Egypt agrees $3bn loan with IMF as pound hits new low

CAIRO: Egypt has clinched a $3 billion loan agreement with the International Monetary Fund against the backdrop of a 15 percent depreciation of the local currency against the dollar, the government said Thursday.

The IMF had demanded the devaluation as a condition of the loan and the North African nation is among the top five countries in the world most at risk of defaulting on its foreign debt, according to the international credit rating agency Moody’s.

The IMF deal is also conditioned on reforms that include further cuts to subsidies, bringing yet more pain for struggling households. In August, global investment firm Goldman Sachs estimated that Egypt would need about $15 billion in funding to be able to repay its foreign debt, currently estimated at about $150 billion.

In addition to the latest $3 billion loan, Egypt has also unlocked another $1 billion from the IMF from a facility dedicated to developing countries, Prime Minister Mostafa Madbouly said Thursday. The loan programme is scheduled to run for four years and is due to be sent to the IMF board of directors for approval in December, Madbouly said.

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He added that Egypt had also received an additional $5 billion from “regional and international organisations”, without specifying which. The IMF meanwhile said in a statement that its staff 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”.

Egypt has been dependent on bailouts both from the IMF and from Gulf allies, particularly since the 2013 ouster of Islamist late president Mohammed Morsi. The tourism sector – already battered by jihadist attacks and the coronavirus pandemic – and food industry have lately been hit hard by Russia’s invasion of Ukraine.

With the latest depreciation, Egypt’s local currency has shed a total of 45 percent of its value since the start of the year, going down to 22.75 pounds against the greenback from 15.6 pounds in a matter of months. The pound’s continued free-fall against the dollar has caused many importers to stop bringing in goods, with high-end shops in Cairo’s new suburbs bearing empty racks or old seasons.

The pound previously underwent a dramatic devaluation in 2016 when it shed need nearly half its value overnight. Inflation has also surged recently, reaching 15.3 percent in September, driven by the skyrocketing food prices.

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