Egypt agrees $3 billion loan deal with IMF as pound hits new low

CAIRO — Egypt has clinched a $3 billion loan deal with the International Monetary Fund (IMF) conditioned on a currency depreciation and state subsidy cuts, the government said on Thursday.

The Egyptian pound shed 17 per cent of its value against the dollar after the staff agreement was announced.

Egypt has been battered by inflation and is among the world's top five countries most at risk of defaulting on its foreign debt, according to the international credit rating agency Moody's.

The IMF deal is conditioned on reforms that include further cuts to subsidies, bringing yet more pain for struggling households in the Arab world's most populous nation.

In August, global investment firm Goldman Sachs estimated that Egypt would need about $15 billion in funding to be able to repay its foreign debt, currently estimated at about $150 billion.

In addition to the latest $3 billion loan, Egypt has also unlocked another $1 billion from the IMF from a facility dedicated to developing countries, Prime Minister Mostafa Madbouly said Thursday.

The loan programme is scheduled to run for four years and is due to be sent to the IMF board of directors for approval in December, Madbouly said.

He added that Egypt had also received an additional $5 billion from "regional and international organisations", without specifying which.

The IMF meanwhile said in a statement that its staff and "the Egyptian authorities have reached a staff-level agreement on comprehensive economic policies and reforms to be supported by a 46-month Extended Fund Facility Arrangement of $3 billion".

Plunging currency 

Egypt has been dependent on bailouts both from the IMF and from Gulf allies, particularly since the 2013 ouster of Islamist late president Mohammed Morsi.

The Egyptian tourism sector — already battered by extremist attacks and the coronavirus pandemic — and the major wheat importer's food industry have lately been hit hard by Russia's invasion of Ukraine.

With the latest depreciation, Egypt's local currency has shed a total of 47 per cent of its value since the start of the year, going down to 23 pounds against the greenback as markets closed Thursday, down from 15.6 pounds in a matter of months.

The pound's continued free-fall against the dollar has caused many importers to stop bringing in goods.

The pound previously saw a dramatic devaluation in 2016 when it shed need nearly half its value overnight.

Inflation has also surged recently, reaching 15.3 per cent in September, driven by the skyrocketing food prices.

Non-oil private sector activity has continued to contract since 2017, while experts fear an impending real estate bubble as the military continues to launch massive-scale development projects that often lack financial transparency.