Egypt close to $7bn a year support agreement with IMF

Posted on July 26, 2016

Egypt said on Tuesday that it was close to finalising an agreement with the International Monetary Fund for a three-year support programme with the aim of securing funding worth $7bn a year.

The announcement comes as the Egyptian pound reached a record low against the dollar on the black market this week. It has been selling for a 45 per cent premium over the official rate.

The country has been in the grip of a severe foreign currency shortage since the beginning of the year. This was mainly because of damage to the tourism industry after a terrorist bomb brought down a Russian airliner shortly after takeoff from an Egyptian airport. All 224 people on board were killed.

A government statement said that talks have been ongoing for three months and that an IMF team would visit Cairo within days.

Rumours have been swirling about a possible IMF deal for weeks, but the authorities had so far refused to confirm that negotiations were taking place.

The government did not make clear if it expected the IMF to provide $7bn a year for the life of the programme or if funding from other lenders would become available once a deal has been agreed.

The statement said that the IMF plan would help Egypt complete “its own reform programme” which includes measures such as introducing a value added tax, reducing government spending and increasing exports.

IMF support “would allow the central bank to remove some of the restrictions on access to foreign currency which have disrupted economic activity,” said Capital Economics, the London-based consultancy in a note commenting on the announcement. It said a devaluation of the Egyptian pound was now “probable”.

The central bank devalued the Egyptian currency in March by about 13 per cent, but the move failed to halt the slide of the pound on the black market for foreign currency where demand for dollars has remained high.

Manufacturers and importers have been complaining that restrictions on access to dollars were strangling the economy.

Capital Economics, however, also cautioned that Egypt had been on the brink of securing an IMF deal at several points over the past five years before negotiations broke down.

It said that this time “given the apparent shift towards more orthodox policymaking in the government and the central bank, it seems that policymakers are now more willing to push the deal through”.

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