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Tuesday, 8 October 2019

IMF accused of “reckless lending” to high-debt countries, including Egypt

IMF accused of “reckless lending” to high-debt countries, including Egypt: The IMF has disbursed some USD 93 bn in financing to a number of governments that are classified as having “very high debt,” including Egypt, without requiring a debt restructuring program, making the lending “reckless,” UK-based Jubilee Debt Campaign said in a report out yesterday (pdf). JDC is a charity organization that focuses on global debt research and campaigning to cancel developing countries’ debt in a bid to alleviate poverty. The report notes that the IMF has a policy in place that prevents the fund from doling out loans to governments with an “unsustainable debt situation” without making the financing contingent on a debt restructuring program to make the situation sustainable. However, JDC says that the IMF does not have a specific definition of “unsustainable debt,” which clears the path for governments to receive funding without really remedying the underlying issue. The report also claims that incurring more debt from the IMF puts the economic burden on these countries’ populations by requiring austerity measures.

How does Egypt’s debt situation measure up? Egypt is listed among six countries that have received IMF funding without a debt restructuring stipulation “even though external government debt service as a proportion of both revenue and exports is well above the PRGT [Poverty Reduction and Growth Trust] country thresholds.” The other five countries are Argentina (which alone received a record USD 56 bn facility), Angola, Ecuador, Pakistan, and Sri Lanka. Egypt’s USD 12 bn extended fund facility was doled out as the IMF assessed the country’s debt situation as “sustainable but subject to significant risks,” the report says.

The report makes no mention of the government’s recently implemented comprehensive debt reduction strategy, which the Finance Ministry officially rolled out in March. Under the strategy, the government aims to reduce debt to 80% of GDP by 2022 by extending maturities on government debt and speeding up the inclusion of informal businesses into the formal economy. A senior government official also told us in May that the finance and planning ministries agreed to set a USD 110 bn cap on foreign debt within two to three years. Once we reach that mark, the government will move to cut its foreign borrowing as the financing gap shrinks and economic indicators improve. That cap was placed as the limit for borrowing before the Egypt’s debt becomes unsustainable, according to our source.

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