Cash-Strapped Egypt Wants A $12 Billion Bailout From IMF
From Wall Street Journal. Story by Dahlia Kholaif.
An International Monetary Fund delegation is expected to arrive in Cairo this weekend to discuss a multibillion-dollar loan for cash-strapped Egypt as its currency plumbs record lows in the black market.
Egyptian stocks rallied 5 percent on Wednesday as investors cheered a potential IMF bailout for the North African country.
The government, struggling to mend a floundering Egyptian economy, is seeking funds from the emergency lender and will finalize negotiations with an IMF mission, its cabinet said on Tuesday.
Egypt is hoping to secure $12 billion in funding from the IMF via a three-year support program, officials told local news outlets, which will help plug a total funding gap of about $21 billion.
“The Egyptian authorities have asked the IMF to provide financial support for their economic program,“ said Masood Ahmed, head of the IMF’s Middle East department. ”We welcome this request, and look forward to discussing policies which can help Egypt meet its economic challenges,” he added.
Talks for an IMF loan come as the Egyptian pound fell this week to its lowest-ever valuation—at around 13 per U.S. dollar—on the unofficial black market. Bets have increased that a weaker economy will force Cairo to devalue its currency again after the central bank governor said defending it had been a “grave mistake.”
An acute dollar shortage is hurting the already struggling economy. The country largely depends on foreign investments and tourism for hard currency but those have suffered because of political unrest since the uprising in 2011 and a spate of terror attacks.
A reduction in government spending, the implementation of a value-added tax and adopting a more flexible currency exchange rate are likely to be among the reforms that the IMF will ask for as part of the loan agreement, analysts say.
Egypt’s foreign-exchange reserves amounted to about $17.5 billion at end of June, about half of what the country had before the 2011 uprising.
The central bank has kept the official exchange rate steady at about 8.88 a dollar since devaluing the currency in March.
A devaluation of the pound would boost foreign investors’ confidence and increase the Egyptian market’s competitiveness, which would help improve the country’s balance of payments.
“If approved, this (IMF loan) would help to plug Egypt’s external financing requirement and improve the economy’s growth prospects. It would also almost certainly entail a further devaluation of the currency,” said William Jackson, senior emerging markets economist at Capital Economics.
He cautioned that Egypt has been on the brink of securing an IMF deal at several points over the past five years before the talks broke down. An apparent shift toward more orthodox policy-making suggests officials are now more willing to push the deal through.
Read more at Wall Street Journal.