 "IMF to increase Egypt's bailout loan to $8 billion")
The executive board of the International Monetary Fund (IMF) has officially approved a deal with Egypt to increase its bailout loan from $3 billion to $8 billion. This move is aimed at bolstering the Arab country’s economy, which has been severely affected by a significant shortage of foreign currency and skyrocketing inflation.
In a statement issued late Friday, the board announced its decision, which will enable Egypt to immediately access around $820 million as part of the agreement announced earlier this month.
The deal was reached after Egypt and the IMF agreed on a reform plan, which includes measures such as floating the local currency, reducing public investment, and fostering private sector growth to drive economic expansion, as outlined in the statement.
Egypt has already floated the pound and sharply increased the main interest rate. Commercial banks are now trading the U.S. currency at more than 47 pounds, up from about 31 pounds. The measures are meant to combat ballooning inflation and attract foreign investment.
The Egyptian economy has been hit hard by years of government austerity, the coronavirus pandemic, the fallout from Russia’s full-scale invasion of Ukraine, and most recently, the Israel-Hamas war in Gaza.
The Houthi attacks on shipping routes in the Red Sea have slashed Suez Canal revenues, which is a major source of foreign currency. The attacks forced traffic away from the canal and around the tip of Africa.
Impact Shorts
More Shorts“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.
The IMF said such external shocks, combined with delayed reforms, have negatively impacted economic activity. Growth slowed to 3.8% in the fiscal year 2022-23 due to weak confidence and foreign currency shortages, and is projected to slow further to 3% in the fiscal year 2023-24 before recovering to about 4½ per cent in 2024-25, the IMF statement said.
The annual inflation rate was 36% in February, but is expected to ease over the medium term, the IMF said.
The currency devaluation and interest rate hike have inflicted further pain on Egyptians already struggling with skyrocketing prices over the past years. Nearly 30% of Egyptians live in poverty, according to official figures.
Finance Minister Mohamed Maait said the confirmation by the IMF’s executive board “reflects the importance of the correcting measures” taken by the government.
Egypt also this month signed a deal with the European Union that includes a 7.4 billion-euro ($8 billion) aid package for the most populous Arab country over three years.
To quickly inject much-needed funds into Egypt’s staggering economy, the EU intends to fast-track 1 billion euros ($1.1 billion) of the package, using an urgent funding procedure that bypasses parliamentary oversight and other safeguards, according to European Commission President Ursula von der Leyen.
With inputs from AP.
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