Egypt strikes $3 billion loan deal with IMF
After seven long months of negotiations, the Egyptian government announces it finally struck a deal with the IMF - though under painful conditions.
The Government of Egypt said on Thursday that Egypt obtained a $3 billion loan from the IMF on the condition that Egypt depreciates its currency and implements cuts of state subsidies.
After the agreement was concluded, the Central Bank of Egypt announced the Egyptian pound shed 17% of its value against the dollar.
Rating agency Moody's stated that Egypt's economy has been struggling against inflation as it stands among the world's top five economies in the world that are most at risk of defaulting on foreign debt, which is currently estimated at $150 billion.
In August, Goldman Sachs estimated that Egypt would need about $15 billion to be able to close its foreign debt.
The conditions specified in the IMF agreement called on the government to cut public spending on subsidies, which will inevitably further exacerbate poverty in the country.
Prime Minister Mostafa Madbouly said on Thursday that Egypt has also obtained a supplementary $1 billion from an IMF branch dedicated to assisting developing countries.
He added that the loan program will get final approval in December this year and is scheduled to run for four the next four years.
He further added that Egypt had received another $5 billion from "regional and international organizations," without providing further details.
Earlier today, the IMF said in a statement that the organization and "the Egyptian authorities have reached a staff-level agreement on comprehensive economic policies and reforms to be supported by a 46-month Extended Fund Facility (EFF) Arrangement of US$3 billion."
The Egyptian pound is drowning, not plunging
Since 2013, Egypt has been systematically relying on bailouts both from the IMF and from Gulf allies.
The Egyptian economy has taken a huge hit, with inflation reaching 14.6% in July, which triggered a massive hike in the price of imports and slashed forex reserves by $7.8 billion since February to $33.1 billion in July.
The imposition of import controls caused Egypt to run a current account deficit of $18.4 billion in its fiscal year of 2020/2021, which further fell to $16.6 billion in 2021.
Since the start of the year up to the latest depreciation, Egypt's local currency has shed a total of 47% of its value against the dollar as markets closed Thursday, down from 15.6 pounds in a matter of months.
Imports have now become too expensive for Egyptians, and the surge in the cost of living with inflation hitting 15.3% in September is further making life more challenging for Egyptian households.
The country already owes $11.6 billion to the IMF for a loan granted in 2016 and another two packages in 2020. Both are expected to be paid by 2025.
On September 14, the Central Bank of Egypt announced that it had obtained US$13 billion in deposits from countries in the Gulf over the first three months of 2022. The Gulf deposits were intended to bolster stocks of foreign currency that were heavily depleted over the past year.
Although the report did not specify when repayments will be due, it is likely they may be rolled out, including the $1.25 billion Eurobond that matures in February 2023 and money owed to multilateral organizations.
According to the Central Bank, Egypt has eight months left to pay back $6 billion to multilateral organizations. Another $8 billion are due to be paid next year.
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