IMF expects bigger loan deal for Egypt within weeks

Reuters/Carla Carniel 

• Funding may rise to $12bn
• ‘Very encouraging signals’
• Follows $35bn ADQ deal

The International Monetary Fund expects a financing package for Egypt to be finalised within weeks, its chief said on Tuesday – while also entertaining speculation that the loan could rise to $12 billion.

Speaking on the sidelines of a G20 finance meeting in Brazil, IMF managing director Kristalina Georgieva told Reuters that issues delaying the loan programme had been resolved, citing “very encouraging signals about Egypt’s views on dealing with heritage issues that had affected its competitiveness”.

Asked about reports that the planned loan of $3 billion could be increased to as much as $12 billion, Georgieva said: “You know, there is nothing wrong in thinking big.”

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Her comments follow the announcement last weekend that Emirati sovereign wealth fund ADQ will invest $35 billion over the next two months to develop Ras El Hekma on Egypt’s north coast.

Georgieva called the planned investment “a very positive sign”.

Markets rallied on the news of the ADQ deal, with the Egyptian pound appreciating 25 percent on the parallel market and sovereign bond spreads narrowing by 200 basis points to 650 as fears of an Egyptian default decreased.

President Abdel Fattah El Sisi said on Wednesday that a portion of the funds promised by ADQ had arrived in the central bank.

The UAE’s investment could increase Egypt’s foreign exchange reserves to $60 billion, which would be an all-time high, according to research consultancy Capital Economics.

James Swanston, Mena economist at the London-based consultancy, said there has long been speculation Egypt hopes to build up a “war chest” of foreign currency before devaluing the pound against the dollar – a priority for the IMF.

The spike in reserves could raise the pressure on Cairo to implement a currency move, according to Swanston: “It may be the IMF says, ‘Now that you’ve got the money, do it.'”

Egypt and the IMF reached a staff-level agreement in October 2022 for a $3 billion extended fund facility.

Only $347 million has been released since then. The loan’s first review – scheduled for March 2023 – was postponed owing to concerns that Egypt had failed to meet its requirements.

Georgieva said on Tuesday that Egypt was facing challenges including a 55-60 percent decline in revenue from the Suez Canal, which previously generated $700 million a month.

In addition, the country was facing a slowdown in tourism and an influx of refugees from Somalia and Sudan.

“The stability of Egypt matters to Egypt, but it matters to the whole Middle East,” she added.

Following the outbreak of conflict in the Middle East last October, markets have been expecting the IMF to increase the size of any financial assistance to Egypt to help the country of 106 million people. Earlier this month, Goldman Sachs predicted a rise to $12 billion.