IMF ap­proves $12bn loan to sup­port Egypt econ­omy

Fur­ther dis­burse­ment depends on per­for­mance

Kuwait Times - - FRONT PAGE -

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.

IMF Man­ag­ing Di­rec­tor Chris­tine La­garde said the IMF would be sup­port­ing an Egyp­tian “home­grown economic pro­gram” that ad­dresses a huge bud­get deficit, ris­ing debt, slow growth and high un­em­ploy­ment. “The au­thor­i­ties rec­og­nize that res­o­lute im­ple­men­ta­tion of the pol­icy pack­age un­der the economic pro­gram is es­sen­tial to re­store in­vestor con­fi­dence, re­duce in­fla­tion to sin­gle dig­its, re­build in­ter­na­tional re­serves, strengthen pub­lic fi­nances, and en­cour­age pri­vate sec­tor-led growth,” she said in a state­ment. She said that there were “sig­nif­i­cant” risks to im­ple­ment­ing the pro­gram, but that those risks were mit­i­gated by key ac­tions al­ready be­ing taken by the gov­ern­ment and “broad political sup­port” for the loan pro­gram’s goals.

Six years of tur­moil

The loan an­nounce­ment by the global cri­sis lender comes af­ter Cairo took cru­cial pre­lim­i­nary re­form steps in re­cent weeks to meet IMF re­quire­ments, in­clud­ing cut­ting fuel sub­si­dies, an­nounce­ment of a value added tax, 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 18 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. 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. —AFP

CAIRO: Egyp­tians eat fava beans, a cheap and fill­ing break­fast sta­ple, at an open-air restau­rant in Cairo, Egypt. —AP

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