IMF Open to Egypt Deal Changes But Sees $8 Billion Loan Enough
The International Monetary Fund’s chief will travel to Egypt for talks on an $8 billion program that Cairo has said is becoming harder to enact with the Middle East in turmoil, although the lender signaled it likely won’t increase the size of the loan.
“We have been very open to adjust the Egyptian program or any other program to what is best to serve the people,” Managing Director Kristalina Georgieva told reporters in Washington on Thursday. She’ll visit in about 10 days, she said at the IMF and World Bank’s annual meetings.
The pact, which was expanded from $3 billion in March, is a cornerstone of a vast global bailout for Egypt’s troubled economy, albeit one dwarfed by a $35 billion investment from the United Arab Emirates.
With further inflows due from the World Bank, European Union and others, the IMF sees its current financing as “still appropriate,” according to Jihad Azour, director for the Middle East.
Georgieva’s planned trip speaks to the challenges Egypt is still facing as it tries to emerge from a grueling two-year crisis that saw four currency devaluations and record-high inflation.
While the eruption of the Israel-Hamas war last October prompted a surge in economic support to shore up a nation seen as a crucial Mideast powerbroker, the government says it’s struggling to escape the shockwaves of a year of every-widening conflict.
‘Unprecedented’ events
Prime Minister Mostafa Madbouly on Wednesday lamented the impact of “unprecedented” regional events on Egypt’s economy. He singled out a decline in Suez Canal revenue caused by maritime attacks by the Yemen-based Houthi militants in the Red Sea.
On Sunday, President Abdel-Fattah El-Sisi said the IMF deal was being implemented under “extremely difficult regional, international and global circumstances” and a review may be needed if economic pressures place an extreme burden on Egypt’s 106 million-plus population.
The North African nation’s government has cut subsidies on fuel, electricity and bread in recent months as part of an IMF-backed drive to trim spending. That’s caused inflation, which had been slowing from last year’s record high, to accelerate anew for the past two months.
A key issue for discussion during the IMF chief’s trip will be ensuring Egypt has sufficient social protection plans in place, the fund’s Azour said Thursday in a separate press briefing.
“Whenever you introduce those kind of fiscal measures, you need to protect the most vulnerable,” he said. The IMF team will look at “what needs to be done to improve the outreach of the the social program.”
Preserving a flexible exchange rate for the Egyptian pound is also “very important” to reduce the impact of external shocks and give “more predictability in terms of capital flows,” Azour said. The currency lost almost 40% of its value when authorities enacted the latest devaluation in March.
While signaling the IMF is willing to consider some alterations to the program, Georgieva said Cairo needs to keep pressing ahead with the broader initiatives.
“Egypt is better served by undertaking reforms sooner rather than later,” she said. “We are not going to do our job for the country and for the people of the country if we pretend that action that needs to be taken can be forgone.”
