IMF agrees to much larger rescue package for Egypt

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

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

The head of the IMF’s mission in Egypt, Ivanna Vladkova Hollar, noted at a news conference that Egypt’s already struggling economy had been further affected by the conflict between Israel and Hamas, which has hampered the country’s vital tourism trade.

At the same time, revenue from the Suez Canal fell by half after Houthi militants, who say they stand in solidarity with Palestinians in Gaza, began attacking cargo ships using the Red Sea shipping lanes.

Egypt’s Prime Minister Mostafa Madbouly said the deal would allow the government to secure an additional $1.2 billion, on top of $8 billion, from the IMF’s Environmental Aptitude Fund and would include development partners such as the World Bank and the European Union encourage Egypt to also give more money. loans to help achieve financial stability.

Last week, Egypt signed a $35 billion deal with the United Arab Emirates to develop parts of the Mediterranean coast. Egyptian officials celebrated it as the largest foreign direct investment in Egypt’s history.

Hours before the deal with the IMF was announced, Egypt’s Central Bank, in an effort to rein in rising inflation, devalued the currency by more than 35 percent – it was the fourth devaluation since October 2022 – and raised interest rates by 600 basis points.

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

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

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

Over the past 18 months, a severe shortage of foreign currency in Egypt, which is overwhelmingly dependent on imports, has wiped out prices – and concerns about the future. The cost of some basic food items quadrupled, debt levels reached record highs and the currency lost much of its value, decimating the purchasing power of people’s incomes and the value of their savings.

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

Before the IMF deal, mounting economic pressure had forced the government to change its tactics, including freezing some costly megaprojects ordered by President Abdel Fattah el-Sisi, including a lavish new capital in the desert.

Additional pressure came from the IMF, which refused to transfer much of the original loan until Egypt met certain economic policy conditions. One of these was to stimulate private sector growth by eliminating the competitive advantages enjoyed by Egyptian military companies.

Over the past decade, the Egyptian economy has struggled for stability. Many observers say mismanagement, including overspending on mega-projects and long-standing over-reliance on imports, has left Egypt vulnerable to successive external shocks. In addition to the war in Gaza, there was the coronavirus pandemic and the war in Ukraine, which affected both tourism and essential wheat imports.

Mr el-Sisi has repeatedly defended his government’s policies, saying the 2011 uprising that toppled President Hosni Mubarak had created lasting economic uncertainty.

However, in daily interactions on Cairo’s streets and on social media, many blame the president, whom they accuse of spending money on vanity projects and weakening the economy in a way that undermines Egypt’s influence in the region.

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

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

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

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

Vivian Yee reporting contributed.