Egypt has taken an important step towards securing a $4.8bn loan from the IMF to support the country’s economic recovery.
The fund has reached a preliminary agreement on the loan following a review of Egypt’s planned economic reforms, carried out by an IMF delegation during a visit to the country in mid-November.
Andreas Bauer, division chief in the Middle East and Central Asia department, who headed up the IMF mission confirmed that Egyptian authorities had developed “a national programme that seeks to promote economic recovery, address the country’s fiscal and balance of payment deficit and lay the foundation for rapid job creation and socially balanced growth in the medium term”.
The agreement is now pending IMF executive board approval which is due to be made in December.
The loan will be provided as a 22-month standby agreement to support Egypt’s economic programme through the fiscal year 2013/14, and it forms part of a wider $14.5bn financial package of loans from external donors.
“The availability of external financing will allow for a gradual adjustment of the economy and substantially reduce Egypt’s cost of borrowing, given the much higher interest rates on domestic loans,” says Bauer.
Some of the policies the Egyptian government is planning include reforming energy subsidies and raising revenue through tax reforms.
The funds raised from these initiatives will be invested in infrastructure and social spending, and will be used to reduce the large budget sector deficit from 11 per cent in 2011/12 to 8.5 per cent of gross domestic product (GDP) in 2013/14.
Monetary and exchange rate policies will also be introduced to reduce inflation, as well as to improve Egypt’s international competitiveness to boost trade, attract capital inflows and increase international reserves.
In 2011, Egypt’s gross government debt represented 76.4 per cent of its GDP. The IMF predicts this will increase to 79.7 per cent and 81.1 per cent in 2012 and 2013 respectively.
The proposed IMF loan has drawn criticism from some political groups concerned about the impact of reforms on poorer sections of society. They also criticised the “lack of transparency” surrounding the terms and conditions of the loan.