The International Monetary Fund has agreed to more than double a bailout package for Egypt, which is going through its worst economic crisis in decades, exacerbated by the war in the neighboring Gaza Strip and in Ukraine.
The fund now plans to give Egypt $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 hurt by the conflict between Israel and Hamas, which has cut off the country’s important tourism trade. .
At the same time, revenue from the Suez Canal dropped by half after Houthi militants, who say they are acting in solidarity with the Palestinians in Gaza, began attacking cargo ships using Red Sea shipping routes.
Egypt’s Prime Minister Mostafa Madbouly said the deal would allow the government to secure an additional $1.2 billion, over $8 billion, from the IMF’s environmental suitability fund and encourage development partners such as the World Bank and European Union to also give Egypt more. loans to help it reach financial stability.
Last week, Egypt secured a deal worth $35 billion with the United Arab Emirates to develop parts of its Mediterranean coast. Egyptian officials celebrated this as the largest foreign direct investment in Egypt’s history.
Hours before the IMF deal was announced, in an attempt to stem rising inflation, Egypt’s Central Bank devalued the currency by more than 35 percent — its fourth devaluation in two years — and raised interest rates. interest of 600 basis points.
Mr. Madbouly said his government and the IMF have reached consensus on the targets of Egypt’s structural reform plan.
“The goal is to raise foreign currency reserves, lower the debt burden, guarantee the flow of foreign direct investments and work towards high growth rates for the Egyptian economy,” he said.
The government and the financial fund are committed to social protection measures for vulnerable people who will be affected by the reform plans, Mr. Madbouly said.
Over the past 18 months, a severe shortage of foreign currency in Egypt, which is heavily dependent on imports, has sent prices — and anxiety about the future — off the charts. The cost of some staple foods quadrupled, the debt burden reached an all-time high, and the currency lost much of its value, reducing the purchasing power of people’s incomes and the value of their life savings.
Central Bank Governor Hassan Abdalla said the government’s medium-term plan aims to bring down inflation, which hit a record-high of nearly 40 percent last summer, to a single digit.
Before the IMF deal, growing economic pressure forced the government to shift tactics, including freezing several expensive megaprojects ordered by President Abdel Fattah el-Sisi, including a lavish new capital in the desert.
Additional pressure came from the IMF, which refused to grant most of the initial loan until Egypt made good on certain economic policy conditions. These include encouraging the growth of the private sector by eliminating the competitive advantages enjoyed by Egypt’s military-owned enterprises.
Over the past decade, Egypt’s economy has been struggling for stability. Many observers say mismanagement, including overspending on megaprojects and a chronic overreliance on imports, have left Egypt vulnerable to a series of external shocks. Besides the war in Gaza, there was the coronavirus pandemic and the war in Ukraine, which affected tourism and important wheat imports.
Mr. el-Sisi has repeatedly defended his government’s policies, saying that the 2011 uprising that ousted President Hosni Mubarak brought long-term economic stability.
However, in daily interactions on the streets of Cairo, and on social media, many blamed the president, whom they accused of spending on vanity projects and weakening the economy to the point of undermining Egypt’s influence in region.
Some experts say the IMF, which has lent billions of dollars to Egypt since 2016, is part of the problem.
“They don’t go very deep into what’s going on in the machine,” said Mohamed Fouad, a financial consultant and former Egyptian lawmaker.
Mr. Fouad expects the international lender to now make more calculated decisions.
“Their biggest mistake,” he said, “came between 2016 and 2020, when everyone was having fun, focusing only on the macroeconomic aspect. But the foundation was shaking.”
Vivian Yee contributed reporting.
