Egypt’s preliminary deal for a $12bn IMF loan programme can go to the board for approval only if the government secures $5-6bn in bilateral financing for the first year, Chris Jarvis, the head of the IMF mission in Cairo, said on Thursday. The International Monetary Fund (IMF) said earlier it had agreed in principle to grant Egypt a $12bn three-year facility to support a government reform programme aimed at plugging a budget gap and rebalancing the currency market.
The long-awaited deal is subject to final approval by the IMF executive committee, which should meet in the coming weeks. Asked if anything could yet preclude board approval, Jarvis told Reuters: “One key element that remains to be sorted out is we need to ensure that the programme is fully financed.”
“There’ll be a need for more financing in the first year of the programme. We need to ensure that that would be there before we go to the board. One of the things we are looking for is about $5- 6bn in bilateral support for Egypt,” he said in an interview. Egypt has secured pledges from the United Arab Emirates and Saudi Arabia for about $4.5 billion, but that money has yet to materialise. Jarvis did not say if the bilateral lending was expected to come from Gulf countries, which have showered Egypt with billions in aid since Abdel Fatah al-Sisi, now president, toppled the Muslim Brotherhood in mid-2013.
Egypt agreed in December a $3bn World Bank loan programme and a $1.5bn African Development Bank (AfDB) programme, both to be disbursed over three years. Jarvis said the World Bank would release the first $1bn once a law introducing Value Added Tax (VAT) was passed by parliament and the government was in talks to release the second $500m tranche of AfDB money.
The IMF programme was agreed on the basis of a government reform programme that includes subsidy cuts and VAT.
The IMF also wants Egypt to focus monetary policy on easing the chronic dollar shortage by moving to a flexible exchange rate regime while reducing inflation to single digits. However, Jarvis said Egypt could receive the first $2.5bn tranche immediately after board approval. “The situation would be rather different than the World Bank loan where there was a gap between board approval and disbursement. Here, once we get to the board we are good to go and the disbursement will follow very quickly,” Jarvis said.
Asked if this could be as early as September, he said: “it could be.” The remaining tranches would be disbursed based on periodic reviews to ensure government measures were “consistent with the objectives of the programme”, he said. The first review would be in February or March and bring a disbursement of $1.5bn. The rest would be paid in four instalments of $2bn over the ensuing two years, he added.
Egypt had reached two staff-level agreements with the IMF in the past that never made it to the board due what Jarvis described as a lack of political will to implement reforms. This time, he said, commitment from the government, central bank and presidency appeared strong. Egypt will make the case that this support needs to come earlier in the programme to help provide a cash cushion as the country moves to a more flexible exchange rate regime, he added. “If there’s ever a time to support Egypt’s balance of payments, this is it, at the start of this reform programme,” he said.