Wed | Aug 16, 2017

IMF, Egypt agree on US$12b loan to fix ailing economy

Published:Friday | August 12, 2016 | 8:00 AM

The International Monetary Fund (IMF) said Thursday it would grant Egypt a US$12 billion loan over three years to help the Arab world's most populous country mend its ailing economy following years of unrest.

The IMF said the loan, which is subject to approval by its executive board, comes in support of a government reform programme that aims to stabilise Egypt's falling currency, reduce the budget deficit and government debt, as well as boost growth and create jobs.

"Egypt is a strong country with great potential, but it has some problems that need to be fixed urgently," it said in a statement, adding that planned government measures include tax increases and cuts in energy subsidies. Egypt said earlier this week it would raise electricity prices by at least a quarter, part of plans to eliminate the subsidies altogether by 2019.

Egypt's economy has been struggling since the 2011 popular uprising that overthrew longtime autocrat Hosni Mubarak, with high inflation, foreign currency shortages, and lack of tourism and investment.

Cairo called on the IMF, the US-based global lender of last resort, after having exhausted billions of dollars in aid from wealthy Gulf Arab nations recently humbled by low oil prices and now turned off by persistent bureaucratic hurdles to investing in Egypt.

Egypt hopes the loans can generate momentum that will boost growth, reassure potential investors, and give the country enough leeway to restructure the economy. The budget deficit currently stands at nearly 12 per cent of gross domestic product and the current account deficit is at almost 7 per cent.

The government's economic programme says it will focus on helping the poor and try to ensure that any economic rebound brings benefits to the entire population of 91 million and not just elites, as has happened during past periods of economic growth.

Economists welcomed the IMF's announcement, as well as the government's acknowledgment that it must address long-standing structural problems despite potential short-term discontent.

"I think the government will have to work on several fronts simultaneously, and some of them will be painful," said Angus Blair of investment advisory firm Signet. "But it's necessary to shore up the budget and free up funds to be spent more efficiently, and they've recognised that."

Egypt's President Abdel-Fattah el-Sissi has faced mounting criticism of his economic stewardship in recent months, and the former general has responded with near daily appearances and statements touting his commitment to defending the poor.

Egyptian leaders have balked at IMF loans in the past because they require subsidy cuts and other reforms that cause short-term pain and which could spark popular unrest. Frustrations over economic stagnation, inequality, and perceived corruption were among the main factors behind the uprising that toppled Mubarak in 2011 and the massive protests demanding the resignation of Islamist President Mohammed Morsi in 2013.

- AP