The International Monetary Fund approved a $5.2 billion stand-by arrangement for Egypt, boosting the most populous Arab country’s ability to tackle economic challenges posed by the coronavirus.
The approval on Friday by the IMF executive board will enable an immediate disbursement of about $2 billion, with the remaining funds phased over two reviews, the Washington-based lender said.
The SBA will address balance-of-payments financing needs arising from the pandemic and help finance the budget deficit.
The one-year agreement follows Egypt’s securing of $2.8 billion under the fund’s Rapid Financing Instrument last month to help cover a coronavirus-related funding gap. That move has already showed signs of fueling confidence among investors in the country’s debt.
The SBA together with the RFI support “authorities’ ongoing efforts to mitigate the economic and social impact of the crisis while maintaining macroeconomic stability and safeguarding past achievements, Antoinette Sayeh, the IMF’s deputy managing director, said in a statement.
The North African nation last year wrapped up a sweeping IMF-backed reform program that had included a $12 billion loan and restored macroeconomic growth after the 2011 uprising in which President Hosni Mubarak was ousted.
“Egypt was one of the fastest-growing emerging markets prior to the Covid-19 outbreak. However, the significant domestic and global disruptions from the pandemic have worsened the economic outlook and reshuffled policy priorities, according to the IMF.
“As the economic recovery takes hold, fiscal policy will need to work toward resuming the downward trajectory of public debt. The Central Bank of Egypt aims to continue to provide a stable anchor for inflation expectation and financial stability while rebuilding reserve buffers and allowing orderly exchange-rate adjustments, the fund said.
Egypt raised $5 billion in May in its largest-ever issuance in international bond markets. It’s also seeking to secure $4 billion from other, non-IMF sources, an official told Bloomberg.
Egypt saw its largest-ever capital outflows of about $17 billion in March and April. Its main sources of hard currency — tourism, remittances and Suez Canal receipts — are all facing disruptions caused by the virus.
That turbulence has been seen in net international reserves, which declined to $36 billion by end-May from $45.5 billion in February. The central bank partially covered the pullback of overseas portfolio capital through its repatriation mechanism, which guarantees investors can withdraw profits in hard currency.
The IMF agreements have helped restore Egypt’s appeal to fixed-income investors, with the country seeing net capital inflows this month for the first time since the end of February, according to Cairo-based investment bank EFG Hermes.
“Maintaining social cohesion during this crisis period will be paramount for the success of the program, the IMF said.
“Enhanced communication and transparency around the policies and their implementation will be crucial to ensure broad support for the government’s reform efforts on behalf of the Egyptian people.