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Wednesday, 27 July 2016

Egypt in final stages of three-year USD 7 bn IMF loan facility

You may now breathe a sigh of relief: We’re officially chasing a USD 12 bn IMF facility as part of a comprehensive plan to secure USD 21 bn in foreign financing over three years. The Ismail government confirmed in a statement (pdf) last night Egypt is “finalizing talks” that began in April for a USD 12 bn facility from the International Monetary Fund.

How much is in the offing? Finance Minister Amr El-Garhy broke it down in a call-in with Lamis El Hadidy’s “Hona El Assema.” The bottom line: We’re looking at about USD 7 bn per year over three years, including USD 4 bn annually from the IMF facility and a further USD 2-3 bn per year between international bond issuances and budgetary support from the World Bank. At USD 12 bn, the IMF facility looks set to be considerably larger than expected, with earlier reports having put it in the USD 5.8-7.1 bn range. (Watch, runtime: 19:01; with El Garhy’s announcement of the figure coming in at 7:10).

There is, of course, conditionality: The statement from cabinet indirectly linked the IMF talks to the pursuit of the government’s reform agenda, including passage of the value-added tax and the Civil Service Act, cutting imports, and reducing both subsidies and government spending. The cabinet economic group also shoe-horned into its list of reforms the growth of exports, the issuance of FCY-denominated bonds and the IPO of state-owned businesses.

What’s the timeline? An IMF delegation is set to arrive in Cairo on Saturday, 30 July, according the cabinet statement. Finance Minister Amr El Garhy and Central Bank Governor Tarek Amer will lead negotiations for Egypt, and it looks like a final agreement is perhaps two weeks away. The IMF team will be led by Egypt mission chief Chris Jarvis, according to Masood Ahmed, the IMF’s MENA Director. “We welcome Egypt’s initiative on the talks, which will include discussions of its economic policies,” said Ahmed according to Al Mal. The announcement from the cabinet economic group marks the first official confirmation that Egypt is and had been pursuing an IMF facility after months of tiptoeing around the topic from the both the government and the IMF.

Ambivalence in the House on the prospect of IMF talks? House Economics Committee member Rep. Ashraf Al Araby called the move a positive step, but fears the government might move to amend the House-approved reform agenda depending on the tenor of the talks, Al Borsa reports. (Just to avoid any confusion here: Al Araby shares the same name as the minister of planning.) Committee member Passant Fahmy views the loan as necessary in light of the severe FX shortage, Al Masry Al Youm reports.

IMF has recently inked agreements with Jordan, Morocco: The IMF has recently inked a number of support agreements across the region, signing yesterday a letter of intent for a USD 700 mn, 36-month Extended Fund Facility with Jordan to help shore up the country’s reserves as well as assist with refugee inflows. Last Friday, the IMF approved a USD 3.47 bn “precautionary and liquidity line” with Morocco to act as a cushion while the country pursues its reform agenda. Morocco does not plan to draw down on its PLL unless it experiences an actual balance of payment need due to external conditions. The PLL would mark the third such arrangement with Morocco, while Jordan just completed a three-year stand-by arrangement for USD 2 bn in August of last year.

News of the facility is getting plenty of ink in the international press. Heba Saleh has filed a quick take for the Financial Times that leads their Emerging Markets (digital edition) page this morning. Bloomberg’s Ahmed Feteha notes the Cabinet statement as saying Egypt hopes the facility will “boost international confidence in the economy, attract foreign investments, and therefore establish fiscal and monetary stability” and quotes Beltone’s Hany Genena as noting, “This is very positive news. An agreement with the IMF would restore much of the lost confidence in Egyptian policy makers. The IMF’s stamp of approval would attract billions of dollars in bilateral support and in private investments.”

Is a float imminent? Reuters’ coverage also quotes Genena, where Amina Ismail and Lin Noueihed also quote Genena, noting that he said, “Confidence will be restored in the government and central bank. Secondly, we will see flotation of the pound, if not tomorrow, next week, the week after.” Reuters first broke news in late June that Egypt was in talks for an IMF facility, citing an unnamed cabinet minister.

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