Egypt Counts On A $12B IMF Loan To Jump Start Ailing Economy

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Written by Kevin Mwanza

Egypt has accepted a $12 billion loan from the International Monetary Fund (IMF) that the North African country hopes will help jumpstart its ailing economy as it struggles to recover from effect of the Arab Spring.

The loan will be extended over a three year period and will help the Arab Gulf state to undertake key reforms that will help it reduce unemployment and arrest a rising inflation.

The reforms are also expected to include another devaluation of the Egyptian pound and a reduction of fuel subsidies. The government has also recently introduced a VAT law to parliament and hiked electricity prices.

In May, Egypt’s economy temporarily over took South Africa has Africa’s second largest economy after its economy expanded by an average 7.5 percent between 2012-15, MoneyWeb reported.

The IMF loan, which has been given initial approval, will go to the monetary fund’s board of executives for final approval.

Chris Jarvis, head of the IMF delegation, told the Financial Times that the IMF funding was contingent on Egypt securing between $5 billion and $6 billion in additional loans from bilateral partners — before the agreement was taken to the fund’s board.

‘It is important that we secure financing assurances for the year before we go to the board,” Mr Jarvis said. “We are looking for additional finance from bilateral sources. The argument we would like to make is that if there is a moment to provide balance of payment support to Egypt, this is it.”

The extra financing would help provide a cushion for the country’s foreign reserves ahead of any devaluation of the Egyptian pound.

Experts have however warned that the loan alone would serve as little more than an “aspirin” and a stopgap for a deep-rooted economic malaise.

Egypt, mired in an economic slump since the 2011 uprising that toppled the Husni Mubarak regime, has already received billions of dollars from the international market as it struggled to revive key sectors including its once thriving tourism industry.

The official jobless rate in the country is around 13 percent, and the figure for young Egyptians is more than double that. The country has a trade deficit of 7 percent of gross domestic product and a budget deficit of 12 percent of GDP, Bloomberg reported.

Ahmed Kamaly, an economics professor at the American University of Cairo, told The Jordan Times the IMF financing would only provide “a short term solution” that might not have an impact in the future.

“The loan will be like an aspirin. There is no reform package in the real sense of the term, with specific goals… It’s a raft of measures to stabilise the economy and exchange debts for other debts,” Kamaly said.