The International Monetary Fund (IMF) will increase its current loan program with Egypt by $5 billion, the country's prime minister said on Wednesday, as the central bank let the pound plummet and said it would allow the currency to trade freely.
The new agreement is an expansion of the $3 billion, 46-month Extended Fund Facility that the IMF struck with Egypt in December 2022, a key plank of which was meant to be a shift to a more flexible exchange rate system.
The program stalled when Egypt reverted to keeping its pound at a tightly managed rate over the past year, and amid delays to an ambitious program to divest state assets and boost the role of the private sector.
As part of the new agreement, Egypt will also receive a loan of about $1.2 billion from a separate facility that promotes environmental sustainability, Prime Minister Mostafa Madbouly said.
The IMF said it had reached agreement with Egypt on the policies needed to create the delayed first and second reviews under the program, which can unlock disbursements of funding subject to approval by the fund's executive board.
"The comprehensive policy package seeks to preserve debt sustainability, restore price stability, and reinstate a well-functioning exchange rate system, while continuing to push forward deep structural reforms to promote private sector-led growth and job creation," it said in a statement.
Policy discussions included commitments to a flexible exchange rate, monetary tightening and fiscal consolidation, social spending to protect vulnerable groups, and to reforms to eliminate privileges for state-owned enterprises - all pillars of the original program.
They also included "a new framework to slow down infrastructure spending including projects that have so far operated outside regular budget oversight", the IMF statement said.
Gaza spillover
Such projects, including a new capital city east of Cairo, have been a centerpiece of policy under President Abdel Fattah al-Sisi, who has defended them as providing jobs and boosting growth.
Egypt negotiated the original program, the latest in a series of support packages from the fund, after the economic fallout from the war in Ukraine prompted investors to pull $20 billion from Egypt within weeks, bringing the country's financial troubles to the fore.
Since then, spillover from the war in the neighboring Gaza Strip has brought new risks to Egypt's dollar revenues, including those from shipping in the Suez Canal, which dropped by about a half early this year due to Houthi attacks in the Red Sea.
Annual headline inflation accelerated to a record 38% last September, before easing slightly.
IMF officials have said additional financing for Egypt's program is critical for its success following the external shocks, and that Egypt's stability matters for the whole region.
Wednesday's deal comes less than two weeks after Egypt announced a deal with the Emirati sovereign wealth fund ADQ that it said would deliver $35 billion in investments by late April.
A senior IMF official said the deal was separate from its own negotiations, but Wednesday's IMF statement acknowledged that it had alleviated near-term financing pressures.
"Egypt's international and regional partners will play a critical role in facilitating the implementation of the authorities' policies and reforms," the statement said.
