Egypt asks for a new loan from the IMF: Why are Egyptians afraid?

Egyptian Prime Minister Moustafa Madbouly said that the government is in discussions with the International Monetary Fund (IMF) about obtaining a new loan. This announcement caused a wave of fear among Egyptians, especially since the last loan agreement in 2016 caused a large wave of unprecedented price hikes, and the Egyptians suffered from painful measures after the state obtained the previous loan. But there is another reason for Egyptians’ concerns; this time the terms of the loan may extend to large layoffs of employees in the state’s administrative apparatus.

Madbouly said at a press conference on Sunday that discussions with the fund will start over the next few days, but he did not clarify the extent of “potential financial support.” But Egyptian sources indicated that the expected loan ranged between $3-4 billion dollars for a year. Madbouly claimed that “the government in Egypt is working to preserve the gains of economic reform, after the economy demonstrated its ability to deal with the repercussions of the coronavirus crisis.” But the problem is that citizens have not really felt the results of the economic improvement that the government is talking about.

Madbouly stressed that the ministers of “the economic group have developed scenarios in case the crisis continues for a long time, and it is expected to discuss the procedures of the new [loan] programme with the IMF in the coming days.” He added: “We are working on taking preventive measures to prevent any negative impact on the gains made by the Egyptian economy due to the corona crisis, and we hope that the country will witness a return in all aspects of life and work in June, to compensate the difficult period that Egypt [and the whole world] has gone through because of the implications of this virus.”

In the same context, the IMF said in a statement issued today, Sunday, that it expects Egypt’s request for rapid financing to be presented to its board of directors within weeks. In turn, Kristalina Georgieva, managing director of the IMF, said in the statement, “We fully support the goal of the government, in preserving the significant gains made under the fund’s three-year funding, which was successfully completed last year.” “This comprehensive financial support package, if approved, will help boost confidence in the Egyptian economy, make further progress to protect the most vulnerable and provide the basis for a strong economic recovery,” she added. Observers warn that the anticipated loan comes at a time when Egypt’s debts are witnessing an unprecedented increase.

Egypt’s external debt has jumped by 138 per cent since President Abdel Fattah al-Sisi came to power. The Egyptian external debt did not exceed $46 billion in mid-2014, and reached $109.36 billion at the end of September last year. Egypt is obliged to pay about $18.6 billion this year, which is the sum of the premiums and benefits borne by the state, but the problem is that the economy is witnessing an unexpected decline. Coronavirus threatens Egypt after it affected vital sectors that represent the main source of foreign exchange for the country, chiefly tourism and remittances of expatriates abroad. Last Tuesday, Speaker of the Parliament Ali Abdel Aal, said that “Egypt has the right to discuss [with] international institutions to stop the benefits of foreign debt, or to suspend their payment, at least in light of the corona crisis.”

Observers say that a state of fear prevailed among many Egyptians after talk about the loan, reminding them of strict austerity measures implemented by the government in compliance with the terms of a $12 billion loan programme from the IMF signed in late 2016. This programme included harsh measures that the citizens paid for dearly, such as increasing taxes, raising subsidies for fuel and energy, and lowering them on other services. The measures included floating the Egyptian pound (liberalising the exchange rate against foreign currencies), which led to a collapse in its value, and an unprecedented surge in price. Meanwhile, local reports stated that the government started layoffs of government employees in recent days, but the government denied this last Friday, according to an official statement.

Egyptian President Abdel Fattah al-Sisi previously hinted that the number of employees in the state’s administrative apparatus is 7.5 million, while the state does not actually need more than 1.5 million, which means that more than 6 million could be dismissed.