Cairo secures IMF loan and improved rating

13 November 2016

First installment of $2.7bn has already been deposited 

Cairo has successfully secured a three-year $12bn loan from the Washington-based IMF.

The first installment of $2.7bn has already been received following the IMF executive board’s approval, according to a statement from the Central Bank of Egypt.

The remaining amount will be provided over a number of phases, which will be subject to five reviews over the three-year period.

The loan, which was agreed earlier this year, has been subject to Cairo applying several key economic reforms such as the cutting of state subsidies, the floating of the Egyptian pound and the implementation of a new value-added-tax (VAT).

Cairo has successfully pressed ahead with a number of policies. The most recent has been the flotation of the pound earlier this month, which has seen the currency devalue by about 50 per cent.

Egypt’s economy has been struggling for seevral years following mass protests in 2011 that removed long-time former president Hosni Mubarak. Since then, revenues from tourism, the Suez Canal and foreign investments have dried up, with economic and security issues causing problems for Cairo in recent years.

The loan is seen as a much-needed boost for a country that has been struggling with a foreign currency crisis rooted in depleting foreign reserves. In August this year, foreign reserves reached $16bn, with that figure now closer to $25bn following the IMF’s requirement for Cairo to raise an additional $6bn in bilateral funds to qualify for the loan.

The latest developments in Egypt have prompted US ratings agency Standard and Poor’s (S&P) to revise its outlook on the long-term credit rating on Egypt to stable from negative. At the same time, S&P affirmed a B- long-term and B short-term foreign and local currency sovereign credit rating.

A recent statement from S&P said: “The authorities’ shift to a more flexible exchange rate regime fulfilled a key IMF condition, and is also a vital step toward alleviating Egypt’s acute foreign currency shortage, narrowing the differential between the official and unofficial exchange rates and improving the country’s export competitiveness.”

The statement went on to add that Egypt’s rating remains constrained by wide fiscal deficits, high public debt, low income levels, and institutional and social fragility.

Cairo is also understood to be soon receiving $2.7bn from China following a currency swap agreement between the two countries. Additionally, another $1.5bn will be received from the World Bank and the African Development Bank by the end of 2016.

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