IMF releases $820 million to Egypt to bolster struggling economy

The International Monetary Fund, IMF Fund, IMF, has announced the immediate disbursement of $820 million to the Egyptian government as part of an augmented plan to support the nation’s struggling economy.

This disbursement was validated by the IMF’s Executive Board and is part of a $3 billion aid program granted at the end of 2022. The approval of this payment, which has been eagerly awaited by the Egyptian government, comes at a time of increasing challenges for its economy. Additionally, the Board approved a $5 billion extension announced earlier in the month, bringing the total lending from the Fund to Egypt to $8 billion.

In a news release sent to AFP on Friday, the IMF said that the Egyptian government has achieved all the objectives set out in the first two stages of the aid program, with the exception of the level of its foreign currency reserves.

“The authorities have significantly strengthened the reform package,” IMF Managing Director Kristalina Georgieva said in the release. Recent measures toward correcting macroeconomic imbalances, including unification of the exchange rate… and significant tightening of monetary and fiscal policies, were difficult, but critical steps forward,” she added.

Egypt’s central bank recently implemented a significant interest rate hike of six percentage points to 27.75 percent in an effort to combat inflation and narrow the gap between the official exchange rate and the black market rate. This move led to a sharp depreciation of the Egyptian pound, with a 40 percent decline in just one day, following a 50 percent decrease over recent months.

The economic challenges facing Egypt are exacerbated by factors such as a significant portion of the population living below or slightly above the poverty line, as well as declining foreign currency earnings. These earnings are impacted by various factors, including the downturn in tourism due to the COVID-19 pandemic, the war in Ukraine, and conflicts such as the ongoing situation in the Gaza Strip.

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Furthermore, disruptions to global trade caused by attacks from Yemen’s Huthi rebels in the Red Sea and Gulf of Aden have resulted in a substantial reduction in dollar revenues from the Suez Canal, a critical passage for international trade. The IMF has reported a decrease of 40-50 percent in canal revenues since the beginning of the year due to these attacks.

President Abdel Fattah al-Sisi, who assumed power in 2013, has initiated several large-scale projects during his tenure. However, economists argue that these projects have not yielded significant new revenues and have instead strained the state’s financial resources, contributing to the country’s economic challenges.

Between 2013 and 2022, Egypt’s foreign debt rose from $46 billion to more than $165 billion, according to World Bank data, making it the second country most at risk of default behind war-torn Ukraine.

However, the IMF is fairly optimistic for the coming fiscal year, forecasting economic growth will rise 4.4 percent, compared with 3 percent for the current fiscal year ending June 30.

 

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