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Abu Dhabi, UAESaturday 21 July 2018

IMF approves Egypt's latest $2.75bn loan instalment

Country has started to reap the benefits of its ambitious and politically difficult economic reform programme, fund says

Christine Lagarde, Managing Director of the IMF. The fund has approved the next tranche of its $12bn loan to Egypt. Michele Tantussi/Reuters
Christine Lagarde, Managing Director of the IMF. The fund has approved the next tranche of its $12bn loan to Egypt. Michele Tantussi/Reuters

The International Monetary Fund (IMF) approved a fourth payment, worth about $2.75 billion, a part of a $12bn loan package aimed at reviving the struggling Egyptian economy and help Cairo implement its politically difficult economic agenda.

The latest payment brings the total received by Egypt, the most populous Arab nation, from the IMF to around $8bn, it said. The remaining amount will be phased over the duration of the programme, subject to five more reviews on the progress made by the Egyptian authorities, the IMF said.

As part of the loan agreement, Egypt has enacted tough austerity measures including flotation of its currency in late 2016, which halved its value, and effected sharp fuel and electricity cuts in recent weeks.

“Egypt has begun to reap the benefits of its ambitious and politically difficult economic reform programme. While the process has required sacrifices in the short-term, the reforms were critical to lay the foundation for strong and sustained growth that will improve living standards for all Egyptians,” the fund said.

While the IMF has praised Egypt's economic measures, ordinary Egyptians are feeling the pressure with their spending power slashed by the devaluation and a rise in household energy prices.

The government of President Abdel Fattah El Sisi this month said it was slashing fuel subsidies, pushing up prices of petrol and public transport by as much as 50 per cent, just days after it said prices for electricity would rise by an average of 26 per cent and piped drinking water by nearly half.

Many economists have praised the fiscal cuts which they say will help put Egypt's battered economy back on track after years of unrest. Others say that enacting so many cuts at the same time could risk a slow pay-off, sparking unexpectedly high inflation, crimping consumption and putting off potential investors.

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But Christine Lagarde, the managing director of the IMF, said: "The liberalisation of the exchange rate regime and the devaluation of the Egyptian pound were critical steps toward restoring confidence in the economy and eliminating foreign exchange shortages.

"The new exchange rate regime will be supported by prudently tight monetary policy to anchor inflation expectations, contain domestic and external demand pressures, and allow accumulation of foreign exchange reserves."

The country's economy, battered by the unrest that followed the 2011 popular uprising, has begun to improve since Mr El Sisi came to power in 2014. Authorities and many economists credit the reforms with helping to attract long-term foreign investment and accelerate growth in gross domestic product.

“Egypt’s growth has continued to accelerate during 2017-18, rising to 5.2 per cent in the first half of the year from 4.2 per cent in 2016-17. The current account deficit has also declined sharply, reflecting the recovery in tourism and strong growth in remittances, while improved investor confidence has continued to support portfolio inflows. In addition, gross international reserves rose to $44bn by the end of April, equal to seven months of imports,” the IMF noted.

Ms Lagarde added that while there were "significant" risks to the implementation of the programme, these were mitigated "by the strength of the policy package, front-loading of major measures implemented as prior actions, and broad political support for the objectives of the program and ambitious policy efforts".

The loan helped the state’s foreign reserves to rebound by receiving the first three tranches of the loan with a total value of $6.08bn.

Deputy Minister of Finance for Financial Policies, Ahmed Kojak announced earlier that Egypt will repay the instalments of the IMF’s loan starting from May 2021 until November 2026, according to Egypt Today.