The Egyptian government is currently in discussions with the International Monetary Fund to consider the possibility of obtaining a new loan, to ensure the fulfilment of its financial obligations, in light of the turbulent global conditions and the flight of investors from emerging markets to safer markets. In the event that Egypt succeeds in agreeing with the IMF, this will be the fourth loan that Cairo has obtained from the Fund since 2016, which reflects the growth of Egypt’s foreign debt during the era of President Abdel Fattah El-Sisi, which rose to a record level of $137.4 billion last September, for $46 billion in June 2014 (the beginning of Sisi’s rule).

A government denial and the Fund confirms the news

News of the new loan discussions began leaking to the media last January, and it was said at the time that the discussions were aimed at “considering the possibility of obtaining a loan if necessary,” and that Egypt is seeking to achieve various goals behind it, one of which is symbolic, considering that its approval represents a “certificate of confidence” in Economic performance, according to the government’s point of view, and another material objective is the fund’s low-interest money compared to the debt market. At the end of last February, there was increasing talk about discussions of the new loan, especially in light of the negative economic effects of the Russian invasion of Ukraine on Egypt, as the war led to the flight of investors from the country. According to Reuters, foreign investors withdrew $3 billion from Egypt during the first week of the war only.

The war added new pressures on the state’s general budget, which will lead to an increase in the fiscal deficit to exceed the government’s estimates (6.9%), affected by the rise in interest rates, wheat and oil imports, and the expected decline in tourism revenues. Despite the frequency of news of the new loan, Minister of Planning Hala Al-Saeed denied, a few days ago, that Egypt had held talks with the International Monetary Fund regarding a new loan. .When something happens, we will announce it.” Despite the government’s denials, IMF officials confirmed news of the new loan discussions, with IMF managing director Kristia Georgieva saying that if food and energy prices go up, she “is concerned about the impact on people in Egypt. That’s why we’re already engaged in Discussions with Egypt on how to target the most vulnerable groups and companies at risk.

The Director of the Middle East Department at the IMF, Jihad Azour, said that Egypt had not submitted an official request for a new loan, but he did not deny the existence of talks between the two sides. In addition, Kristia Georgieva had a phone call with the Egyptian Prime Minister, Mostafa Madbouly, last Friday, to talk “about the indirect economic effects of the war in Ukraine for Egypt and the world,” and the Director of the International Monetary Fund confirmed that they are in “close contact with the authorities in Egypt.”

At all costs?

When the Egyptians hear the name of the International Monetary Fund, they put their hand directly on their hearts for fear, as they have had very harsh experiences with the “fund”, the last of which they have not recovered from so far. Egypt obtained 3 loans from the Fund during the past six years, the first of which was in 2016 with a value of 12 billion dollars through the extended fund facility mechanism (long-term loan), and the second loan was in 2020 with a value of 5.2 billion dollars, after the outbreak of the Corona pandemic crisis. To the credit preparedness mechanism (short-term loan), in addition to a third loan within the rapid financing mechanism that is granted in exceptional times, with a value of 2.772 billion dollars.

The first loan came in 2016 at a heavy cost to the Egyptians, as the Fund stipulated the flotation of the Egyptian pound after the Central Bank was controlling its price, which led to the devaluation of the pound against the dollar by 100%, and inflation rose at an unprecedented rate (30%) and the erosion of the value of the Egyptian Citizens’ savings. Insiders say that the new loan, if agreed upon, will be through the credit standby mechanism (short-term loan), and it will be conditioned on encouraging private investment and amending the competition law. There is also the possibility that the Fund will require new austerity measures related to reducing subsidies.

It is believed that the most important condition will be that Egypt stops supporting the price of the pound in the market. Despite the liberalization of the exchange rate within the economic restructuring plan in 2016, the Central Bank maintained the stability of the value of the pound at the limits of 15.7 pounds per dollar, by intervening indirectly through local state-owned banks to pump dollars into the market when needed. In the event that the government accepts the last fund’s condition regarding the exchange rate of the pound against the dollar, this may mean a decrease in the value of the pound by values ​​ranging between 5 and 15%, which of course will increase the suffering of citizens who have not yet recovered from the effects of the “economic reform plan” supported by the fund in 2016.