The International Monetary Fund (IMF) has greenlit a significant escalation in Egypt’s bailout loan, raising it from $3 billion to $8 billion. This move by the IMF’s executive board seeks to provide much-needed support to Egypt’s economy, which grapples with severe shortages of foreign currency and skyrocketing inflation.
In a statement released late Friday, the IMF executive board affirmed its decision, facilitating an immediate disbursement of approximately $820 million as part of the agreement unveiled earlier this month.
According to the statement, the loan expansion follows Egypt’s commitment to an IMF-backed reform agenda, which prioritizes measures such as currency flotation, decreased public investment, and fostering private sector-led growth.
Egypt has already taken steps like floating its currency and significantly raising interest rates, with commercial banks now trading the U.S. dollar at over 47 Egyptian pounds, up from about 31 pounds. These measures aim to tackle soaring inflation and attract foreign investment.
The Egyptian economy has weathered a series of challenges, including government austerity, the impact of the COVID-19 pandemic, repercussions from Russia’s invasion of Ukraine, and the recent conflict between Israel and Hamas in Gaza. Additionally, attacks by Houthi rebels on shipping routes in the Red Sea have slashed revenues from the Suez Canal, a vital source of foreign currency.
Kristalina Georgieva, Managing Director of the IMF, emphasized the complexity of Egypt’s macroeconomic challenges, exacerbated by recent regional conflicts and disruptions in the Red Sea.
The IMF highlighted the adverse effects of external shocks and delayed reforms on Egypt’s economic activity. Growth has slowed, and inflation remains high, with the annual inflation rate hitting 36% in February.
The devaluation of the currency and interest rate hikes have added to the burden faced by Egyptians, a significant portion of whom live in poverty.
Egypt’s Finance Minister, Mohamed Maait, welcomed the IMF’s decision as a validation of the corrective measures taken by the government.
In addition to the IMF loan, Egypt recently secured a €7.4 billion ($8 billion) aid package from the European Union over three years. To expedite assistance, the EU plans to fast-track €1 billion ($1.1 billion) of the package, bypassing parliamentary oversight and other safeguards, according to European Commission President Ursula von der Leyen.
