IMF Says Egypt Needs Deeper Reforms as It Seeks Another Loan
(Bloomberg) -- Egypt’s government needs to take further steps to foster private-sector development, improve governance and reduce the role of the state, the International Monetary Fund said, as the country seeks a new loan to bolster an economy hit by fallout from the war in Ukraine.
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Egypt requires “decisive progress on deeper fiscal and structural reforms” to boost the economy’s competitiveness and make it more resilient to shocks, the Washington-based lender’s executive board said in a statement after it met to evaluate Egypt’s recent loan program.
In 2020, Egypt secured a $5.2 billion stand-by arrangement as well as $2.8 billion under the IMF’s Rapid Financing Instrument, helping authorities tackle the impact of the coronavirus. The North African nation is currently in talks with the international lender on a new loan.
Read: Egypt Turns to IMF Seeking Help for Economy Amid Ukraine Shock
The IMF’s evaluation found that the stand-by arrangement achieved its primary goal of maintaining macroeconomic stability, and that policy implementation was broadly in line with program objectives.
However, while noting the Egyptian government’s goal of bolstering confidence through a stable currency, the IMF said that “greater exchange rate variability during the SBA could have been entrenched to avoid a buildup of external imbalances and facilitate adjustment to shocks.”
A major food importer, Egypt has struggled to deal with record grain prices fueled by the conflict in Europe. The most populous Arab nation previously bought most of its wheat from Ukraine and Russia. The latter has also been a major source of visitors for its economically important tourism industry.
The country has seen about $20 billion in foreign outflows after investors in local debt exited what had been a favorite market. The government said it’s seeking billions of dollars in private-sector investments and will announce new policies on public ownership this year.
Read: Egypt’s Maait Says It’s Time to Rethink Carry-Trade Reliance (1)
This month, President Abdel-Fattah El-Sisi, said during a visit to Germany he’d asked “our friends in Europe” to help convey a message to international financial institutions like the IMF and the World Bank that “the reality in our country can’t support” the kinds of steps that might be called for while the current crisis persists, according to the state-run Middle East News Agency.
El-Sisi on Tuesday called for the disbursement of “exceptional aid” for 9 million families for the next six months, worth a combined monthly total of about 1 billion Egyptian pounds ($52.8 million). The assistance would go to families most in need and people on lower pensions and state administration salaries.
Egypt’s central bank raised interest rates in March for the first time since 2017, while allowing the currency -- which had held steady for about two years -- to weaken sharply. Governor Tarek Amer said in March that the central bank used foreign-currency reserves to protect the exchange rate during the pandemic.
The IMF said it welcomed the “authorities’ recent communications on the role of exchange rate flexibility in the policy toolkit.”
(Updates with aid plan for families in 10th paragraph.)
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