Five years after Egypt became embroiled in the Arab Spring, the country has reached an initial agreement to receive a US$12 billion bailout loan from the IMF to kick-start its ailing economy.
The IMF announced that after two weeks of talks, it had reached a “staff level agreement” with the Egyptian authorities to provide the country with a three-year loan.
Under the terms of the deal, the IMF said that the government agreed to reduce government debt from its current level of 98 per cent of GDP, down to around 88 per cent of GDP over the coming two years.
The Egyptian government also agreed to a raft of economic reforms including plans to adopt a new value-added tax (VAT) system and to continue with plans to cut energy subsidies.
<div class=”embedObjects”> <blockquote class=”twitter-tweet” data-lang=”en”><p lang=”en” dir=”ltr”><a href=”https://twitter.com/hashtag/IMF?src=hash”>#IMF</a>, <a href=”https://twitter.com/hashtag/Egypt?src=hash”>#Egypt</a> Gov't and Central bank reach an agreement on a three-year extended fund facility <a href=”https://twitter.com/hashtag/EFF?src=hash”>#EFF</a> of about US$12B <a href=”https://t.co/j0h6tFr72Q”>https://t.co/j0h6tFr72Q</a></p>— IMF (@IMFNews) <a href=”https://twitter.com/IMFNews/status/763695718389473283″>August 11, 2016</a></blockquote> </div>
“Egypt is a strong country with great potential, but it has some problems that need to be fixed urgently,” said Chris Jarvis, the IMF mission chief for Egypt.
“The government recognises the need for quick implementation of economic reforms for Egypt to restore macroeconomic stability and to support strong, sustainable and job-rich growth.”
He added that as part of the deal the central bank of Egypt would also be tasked with increasing foreign exchange reserves, improving the functioning of the foreign exchange market and bringing down inflation to single digits.
“Moving to a flexible exchange rate regime will strengthen competitiveness, support exports and tourism and attract foreign direct investment,” Mr Jarvis said.
Egypt’s economy has been hit hard since the country joined the 2011 Arab Spring uprisings, which removed the former president Hosni Mubarak. A year later Egyptians elected Islamist Mohamed Morsi as the new president. However, Mr Morsi also faced protests in 2013 and was replaced by Abdel Fattah El Sisi.
Amid political unrest, tourists and overseas investors stayed away, meaning the country’s foreign currency reserves plummeted and growth slowed. A dollar shortage has also exacerbated economic problems. The central bank has weakened the Egyptian pound, but has failed to quash black market sellers, who offer discounts on official rates.
Since 2011, real GDP growth has averaged only 2.5 per cent, compared to 5 per cent in the previous decade and last fiscal year the budget deficit reached 11.5 per cent of economic output.
The deal is subject to approval by the IMF executive committee, which is expected to consider Egypt’s request in the coming weeks.
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