IMF Approves $12 Billion Bailout For Egypt After Austerity Measures

IMF Approves $12 Billion Bailout For Egypt After Austerity Measures

Kerry Wise
November 12, 2016

Egypt reached an initial deal with the International Monetary Fund on a $12 billion loan in August, a move seen by many experts as a necessary step to help the country's ailing economy.

Egypt will receive $2.75bn immediately, with the rest subject to its economic performance and further reforms.

The program "will help Egypt restore macroeconomic stability and promote inclusive growth", the board said in a statement.

The bailout package comes after import-dependent Egypt in recent weeks implemented a series of reformsdemanded by the global lender, including floating of the exchange rate, cutting fuel subsidies and passage of a value-added tax to raise revenue. The reviews are traditionally held every quarter, after which another tranche of the loan is released. Nearly half of the population is below poverty line; the budget deficit now stands at nearly 12 percent of gross domestic product while the current account deficit is at almost 7 percent.

The loan approval came hours after Standard and Poor's announced it was upgrading the outlook on Egyptian sovereign debt to stable from negative, while keeping the rating at B-. The authorities' shift to a more flexible exchange rate regime is also a key step toward alleviating Egypt's acute foreign currency shortage ...

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Last week, Egypt made the surprise move of lifting currency controls and allowing the pound to float freely, as we reported.

The IMF on Friday said it supports India's efforts to fight corruption through demonetisation, but noted that the transition needs to be managed "prudently" to minimise any disruption.

However, S&P cautioned that floating the currency will increase inflation in the short term and "subsidy cuts on top of recent interest rate hikes will weigh on domestic consumption and may raise social tensions".

Throughout this time, Egypt's economy has been buoyed by billions of dollars in aid from Gulf countries, particularly Saudi Arabia.