The IMF agrees to a much larger rescue package for Egypt

The International Monetary Fund has agreed to more than double its bailout package for Egypt, which is going through its worst economic crisis in decades, exacerbated by war in the neighboring Gaza Strip and in Ukraine.

The fund now plans to provide Egypt with $8 billion, up from 3 billion USD initially announced in October 2022.

Head of the IMF delegation to Egypt, Ivanna Vladkova Hollar, noted in a press conference that the already struggling Egyptian economy has been further hurt by the conflict between Israel and Hamas, which has hurt tourism trade. The importance of this country is affected.

At the same time, revenue from the Suez Canal halved after Houthi rebels, who say they are acting in solidarity with Palestinians in Gaza, began operations. attacks on cargo ships using Red Sea shipping routes.

Prime Minister Mostafa Madbouly of Egypt said the deal would allow the government to secure an additional $1.2 billion, on top of $8 billion, from the IMF’s environmental matching fund and would encourage development partners as the World Bank and the European Union also offered Egypt more. loans to help it achieve financial stability.

Last week, Egypt reached a $35 billion deal with the United Arab Emirates to develop part of its Mediterranean coast. Egyptian officials hailed it as the largest foreign direct investment in Egyptian history.

Hours before the IMF deal was announced, in an effort to rein in skyrocketing inflation, the Central Bank of Egypt devalued its currency by more than 35% – its fourth devaluation in two years – and interest rate up 600 basis points.

Mr. Madbouly said his government and the IMF had reached consensus on the goals of Egypt’s structural reform plan.

“The aim is to increase foreign currency reserves, reduce the debt burden, ensure the flow of foreign direct investment and aim for high growth rates for the Egyptian economy,” he said.

Mr. Madbouly said the government and the monetary fund are committed to implementing social protection measures for vulnerable people who will be affected by the reform plans.

Over the past 18 months, a severe foreign currency shortage in Egypt, which relies heavily on imports, has pushed prices – and worries about the future – off the charts. Prices of some basic food items quadrupled, debt burdens reached an all-time high and currencies lost a large portion of their value, reducing the purchasing power of people’s incomes and the value save their whole life.

Central Bank Governor Hassan Abdalla said the government’s medium-term plan aims to reduce inflation, which hit a record high of nearly 40% last summer, to single digits.

In the wake of the IMF deal, growing economic pressure forced the government to change tactics, including freezing several expensive major projects ordered by President Abdel Fattah el-Sisi, including a lavish new project. capital in the desert.

Additional pressure came from the IMF, which refused to turn over much of the initial loan until Egypt made good on certain economic policy conditions. Among them is encouraging private sector growth by eliminating the competitive advantages that Egypt’s military-owned businesses enjoy.

Over the past decade, the Egyptian economy has struggled to stabilize. Many observers say poor management, including overspending on major projects and a long-standing overreliance on imports, have left Egypt vulnerable to successive external shocks. . In addition to the war in Gaza, there is also the coronavirus pandemic and the war in Ukraine, affecting both tourism and essential wheat imports.

Mr. el-Sisi has repeatedly defended his government’s policies, saying the 2011 uprising that overthrow President Hosni Mubarak causing prolonged economic uncertainty.

Yet in daily interactions on the streets of Cairo and on social media, many blame the president, whom they accuse of spending on vanity projects and weakening the economy to the point weaken Egypt’s influence in the region.

Some experts say the IMF, which has loaned billions of dollars to Egypt since 2016, is part of the problem.

“They don’t go into what’s happening in the machine,” said Mohamed Fouad, a financial consultant and former Egyptian parliamentarian.

Mr. Fouad expects that the international lender will now make more calculated decisions.

“Their biggest mistake happened between 2016 and 2020, when everyone was cheering, focusing only on the macroeconomic side,” he said. But the foundation was shaky.”

Vivian Yee Report contributions.


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