The International Monetary Fund has agreed to more than double a bailout package for Egypt, which is facing its worst economic crisis in decades, exacerbated by war in the neighboring Gaza Strip and Ukraine.
The fund now plans to provide Egypt with $8 billion, up from the initial $3 billion announced in October 2022.
The head of the IMF’s mission in Egypt, Ivanna Vladkova Hollar, noted at a news conference that Egypt’s already struggling economy has been further hit by the conflict between Israel and Hamas, which has curtailed the country’s vital tourism trade.
At the same time, revenues from the Suez Canal were cut in half after Houthi militants, who say they are acting in solidarity with the Palestinians in Gaza, began attacking cargo ships using coastal routes in the Red Sea.
Egypt’s Prime Minister Mostafa Madbouly said the deal would allow the government to secure an additional $1.2 billion, on top of $8 billion, from the IMF’s environmental suitability fund and encourage development partners such as the World Bank and the European Union to also give Egypt more loans to help it achieve financial stability.
Last week, Egypt secured a $35 billion deal with the United Arab Emirates to develop parts of its Mediterranean coast. Egyptian officials celebrated it as the largest foreign direct investment in Egypt’s history.
Hours before the IMF deal was announced, in an effort to rein in rising inflation, Egypt’s Central Bank devalued the currency by more than 35 percent – its fourth devaluation in two years – and raised interest rates by 600 basis points.
Mr. Madbouly said his government and the IMF had reached a consensus on the goals of Egypt’s structural reform plan.
“The goal is to increase foreign exchange reserves, reduce the debt burden, ensure the flow of foreign direct investment and work for high growth rates for the Egyptian economy,” he said.
The government and the IMF have committed to social protection measures for vulnerable people who will be affected by the reform plans, Mr Madbuli said.
Over the past 18 months, a severe foreign exchange shortage in Egypt, which relies heavily on imports, has sent prices – and concern about the future – off the charts. The cost of some staple foods quadrupled, debt hit an all-time high and the currency lost a huge chunk of its value, decimating the purchasing power of people’s incomes and the value of their life savings.
Central Bank Governor Hassan Abdullah said the government’s medium-term plan aimed to reduce inflation, which hit a record high of nearly 40 percent last summer, to single digits.
Before the IMF deal, mounting economic pressure forced the government to change tack, including freezing some costly major projects ordered by President Abdel Fattah al-Sisi, including a lavish new capital in the desert.
Additional pressure came from the IMF, which refused to release much of the initial loan until Egypt met certain economic policy conditions. Among them was encouraging the development of the private sector by eliminating the competitive advantages enjoyed by Egypt’s military enterprises.
Over the past decade, Egypt’s economy has struggled for stability. Many observers say mismanagement, including overspending on major projects and long-term overreliance on imports, has left Egypt vulnerable to successive external shocks. In addition to the war in Gaza, there was the coronavirus pandemic and the war in Ukraine, which affected both tourism and imports of staple wheat.
Mr El Sisi has repeatedly defended his government’s policies, saying the 2011 uprising that toppled President Hosni Mubarak had caused lasting economic insecurity.
In daily interactions on the streets of Cairo, however, and on social media, many blame the president, whom they accuse of spending on vanity projects and weakening the economy to the point of undermining Egypt’s influence in the region.
Some experts say the IMF, which has lent Egypt billions of dollars since 2016, is part of the problem.
“They don’t go deep enough into what’s going on in the machine,” said Mohamed Fouad, an economic adviser and former Egyptian lawmaker.
Mr Fouad expects the international lender to now take more calculated decisions.
“Their biggest mistake,” he said, “came between 2016 and 2020, when everyone was cheering, focusing only on the macro aspect. But the foundations were shaky.”
Vivian Y contributed to the report.
