Economy

Egypt secures expanded $8bn loan from IMF

By Pramod Kumar

March 7, 2024, 6:50 AM

A man takes a photograph of the latest rates at a currency exhange in Cairo. The Egyptian government has said it will let the exchange rate be determined by market forces

Egypt showing ‘strong commitment’
Extra $1.2bn loan for sustainability
Egyptian pound at record official low

Egypt will receive an expanded $8 billion loan from the International Monetary Fund (IMF) after agreeing to implement a set of reforms and policies.

The country is experiencing significant macroeconomic challenges due to the impact of the Gaza conflict on tourism and lower Suez Canal receipts, the IMF said in a statement.

“The authorities are showing strong commitment to act promptly on all critical aspects of their economic reform programme,” the IMF said, adding that the North African country has taken decisive steps to move toward a credible flexible exchange rate regime.

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The Egyptian pound plunged by 55 percent on Wednesday to a record official low of 48 against the US dollar, bringing it almost in line with the parallel market rate after the Egyptian central bank raised interest rates by 600 basis points to a record 27.25 percent.

The central bank said in a statement that it planned to allow the exchange rate to be determined by market forces.

In December 2022, Cairo struck a $3 billion, 46-month extended fund facility agreement with the IMF.

In addition, Egypt will obtain a $1.2 billion loan for environmental sustainability, bringing its total from the IMF to more than $9 billion, the government said in a statement.

“Egypt’s international and regional partners will play a critical role in facilitating the implementation of the authorities’ policies and reforms,” the IMF said.

Last month, UAE sovereign fund ADQ unveiled plans to invest $35 billion in building Egypt’s “largest new city” to promote tourism and drive economic growth.

“The recent investment deal in Ras El Hekma alleviates the near-term financing pressures,” the fund added.

Capital Economics, the London-based economic analysis company, said in a research note that the IMF announcement, on the back of the rate hike and devaluation on Wednesday, represents a shift towards more orthodox policymaking and should provide international investors with further confidence that Egypt will avoid a sovereign default.

“Admittedly, there have been numerous false dawns for Egypt in the past, and the key will be for officials to stay the course with the orthodox policy shift,” said James Swanston, the consultancy’s Mena economist.