IMF set to loan Egypt $12bn over next three years

11 Aug 16

Egypt is set to benefit from a $12bn International Monetary Fund loan over the next three years after agreeing on a programme to support economic reforms, it was announced today.


IMF staff have recommended that the fund supports Egypt as it attempts to bring down its public debt, reduce its deficit, and free up its public cash for spending on health, infrastructure, education and social protection.

The programme is still subject to approval by the IMF’s executive board, which the fund said will consider the proposal “in the coming weeks”.

Following a visit to the country, Chris Jarvis, head of the IMF mission to Egypt, said that Egypt is a “strong country with great potential”, but also has some problems that require urgent attention.

High public debt, which stood at 98% of GDP in 2015/16, is one. Under the programme, Egypt aims to reduce this to around 88% by 2018/19.

In June, Egypt’s finance ministry also announced that its budget deficit had widened to 9.8% of GDP ($30.7bn) in the first 10 months of the financial year (which runs from 1 July to 30 June). This was a consequence of rising public sector wages and welfare costs.

Economic growth had slowed to 4.5% during the first half of the 2015/16 year, down from 5.5% over the same period a year earlier.

Egypt’s economy has been on a downward spiral as a result of a severe foreign currency shortage and rising inflation. The lack of foreign notes is having a big impact on the nation, which relies heavily on imports.

Jarvis said the government recognises the need to implement reforms quickly. It is hoped the fund’s programme will “improve the functioning of the foreign exchange markets, bring down the budget deficit and government debt, raise growth and create jobs especially for women and young people”.

"Public financial management and fiscal transparency will be strengthened to improve governance and delivery of public services, enhance accountability in policymaking, and combat corruption," he added. 

The government is waiting for parliamentary approval on a new VAT law, to replace current legislation on sales tax, in the hope of avoiding double taxation and increasing treasury take, while reducing the number of taxpayers.

Jarvis said it will also advance the reform agenda by increasing investment and strengthening the role of the private sector, as well as enhancing the social safety net to protect the vulnerable as reforms take place.

“Social protection is a cornerstone of the government’s reform plan,” he said. “Budgetary savings that come from other measures will be spent on social protection, including specifically food subsidies and targeted social transfers.

“With the implementation of the government reform programme, together with the help of Egypt’s friends, the Egyptian economy will return to its full potential,” he continued.

“We at the IMF are ready to partner with Egypt in this programme. We will also encourage other multilateral agencies and countries to support Egypt. Our colleagues in the World Bank and African Development Bank are willing to help. It would also be very helpful for Egypt’s bilateral partners to step forward at this critical time.”

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