Egypt turns to IMF seeking help for economy

Food importer: An Egyptian man works in a bakery at a market in Cairo. Surging prices of energy and grains as a result of the Ukraine war, along with rising interest rates in the developed world, have increased the risks to its economy. — AFP

CAIRO: Egypt is seeking support from the International Monetary Fund (IMF), possibly including a new loan, as its economy comes under pressure amid the fallout from Russia’s war in Ukraine.

Egypt’s Cabinet said the country had requested discussions on a new programme that “may include additional financing”.

Earlier on Wednesday, IMF mission chief Celine Allard said fund staff were “working closely” with officials in Cairo to prepare for talks on a programme that would “mitigate the impact of this shock on the Egyptian economy”.

Bloomberg News reported last week that Egypt was in talks with the IMF on possible support that could include a loan.

Egypt is one of the Middle East’s most indebted nations, and a major food importer.

Surging prices of energy and grains as a result of the Ukraine war, along with rising interest rates in the developed world, have increased the risks to its economy.

This week, the central bank allowed the Egyptian pound – which had been stable against the dollar for about two years – to weaken by more than 15%, and raised interest rates for the first time since 2017.

“The authorities’ recent actions to expand targetted social protection and implement exchange rate flexibility are welcome steps,” the IMF said.

“Continued exchange rate flexibility will be essential to absorb external shocks and safeguard financial buffers.” The most populous Arab nation has been one of the IMF’s biggest borrowers in recent years.

It agreed to a three-year, US$12bil (RM51bil) loan programme in 2016 – including a currency devaluation – which succeeded in rekindling interest among foreign investors in an economy that had been battered by the 2011 Arab Spring uprising and later political tensions.

In 2020, Egypt secured a US$5.2bil (RM22bil) stand-by arrangement as well as US$2.8bil (RM12bil) under the IMF’s Rapid Financing Instrument, helping authorities tackle the impact of the coronavirus.

The IMF support, along with a high inflation-adjusted interest rate, had made Egypt a favourite among international investors, who pumped billions of dollars into its local debt market.

Egypt’s Cabinet said Wednesday that an “increasing state of uncertainty and panic among investors led to the decline and exit of their investments from many emerging countries”.

In addition to seeking IMF support, Egypt’s government may be turning to some of its oil-rich allies in the Arab world for financial aid.

The United Arab Emirates has agreed to invest about US$2bil (RM8.4bil) in the country, according to people familiar with the deal. — Bloomberg

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