IMF formally approves US$5 bn augmentation to Egypt’s stalled financing deal

An additional US$5 billion was formally added to Egypt’s stalled financing facility with the International Monetary Fund on Friday, with the IMF signing off on the revamped program. 

The IMF also approved two pending program reviews, allowing the government to access $820 million immediately.

Months of deadlock preceded Friday’s step. The IMF held back two loan tranches originally scheduled for 2023, delaying reviews as Egypt’s government was slow to move on the fund’s recommended macroeconomic adjustments — namely exchange rate liberalization.

Taking the plunge in early March, after the landmark Ras al-Hikma deal secured a quick influx of $10 billion in inflows from the United Arab Emirates, the Central Bank of Egypt took the plunge and allowed the Egyptian pound to drop around 60 percent in value against the dollar. The government and IMF announced the augmented deal hours later.

In a statement on Friday evening, the IMF noted that it had approved the two delayed reviews under the deal originally sealed in 2022.

Egypt’s authorities requested a waiver on the June review criterion on net international reserves, which the IMF board approved, according to the statement. 

It also acknowledged that macroeconomic conditions since the outset of the program “have been challenging,” pointing to rising inflation, foreign exchange shortage and high debt. It also pointed to the “difficult external environment” entailed in Israel’s aggression on Gaza, as well as tensions in the Red Sea.

These developments, it said, “called for decisive domestic policy action supported by a more robust external financing package, including from the IMF.”

An economic stalemate that saw the economy frozen by huge foreign currency demand in the face of short supply was broken earlier this year as the government signed off on the $35 billion Ras al-Hikma mega-deal to see development rights for a 170 square kilometers area of the northwest coast pass to the UAE. 

Additional financing from the IMF was announced weeks later, with the EU soon following suit to commit 7.8 billion euros in funding over the coming three years. 

IMF Managing Director and Chair of the Executive Board Kristalina Georgieva noted that the government had been “prudent” in committing to use some of the new financing from Ras al-Hikma to clear a backlog of demand for foreign currency and had undertaken a “significant tightening of monetary and fiscal policies.”

Going forward, said Georgieva, authorities should work under a framework to monitor and control public investment, pursuing a “revenue-based fiscal consolidation” — something which has proved challenging over recent years.

This would support the expansion of social support, said Georgieva. She underlined that “it remains essential to replace untargeted fuel subsidies with targeted social spending as part of a sustained fuel price adjustment package.”

She also said that “withdrawing the state and military from economic activity”  would be crucial, as would ongoing attention to maintaining the foreign exchange liberalization.