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IMF changes debt charges to save Egypt $190m a year

Kristalina Georgieva, managing director of the International Monetary Fund (IMF), speaks at a news conference following a Eurogroup meeting in Luxembourg, on Thursday, June 20, 2024 Alamy via Reuters
Kristalina Georgieva, the IMF's managing director, said the 'membership has reached consensus on a comprehensive package'
  • Second-largest debtor
  • Egypt owes IMF $13bn
  • ‘Fiscal breathing room’

Egypt looks set to save up to $190 million a year following changes the International Monetary Fund has made to the charges paid by debtors, an expert has told AGBI.

The benefits of this extra cash are likely to be tempered, though, as Egypt faces a significant debt burden and persistent inflation.

The IMF announced the new measures on October 11 and the changes will come into effect from November 1.

Kristalina Georgieva, the IMF’s managing director, said: “In a challenging global environment and at a time of high interest rates, our membership has reached consensus on a comprehensive package that substantially reduces the cost of borrowing, while safeguarding the IMF’s financial capacity to support countries in need.”

The approved measures will lower IMF borrowing costs for members by 36 percent, or about $1.2 billion annually. The expected number of countries subject to surcharges in fiscal year 2026 will fall from 20 to 13, it added.

Egypt is the IMF’s second-largest debtor, with an outstanding balance owed to the institution of more than $13 billion.

In 2024, Egypt received disbursements worth $1.65 billion from the IMF, but made repurchases worth roughly $3.9 billion, in addition to paying the equivalent of about $792 million in charges. Surcharges typically range from 2-3 percent of the loan amount, and the IMF’s proposal aims to alleviate some of these costs.

Gamal Sharaf, a Riyadh-based economist at Euromoney Country Risk, said: “Egypt has been subject to significant surcharges, which are additional fees applied to countries that exceed their IMF borrowing quotas or have prolonged outstanding loans.

“Although the precise details of the surcharge reduction have not yet been fully disclosed, an estimate based on potential fee reductions suggests that Egypt could save around 1 percent of its total outstanding IMF debt.”

This would translate to approximately $190 million in annual savings for Egypt, Sharaf said.

These potential savings, Sharaf explained, represent a “meaningful, though modest” relief for Egypt’s wider budget and economy — one that will help the Egyptian economy reduce its external debt burden, which reached 89 percent in June 2024.

Egypt’s fiscal budget for 2023-24 is projected at around EGP3 trillion (approximately $97 billion), with a significant portion allocated to servicing debt, which is one of the largest expenditures for the government.

“The reduction in debt servicing costs provides valuable fiscal breathing room, allowing the government to better focus on economic recovery and social development initiatives,” said Sharaf.

He added that it may also signal an improved capacity to manage debt sustainably and thus enhance the country’s standing with potential investors and lower future borrowing costs.

As of June 2024, Egypt’s foreign debt stood at $153 billion, with $29 billion in debt servicing due for the year.

Kevin Graham, a Cairo-based editorial manager at Oxford Business Group, said the move by the IMF was “a positive development” and the lower borrowing costs should ease Egypt’s debt burden. This could potentially allow the Egyptian government to direct more resources toward essential sectors such as infrastructure and social services, he said. 

However, he warned that the benefits of the IMF’s charge reduction “are likely to be tempered by persistent inflation and a depreciating currency”.

Inflation pressure

In early 2024, Egyptian inflation hit 34 percent, making it harder for Egypt to service its foreign debts.

“These factors could erode the advantages of lower interest rates from the IMF, underscoring the need for policies to stabilise the currency and control inflation,” said Graham.

While the reduction in IMF payments is welcome, structural reforms are crucial to deliver long-term economic health, Graham said, pointing to the need for an overhauling of the country’s tax policy, better public financial management, and a reduction in inefficient subsidies. 

Egypt’s economy has struggled with geopolitical fallout from the conflict in Israel and Gaza. In May 2024, Suez Canal revenues fell 64 percent year on year to $338 million — cutting off a crucial flow of foreign currency into Egypt.

The Arab economy has kept itself afloat by courting foreign investment, including from the Gulf. In February, Egypt announced it had signed a deal with the UAE to develop a prime stretch of its Mediterranean coast that would bring $35 billion of investments. That deal helped Egypt expand its programme with the IMF, increasing its bailout loan programme from $3 billion to $8 billion.