IMF’s $2 Billion for Egypt Comes With Warnings on Challenges

CAIRO (Capital Markets in Africa) – The International Monetary Fund told Egypt to push ahead with efforts to curb inflation, cut debt and allow for a more flexible exchange rate after signing off on a loan tranche of about $2 billion.

In a statement following the IMF’s approval on Tuesday to release the fifth installment of Egypt’s $12 billion loan after a two-month delay, the fund said its macroeconomic outlook remains favorable and praised the government’s enactment of policies.

Even so, “a more difficult external environment poses new challenges as global financial conditions have tightened,” said David Lipton, the IMF’s first deputy managing director. “Egypt has successfully weathered recent capital outflows, but consistent policy implementation will be essential to further strengthen policy buffers, including by containing inflation, enhancing exchange-rate flexibility and reducing public debt.”

The Arab world’s most populous nation secured the loan in 2016 after halving the value of the pound relative to the dollar and cutting subsidies as part of a sweeping program to overhaul the economy. The IMF loan helped restore investor confidence during the upheaval.

The $2 billion fifth installment was received late Tuesday, the state-run Middle East News Agency reported, citing an unidentified central bank official.

Growth largely stalled following the 2011 uprising that ousted President Hosni Mubarak, but it’s steadily rebounded, with the government targeting 5.6 percent for the fiscal year ending in June.

Meanwhile, foreign holdings of local debt have climbed to over $13 billion by Jan. 28, with $900 million added last month alone, Finance Ministry officials said on Tuesday. That marks a reversal from 2018, when foreigners sold around $10 billion in Egyptian Treasury bills and bonds as a rout swept across emerging markets.

The IMF noted that Egyptian officials remain committed to delivering on the key promises, such as lifting remaining fuel subsidies in mid-2019 and activating the automatic indexation of fuel prices. The latter issue had been a source of contention between the IMF and Egypt and led to the delay in disbursing the latest installment.

While macroeconomic indicators suggest Egypt’s reforms are paying off, ominous signs abound, particularly in the private sector. The country’spurchasing managers’ index, which measures non-oil business activity, has been in contraction for five straight months.

“Egypt’s recovery over the past two years has so far largely been driven by external re-balancing and public investment, while the private sector has remained under pressure, in part as a result of ongoing reforms,” Daniel Richards, economist for the Middle East and North Africa at Emirates NBD, which prepares the PMI report, said in a statement Tuesday. Still, “we anticipate a continued strengthening in the private sector this year.”

Source: Bloomberg Business News