2024-02-01 20:00:05
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The IMF managing director said the lender was “very close” to concluding a loan deal with Egypt widely seen as crucial for easing a foreign currency crisis that has been suffocating the economy of the heavily indebted Arab country.
“We may need a little bit more time,” Kristalina Georgieva said at a press briefing at the fund’s headquarters in Washington. “But we are in this very last stretch where we are working on the details of implementation and both sides, Egyptians and us, want to get that right.”
Georgieva made clear that the war in Gaza was the main reason why the IMF was pushing ahead with an expanded loan deal despite having stopped disbursements on an earlier $3bn loan. It halted payments last year because Cairo did not meet conditions to move to a flexible exchange rate and reduce the footprint of the state and the military in the economy.
She said “we worry a lot” regarding countries that “border the epicentre” of the war in Gaza, naming Egypt and Lebanon and to a lesser extent Jordan.
The drop in shipping revenues as a result of attacks by Houthis rebels in Yemen on Red Sea shipping “added anxiety” for Cairo. “We recognise that the financial gap for Egypt has increased . . . they are losing revenues from the Suez Canal,” said Georgieva.
Analysts say the Egypt-IMF discussions have focused on a package of at least $10bn, some of which would come from the lender and the rest from other donors likely to include the World Bank.
“Markets are looking at $10bn, even if it is not all from the IMF,” said Farouk Soussa, Middle East and North Africa economist at Goldman Sachs.
Egypt has been enduring its worst economic crisis in decades, with soaring inflation — which topped 34 per cent in November — and a severe foreign currency shortage that has resulted in a widening chasm between the official and black market exchange rates. The country is the second-largest debtor to the IMF, with four loan agreements since 2016.
The Egyptian pound was trading at 67 to the dollar on the parallel market on Thursday. The official rate has been fixed at 30.9 since March 2023.
Speculation has been rife that the central bank would devalue the currency or allow it to float as part of reforms needed to unlock the IMF package.
Suez Canal revenue has fallen by 44 per cent since the start of the year compared with the same period in 2023, Osama Rabie, head of the waterway, said in a January 25 interview with Al Sharq TV.
Analysts say the war on Egypt’s border had given new momentum in western capitals to back an IMF deal to salvage the country’s foundering economy.
“The Gaza war has impacted the way the US looks at Egypt’s current situation and this has produced new flexibility,” said Michael Wahid Hanna, US programme director at the International Crisis Group.
The Rafah crossing on Egypt’s border with Gaza was the main entry point for humanitarian supplies to the territory, he noted, and Cairo was “one of few regional players with real and active links to Hamas”, so able to play a role in mediation.
The Egyptian government on Wednesday announced measures intended to narrow the deficit and level the playing field for the private sector. It has also halted any external financing for new national projects until June.
Under Abdel Fattah al-Sisi, president since 2014, Egypt has embarked on a massive debt-fuelled infrastructure programme led by the military. Critics say that while some of the projects are addressing real needs, others such as a new administrative capital might have been deferred.
James Swanston, economist at Capital Economics in London, said Egypt needed reforms and a credible exchange rate if investors were to return, and warned that “the consequences of no IMF deal would be pretty bad because the financial needs for debt repayment are pretty stark”.
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