IMF Ties Payments to Egypt’s Currency Conditions
In a bold move, the International Monetary Fund (IMF) announced that payments to Egypt under an $8 billion financial program will be linked to Cairo’s willingness to let market conditions dictate the price of its currency. Additionally, Egypt must make foreign exchange available to businesses and private individuals, as stated by the IMF on Monday.
Immediate Access to Funds
Egypt, which finalized the loan agreement on March 6, will have immediate access to $820 million this week, with another $820 million scheduled after a review to be completed by the end of June. Subsequent reviews will occur every six months, unlocking payments of $1.3 billion each time if certain conditions are met. The final payment is set for the autumn of 2026, as revealed by mission chief Ivanna Vladkova Hollar during a news conference.
Expansion of IMF Program
The IMF’s executive board approved the program on Friday, expanding on a $3 billion Extended Fund Facility signed in December 2022 following the crisis in neighboring Gaza, which further destabilized Egypt’s already fragile economy.
Reforms and Challenges Ahead
Egypt faced challenges after allowing its currency to weaken sharply post the 2022 agreement, prompting the IMF to halt the program. However, under the recent agreement, Egypt has allowed its currency to plummet and fluctuate freely. IMF mission chief Hollar emphasized the importance of sustaining this reform, stating that it is not a one-time effort.
The Gaza crisis worsened Egypt’s existing foreign exchange crisis by impacting tourism growth and triggering attacks on shipping in the Red Sea. As a result, Suez Canal revenue was halved, affecting two major sources of foreign exchange for Egypt.
Future Prospects and Expectations
The IMF aims for Egypt to ensure a fair competition between private and state-owned enterprises and reduce the state’s involvement in the economy. Discussions about an additional loan from the IMF’s Resilience and Sustainability Facility will take place during the next review, according to Vladkova Hollar.
The IMF predicts that Egypt’s inflation will remain high in the near term, with expectations of 25.5 percent average inflation for the upcoming fiscal year. There are hopes for a decrease to 15.25 percent by the end of that year, following a record high of 38 percent in September, which eased to 35 percent in February.
Fiscal Reforms and Subsidy Reductions
To address the stretched budget, the IMF advises Egypt to replace untargeted fuel subsidies with targeted spending to assist households in need. Egypt recently raised fuel prices as part of a subsidy reduction program, with plans for further decreases during quarterly pricing committee meetings, as indicated by Hollar.