The International Monetary Fund has agreed to more than double the bailout package for Egypt, which is going through its worst economic crisis in decades, exacerbated by wars in the neighboring Gaza Strip and Ukraine.
The fund currently plans to provide $8 billion to Egypt, up from the initial $3 billion announced in October 2022.
Ivana Vladkova Horal, head of the International Monetary Fund mission in Egypt, noted at a press conference that the conflict between Israel and Hamas has further damaged the already troubled Egyptian economy, The conflict has cut into the country’s vital tourism industry.
Meanwhile, revenue from the Suez Canal fell by half after Houthi militants, who say they express solidarity with Palestinians in Gaza, began attacking cargo ships using the Red Sea route.
Egyptian Prime Minister Mostafa Madbouly said the deal would allow the government to access an additional $1.2 billion over $8 billion from the International Monetary Fund’s Environmental Suitability Facility and would encourage development by the likes of the World Bank and the European Union Partners are also lending Egypt more money to help it achieve financial stability.
Last week, Egypt reached a $35 billion deal with the United Arab Emirates to develop parts of its Mediterranean coast. Egyptian officials celebrated this as the largest foreign direct investment in Egypt’s history.
Hours before the IMF deal was announced, Egypt’s central bank devalued the currency by more than 35% – its fourth devaluation since October 2022 – and raised interest rates by 600 basis points in a bid to curb soaring inflation.
Madbouly said that the Egyptian government and the International Monetary Fund have reached consensus on the goals of Egypt’s structural reform plan.
“The purpose is to increase foreign exchange reserves, reduce the debt burden, ensure the flow of foreign direct investment, and strive to achieve high growth rates for the Egyptian economy,” he said.
Madbouly said the government and IMF are committed to adopting social protection measures for vulnerable groups that will be affected by the reform plan.
Over the past 18 months, Egypt has relied heavily on imports and suffered a serious shortage of foreign exchange, causing prices and anxiety about the future to rise sharply. The price of some basic foods has quadrupled, debt burdens have reached record highs, and currencies have plummeted, eroding the purchasing power of people’s incomes and the value of their life savings.
Central Bank Governor Hassan Abdalla said the government’s medium-term plan aimed to reduce inflation, which hit a record high of nearly 40% last summer, to single digits.
Ahead of the IMF deal, growing economic pressure has forced the government to change tack, including freezing a number of costly mega-projects ordered by President Abdel Fattah el-Sisi, including building a luxury tower in the desert. ’s new capital.
Additional pressure has come from the International Monetary Fund, which has refused to hand over much of the initial loan until Egypt delivers on some economic policy conditions. These include encouraging private sector growth by removing the competitive advantage enjoyed by Egypt’s military enterprises.
Egypt’s economy has struggled for stability over the past decade. Many observers say poor management, including overruns on large projects and chronic overreliance on imports, has left Egypt vulnerable to successive external shocks. In addition to the war in Gaza, the coronavirus pandemic and the war in Ukraine have also affected tourism and essential wheat imports.
Sisi has repeatedly defended his government’s policies, saying the 2011 uprising that ousted President Mubarak sparked lasting economic instability.
However, in daily interactions on the streets of Cairo and on social media, many accuse the president of spending money on vanity projects and weakening the economy to the point of diminishing Egypt’s influence in the region.
Some experts say the International Monetary Fund, which has provided billions of dollars in loans to Egypt since 2016, is part of the problem.
“They don’t have a deep enough understanding of what’s going on in the machines,” said Mohamed Fouad, a financial consultant and former Egyptian lawmaker.
Mr Fouad expects the international lender will now make more considered decisions.
“Their biggest mistake,” he said, “was between 2016 and 2020, when everyone was cheering and focusing only on the macroeconomic aspects. But the foundation was not solid.”
Ye Weiwei Contributed reporting.