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Tuesday, 23 August 2022

IMF talks in “final stages,” says Madbouly

Egypt and the IMF are in the “final stages” of talks for a fresh facility to help shore up the economy, Prime Minister Moustafa Madbouly said in a cabinet statement yesterday. The statement didn’t provide any details about the talks.

Madbouly’s statement comes amid growing pressure on the EGP and less than a week after the resignation of Central Bank of Egypt Governor Tarek Amer, a move that some in the capital city think will pave the way to a fresh devaluation of the EGP. Allowing a flexible exchange rate policy is likely to be one of the IMF’s key conditions for agreeing to a new loan, which is increasingly important to policymakers who are managing external funding pressures prompted largely (but not entirely) by fallout from Russia’s war in Ukraine.

Five months and counting: Egypt entered talks with the IMF in March as part of a bid to lock in financial support following the economic shocks caused by Russia’s war in Ukraine, rising interest rates, and the global-risk off in financial markets. Neither side has publicly spoken about any details of the talks or how much money Egypt is negotiating for. Goldman Sachs estimated that we could need as much as USD 15 bn to fund our debt repayments and current account deficit over the next few years, a figure that Finance Minister Mohamed Maait subsequently said is too high and “totally inaccurate.”

Strings attached: In an indicator of the conditions it wants to attach to the program, the IMF has called on Egypt to take “decisive” steps on fiscal and structural reforms. President Abdel Fattah El Sisi has publicly appealed to the Fund to allow Egypt some breathing room until the crisis abates. In addition to further currency devaluation, the central bank’s subsidized loan programs may be on the chopping block while bread subsidy reform may or may not still be up for negotiation, according to reports yesterday.

All subsidized loan programs need to go: The IMF wants the Central Bank of Egypt to “unify interest rates” and end its aggressive program of subsidized, low-interest loans for key sectors of the economy, Bloomberg Asharq reported yesterday, citing three government sources. The CBE has launched programs in recent years that allow commercial banks to provide low-cost finance to tourism operators, SMEs, housing, and most recently agriculture. The loans are funded by the central bank, distributed via state-owned banks, and guaranteed by the Finance Ministry.

The government is pushing back on scrapping subsidized loans: The Madbouly government has taken off the table the IMF’s proposal to halt the loans, a government source told Enterprise yesterday. The source defended the policy, saying the programs are designed to boost economic growth and will not impact the nation’s budget deficit.

Is the IMF easing off demands to reform bread subsidies? The IMF understands that “now is not the time to tamper with bread subsidies,” Supply Minister Ali El Moselhy told Al Arabiya yesterday, saying that the fund is aware of the need to make sure “instability does not occur due to certain measures.” Plans to overhaul the longstanding bread subsidy system — which offers loaves at lower prices to more than 60 mn people — have been put on hold amid soaring food prices. The government will spend EGP 55 bn on bread subsidies this fiscal year, El Moselhy said previously.

IN OTHER ECONOMY NEWS-

Egypt GDP to grow 6.2% this year -AMF: The Egyptian economy will grow at a 6.2% clip in FY 2022-2023, up from 5.5% last year, according to the Arab Monetary Fund’s latest outlook (pdf). The figure is slightly higher than the 5.9% growth penciled in for Egypt this fiscal year in the IMF’s most recent forecast. The Arab fund expects growth to moderate to 5.5% in FY 2023-2024.

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