Governor of Egyptian Central Bank Tarek Amer announced on Thursday that negotiations on a 12 billion U.S. dollars loan with the International Monetary Fund (IMF) have succeeded, which would help reactivate the North African country’s staggering economy.
“The three-year loan will be part of a 21 billion U.S. dollar Egyptian economic program,” Amer told a joint press conference with officials from Egypt’s Ministry of Finance and the IMF delegation in Cairo.
Egypt is witnessing an unprecedented devaluation of its currency, with the exchange rate of the U.S. dollar once exceeding 13 Egyptian pounds on the the black market, the first time in Egypt’s modern history.
The Central Bank of Egypt has been suffering from dwindling foreign currency reserves over the past five years, falling from 36 billion dollars in early 2011 to 17.5 billion dollars as of the end of May 2016.
The country’s main sources of foreign currency, including tourism, the Suez Canal and the remittances of Egyptian expatriates, declined over the past few years, forcing the government to seek IMF funding to help cover the shortage.
Amer said talks on a loan started four years ago, but were suspended two years ago.
He said the IMF’s initial approval to lend to Egypt reflects confidence in the Egyptian economy, and that more loans from other international financial institutions are expected.
The initial agreement announced Thursday will still have to be formally approved by the IMF.
An IMF mission led by Chris Jarvis visited Cairo from July 30 to Aug. 11 to discuss measures supporting the Egyptian authorities’ economic reform program through its financial assistance.
“This agreement is subject to approval by the IMF’s Executive Board, which is expected to consider Egypt’s request in the coming weeks,” Jarvis said in a statement released on Thursday.
“Egypt is a strong country with great potential but it has some problems that need to be fixed urgently,” Jarvis said.
“The EFF supports the authorities’ comprehensive economic reform program as stated in the government plan approved by the parliament,” he said, using the loan’s formal name, Extended Fund Facility (EFF).
Jarvis said he expects Egypt’s public debt to go down from 98 percent of its gross domestic product (GDP) to about 88 percent within the program.
He said the Egyptian government recognizes the need for quick implementation of economic reforms for the country to restore macroeconomic stability and to support strong, sustainable and job-rich growth.
“The program aims to improve the functioning of the foreign exchange markets, bring down the budget deficit and government debt, and to raise growth and create jobs, especially for women and young people,” Jarvis said. “It also aims to strengthen the social safety net to protect the vulnerable during the process of adjustment.”
He also referred to the implementation of a value-added tax (VAT) after parliamentary approval, adding that the Egyptian government “will continue the program begun in 2014 to rationalize energy subsidies.”
“With the implementation of the government reform program, together with the help of Egypt’s friends, the Egyptian economy will return to its full potential,” Jarvis said.
He said the IMF has talked to colleagues in the World Bank and the African Development Bank who expressed willingness to help.
“It would also be very helpful for Egypt’s bilateral partners to step forward at this critical time,” he said. – Xinhua