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Wednesday, 9 March 2022

JPMorgan thinks there is a “reasonable probability” that we could start talks with the IMF on another assistance program — if global conditions continue to deteriorate

Will the Madbouly government open talks with the International Monetary Fund on an assistance package to help us get through the fallout from Russia’s war in Ukraine? Analysts at JPMorgan think that there is a “reasonable probability” in the event that “market conditions continue to deteriorate, according to a note to investors that Reuters picked up on.

The problem: The war in Ukraine is turbo-charging global commodity prices, putting further pressure on state finances here and in emerging markets around the world. The prices of wheat and oil, which together make up the bulk of Egypt’s import spend, have reached highs not seen in years. Egypt imports c. 80% of its wheat needs from Russia and Ukraine, and our tourism sector stands to lose out on revenues as holidaymakers from Russia and Ukraine drop.

Who’s saying what: Fitch said in December (before the war broke out) that Egypt could require another IMF programme in the event of a liquidity squeeze, and top cabinet members including Mohamed Maait, Ali El Moselhy and Tarek El Molla (here and here) have been very blunt in public that Egypt is being uniquely squeezed as a result of the war. The IMF was tight-lipped in December when Masrawy asked about whether Egypt would sign up for a new assistance program, saying the ball was squarely in Cairo’s court.

BACKGROUND- We have turned to the lender twice in the past six years. Once in 2016 when we took out a USD 12 bn facility to back an ambitious program of economic reforms coinciding with the float of the EGP — and again after the onset of the covid-19 pandemic, when we borrowed USD 8 bn to cushion the economic impact of the outbreak.

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