International Monetary Fund to Grant $12bn Loan to Egypt

Egypt was granted a $12 billion loan by the International Monetary Fund (IMF) after they complied with the requirements to float the pound and cut state subsidies.

IMF Head Christine Lagarde said that the reform will help stabilize the macroeconomic situation.

Egypt requested a loan over a three-year period to account for its increasing budget deficit.

Floating a currency encourages the increase in domestic exports, a vital factor in balancing the budget deficit.

An initial amount of $2.75 billion was received on November 11 with the full loan to be received over four installments, contingent on the country’s management of the money and its enactment of the reforms.

IMF Mission Chief for Egypt Chris Jarvis projected that the second installment – less than USD 2 billion – will be received by Spring 2017, reported Mubasher Info.

The EGX Index rating the top stable 30 Egyptian companies is now likely to test 11 thousand points, understood as the percentage change of he value or rate of a certain asset.
In addition to the devaluation, some of the conditions stipulated in the IMF agreement include cuts in fuel subsidies and a reform of the taxation system.

Lagarde said that Egypt needs to continue cutting fuel subsidies in order to sustain the loan of the $12 billion loan, reported Mada Masr.

“The IMF is a lender of last resort; a country seeks its help only when it’s in a serious crisis,” Ayman Ismail, Abdul Latif Jameel endowed chair of entrepreneurship and assistant professor told The Caravan.

Ismail believes the Central Bank of Egypt (CBE) wait-ed too long to devalue the currency.
“Had the Central Bank gradually devalued the currency earlier this year, the exchange rate may have remained at EGP 10-12, rather than the current rate of EGP 17-18.”

However, Adel Beshai, professor of economics and director of graduate studies, estimates that had Egypt floated the EGP in August, the exchange rate would have been set around EGP 9.5 and EGP 10.

“At least the impact would have been less drastic on the country,” he told The Caravan.
Beshai projects that in a couple of months the exchange rate will reach its equilibrium price.

According to CBE Governor, Tarek Amer, the loan will increase Egypt’s foreign reserves to $23 billion.

“The IMF loan is our only hope to avoid a freefall of the Egyptian economy,” he told local media.