IMF Approves $3 Bn Loan To Egypt Amid High Inflation, Forex Shortages

The International Monetary Fund (IMF) announced that its executive board had approved a USD 3 billion loan to Egypt over 46 months.

The decision allows for an immediate disbursement of approximately USD 347 million to Egypt, which will help meet the balance of payments needed and provide support to the budget, the IMF said in a statement, adding that the loan package is expected to encourage Egypt's international and regional partners to provide an additional USD 14 billion to finance the Arab world's most populous country, according to Xinhua news agency.

According to the IMF, the financial support was granted in exchange for an economic reform programme from the Egyptian government, hoping it can pave the way for “sustainable, inclusive and private-sector-led growth.”

The US-based financial institution has also urged Egypt to “permanently shift to a flexible exchange rate regime,” maintain a “downward trajectory in public-debt-to-GDP,” reduce “the state footprint,” “facilitate private-sector-led growth” and other measures.

The IMF loan comes at a time when Egypt is experiencing high inflation and a foreign currency shortage due to capital flight from emerging markets caused by the Russia-Ukraine crisis.

According to official data, Egypt's annual urban consumer inflation rate increased from 16.2 per cent in October to 18.7 per cent in November, the highest increase since December 2017, when it reached 21.9 per cent.

According to some Egyptian economists, the approved IMF loan is a “certificate of confidence” in the Egyptian economy.

The international business community has been waiting for this certificate of confidence, Fakhri al-Fiqi, an Egyptian economic professor and head of the parliamentary planning and budget committee, told the news agency.

Al-Fiqi explained that the IMF assistance package, along with an additional USD 14 billion from other partners, will compensate for the hot money withdrawal and foreign currency shortage, eventually containing inflation.

“Inflation is expected to gradually slow down over the next four years to 4-5 per cent, which will make it affordable to average Egyptian citizens,” the expert told the news agency.

Egypt implemented a three-year economic reform programme that began in late 2016 with the assistance of a USD 12 billion IMF loan.