CAIRO: The International Monetary Fund said it had reached a staff-level agreement with Egypt for a $12 billion three-year funding facility to support a government reform program aimed at plugging a funding gap and rebalancing the currency market.
The deal is subject to approval by the IMF executive committee which is expected to consider Egypt’s request for an Extended Fund Facility (EFF) in the coming weeks.
“Egypt is a strong country with great potential but it has some problems that need to be fixed urgently. The EFF supports the authorities’ comprehensive economic reform program as... approved by the parliament,” Chris Jarvis, the head of the IMF mission in Cairo, said in a statement.
“The program aims to improve the functioning of the foreign exchange markets, bring down the budget deficit and government debt, and to raise growth and create jobs...”
Egypt’s dollar-denominated 2025 bond rose to trade at its highest level since end-Sept 2015 after the IMF deal was announced.
Egypt announced on July 26 it was close to agreeing an IMF lending program worth $12 billion to ease its deficit and restore market stability. Prime Minister Sherif Ismail asked his team to complete talks during a two-week visit by an IMF staff team that arrived in Cairo on July 30.
Thursday’s announcement was the first IMF confirmation of the duration and size of Egypt’s potential funding facility.
Egypt’s economy has been struggling since a mass uprising in 2011 ushered in political instability that drove away tourists and foreign investors, both major earners of foreign currency. Foreign reserves have halved to about $15.5 billion since then.
The dollar shortage has forced Egypt to introduce capital controls that have hit trade and growth, while downward pressure on the pound has mounted on speculation that the central bank will need to devalue for the second time this year.
Speaking at a news conference, Jarvis said the aim of the foreign exchange policy was to end hard currency shortages.
“Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment. This would foster growth and jobs and reduce financing needs,” Jarvis said in his statement. He did not say if Egypt had committed to easing its exchange rate policy as part of the deal.
The government has already begun implementing its reform program, including plans for a value added tax (VAT) and subsidy cuts. It announced electricity price hikes this week.
Jarvis said the government recognized the need for “quick implementation of economic reforms for Egypt to restore macroeconomic stability and to support strong, sustainable, job-rich growth.”