IMF, Egypt One Step from Historic Loan Agreement

The International Monetary Fund (IMF) is “very close” to striking a historic loan deal with Egypt. As Kristalina Georgieva, the Fund’s director, said at a press conference in Washington, “We may need a little more time. We are in the final stages and are working on the implementation details. Both the Fund and the Egyptian authorities want to implement the project in the fairest possible way,” Georgieva commented.

In 2023, the Fund suspended a previous $3 billion loan because Cairo “failed to meet a key condition for the transition to a flexible exchange rate system.” In addition, the commitments that the government of President Abdel Fattah al-Sisi made to the International Financial Institution included a gradual reduction of the footprint of the state and the Egyptian military in the economy.

But after the outbreak of the armed conflict between Israel and Hamas on October 7, as well as escalating tensions around the Red Sea and the subsequent decline in Egypt’s shipping revenues through the Suez Canal, these factors prompted the IMF to return to the negotiating table and push for an expanded loan agreement. “We are very concerned” about the situation of countries that “border the epicenter” of the war in the Gaza Strip, said Georgieva, according to whom “Egypt’s financial gap is widening rapidly after the loss of revenue from the Suez Canal.”

Egypt’s economic and financial situation is becoming increasingly dramatic. On February 1, the North African country’s central bank immediately raised interest rates by 2%, bringing them to 21.25% on deposits and 22.25% on loans. The day before, the regulator issued a directive to Egyptian banks setting a maximum daily limit of 150,000 Egyptian pounds (about 5,000 euros) for withdrawals from individual accounts or all customer accounts.

A special IMF mission led by Ivanna Vladkova Hollar has been in Egypt since January 17. The first and second versions of Egypt’s reform program are supported by the Extended Fund Facility (EFF), an exceptional instrument through which the IMF provides financial assistance to countries facing serious balance of payments problems in the medium term due to structural weaknesses in national economies. “The basic political elements of the program are agreed upon. The Egyptian authorities have expressed their commitment to act swiftly on all critical aspects of Egypt’s economic reform program,” said Ivanna Vladkova Hollar after the Fund’s mission concluded its round of talks on February 1.

Among other things, the parties emphasized “the importance of strengthening social spending to protect vulnerable groups” in order to “guarantee decent living conditions for low- and middle-income families, who have been particularly affected by rising prices.” But there are those in Egypt who criticize the current round of talks with the Monetary Fund. A “well-informed” source in the Egyptian government told Saudi television station Al Arabiya that “the possible agreement between Egypt and the IMF envisages primarily a rapid devaluation of the Egyptian pound,” with the Fund committing to extend the term of the agreement and the loan, which would have to be increased from $3 billion to $7 billion. The purpose of the mandatory condition imposed by the IMF is to reduce the difference between the official and parallel market exchange rates of the pound against the US dollar: while the current Central Bank of Egypt exchange rate is around 30 pounds per dollar, the black-market price reaches 70 pounds.