Egypt plans to secure a $12bn loan from the IMF to ease a crippling dollar squeeze and restore confidence in the economy, an accord that would be the fund’s biggest aid package in a region pummeled by political unrest and the plunge in oil prices.
Stocks surged after authorities said on Tuesday evening they will finalise terms with an IMF team set to visit Cairo from Saturday. The government is targeting $21bn over three years to finance its economic programme. In addition to IMF aid, $4.5bn will come from the World Bank and the African Development Bank, Deputy Finance Minister Ahmed Kouchouk said, while the rest would come from bilateral accords and a planned international bond sale.
“This is good news in the sense that the deal can bring a lot of liquidity to Egypt, and boost confidence in the economy,” said Mohamed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes. “But challenges still lie ahead. This is a three-year programme, with a lot to be delivered.”
Egypt is the latest country in the Middle East and North Africa to line up for IMF advice and financial aid as refugee crises, militant attacks and low oil prices batter public finances and economic growth rates. This year alone, the Washington-based lender has approved a precautionary credit line to Morocco as well as loans to Tunisia and Iraq.
On Tuesday, it signed a letter of intent to renew assistance to Jordan.
Egypt reached initial accords with the IMF twice since the 2011 uprising that ousted president Hosni Mubarak to stem the plunge in foreign reserves as tourists and investors shunned the country. Authorities withdrew both requests amid a domestic debate over the fund’s past policies as well as measures required to unlock aid, including tax reforms and the restructuring of costly energy subsidies.
A deal now could help the most populous Arab country ease a dollar shortage that has stifled economic activity and fuelled speculation of another imminent currency devaluation. The dollar changed hands at 12.99 Egyptian pounds on the black market on Tuesday, a 46% premium over the official rate of 8.8/$, according to a Bloomberg survey.
Egypt’s benchmark EGX 30 index for stocks climbed 4.7%, the biggest intra-day increase since March 14, at 10.58am in Cairo on Wednesday.
William Jackson, senior emerging-markets economist at Capital Economics, said that an “apparent shift towards more orthodox policy-making in the government and at the central bank” had increased chances for an accord with the IMF.
Central bank governor Tarek Amer said in July that defending the pound had been a “grave mistake,” signalling a preference for a weaker currency. In March, the bank devalued the currency by the most in more than a decade.
Bloomberg