Daily Management Review

To Repair its Battered Economy, Egypt Seeks Region’s Biggest IMF Loan


07/27/2016




To Repair its Battered Economy, Egypt Seeks Region’s Biggest IMF Loan
In an accord that would be the fund’s biggest aid package in a region pummeled by political unrest and the plunge in oil prices, Egypt plans to secure a $12 billion loan from the International Monetary Fund to ease a crippling dollar squeeze and restore confidence in the economy.
 
An IMF team is set to visit Cairo from July 30 and terms would be finalized with the team, the authorities announced which resulted in a surge in stocks.
 
The economic program of the government would require $21 billion over three years and this is what the government is targeting. Bilateral accords and a planned international bond sale would provide a section of amount while $4.5 billion will come from the World Bank and the African Development Bank in addition to IMF aid, said Deputy Finance Minister Ahmed Kouchouk.
 
"This is good news in the sense that the deal can bring a lot of liquidity to Egypt, and boost confidence in the economy. But challenges still lie ahead. This is a three-year program, with a lot to be delivered," said Mohamed Abu Basha, a Cairo-based economist at investment bank EFG-Hermes.
 
As refugee crises, militant attacks and low oil prices batter public finances and economic growth rates, Egypt is the latest country in the Middle East and North Africa to line up for IMF advice and financial aid.
 
In addition to loans to Tunisia and OPEC member Iraq, the Washington-based lender has approved a precautionary credit line to Morocco this year alone. Assistance to Jordan was renewed by the fund on Tuesday.
 
To stem the plunge in foreign reserves as tourists and investors shunned the country, Egypt reached initial accords with the IMF twice since the 2011 uprising that ousted President Hosni Mubarak. A domestic debate over the measures required to unlock aid that included including tax reforms and the restructuring of costly energy subsidies and the fund’s past policies, both the requests were withdrawn by the authorities.
 
A dollar shortage that has stifled economic activity and fueled speculation of another imminent currency devaluation would be eased for the most populous Arab country by a deal. Noting a 46 percent premium over the official rate of 8.8, the dollar changed hands at 12.99 pounds on the black market earlier this week.
 
Masood Ahmed, director of the Middle East and Central Asia Department, said that the IMF’s visit is expected to last about two weeks.
 
An “apparent shift towards more orthodox policy making in the government and at the central bank” had increased chances for an accord with the IMF, said William Jackson, senior emerging-markets economists at London-based Capital Economics.
 
Signaling a preference for a weaker currency, defending the pound had been a “grave mistake,” said Central bank Governor Tarek Amer. A vow to implement a more flexible exchange rate, a promise that is yet to materialize, was made by the bank in March when it devalued the pound by the most in more than a decade.

Abu Basha, of EFG-Hermes said that authorities “will have to take some tough measures before the economy starts witnessing serious inflows from abroad”.
 
Five out of six analysts in a Bloomberg survey expected the bank to hold rates at 11.75 percent when the central bank’s monetary policy committee is meet this week. As inflation surged following March’s devaluation, the benchmark rate was raised by 2.5 percentage points to the highest in a decade by the bank.
 
(Source:www.bloomberg.com) 






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