external and domestic imbalances, continued the statement by IMF. This purchase under the RFI entails exceptional access due to outstanding credit under the previous extended arrangement under the Extended Fund Facility.
Egypt’s Minister of International Cooperation Rania Al-Mashat credited this agreement – that is part of support extended by international institutions to countries fighting the repercussions of the coronavirus – to economic reforms of the past three years and the quick actions taken by the government to mitigate the impact of the virus of the economy.
Between 2016 and 2019, Egypt was the beneficiary of a US$12 billion loan extended to implement a rigorous reform programme. Beginning with the devaluing the pound currency, this raft of measures included loosening capital controls, ending energy subsidies, reforming public enterprises and overhauling monetary policy.
But this “hard-won macroeconomic stability” was in danger of being impacted by the COVID-19 crisis that shut down its tourism industry (on which depends 12-15% of its GDP), threatening remittances, exports of natural gas and earnings from the Suez Canal. The loan has been approved in recognition of this and also IMF’s expectations that Egypt will be only one of the two Middle East and North African countries to grow this year, although at a reduced 2% compared to last year’s 5.6%.
Geoffrey Okamoto, First Deputy Managing Director and Acting Chair at IMF also complimented Egypt response to the crisis. “The authorities acted swiftly to allocate resources to the health sector, provide targeted support to the most severely impacted sectors, and expand social safety net programs to protect the most vulnerable. Similarly, the Central Bank of Egypt adopted a broad set of measures, including lowering the policy rate and postponing repayments of existing credit facilities,” he said. According to a Reuters report, Egypt allocated 100 billion pounds ($6.35 billion) to tackle the Covid-19 crisis and 20 billion pounds to support the country’s stock exchange.
The International Monetary Fund has approved a US$2.772 billion loan for Egypt to sustain the economic gains it had made before the coronavirus pandemic.