Egypt and the International Monetary Fund reached a staff-level agreement on a $5.2 billion stand-by arrangement that aims to alleviate the economic impact of Covid-19, the Washington-based lender said Friday in a statement.
The one-year stand-by arrangement, which is subject to approval by the IMF’s executive board, follows the $2.8 billion in emergency financing that the North African nation secured last month under the fund’s Rapid Financing Instrument, as part of the country’s plan to cover its funding gap.
The Arab world’s most populous nation in late 2016 secured a three-year IMF program, taking a $12 billion loan and steeply devaluing the currency and cutting subsidies. Those moves helped rekindle investor interest battered in the aftermath of the 2011 uprising – a revival most notable in the debt market, where record-high interest rates made the country an emerging-market darling.
The SBA “will safeguard the gains achieved by Egypt over the past three years and put the country on strong footing for sustained recovery as well as higher and more inclusive growth and job creation over the medium term,” said Uma Ramakrishnan, the IMF’s mission chief for Egypt, in the statement.
The agreement “is important at this stage to continue support the confidence of markets and investors in the ability of the Egyptian economy to deal with the effects of the Coronavirus and the recovery from these effects, in addition to preserving the gains of the economic reform program, which has been praised by all international institutions,” Egypt’s Finance Ministry said Friday in a separate statement.
Egypt raised $5 billion last month in its largest-ever issuance in international bond markets. The country is also seeking to secure $4 billion from other international financial institutions, an official told Bloomberg in May,
The SBA “is expected to catalyze additional bilateral and multilateral financial support,” the IMF said.
Bridging funding gap
The country needs to bridge a funding gap of around $10 billion by the end of 2020, according to estimates from investment banks EFG Hermes and Goldman Sachs Group Inc. Some of Egypt’s main sources of foreign currency – tourism, remittances and Suez Canal receipts – are facing disruptions caused by the virus.
The funding gap will be “totally covered” by the IMF’s financing, other multilateral institutions or bilateral agreements, the central bank’s deputy governor, Rami Abulnaga, said last month in an interview with Saudi TV channel Al-Arabiya.