The International Monetary Fund (IMF) and Egypt reached a staff-level agreement to unlock the second tranche of the $12bn, three-year loan programme, the Washington-based fund said in a press release on Friday.
“The IMF staff team and the Egyptian authorities have reached a staff-level agreement on the first review of Egypt’s economic reform programme supported by the IMF’s $12bn arrangement,” the IMF said.
The statement followed a visit by an IMF team last week to conduct a review of Egypt’s reform efforts to decide when the next $1.25bn would be disbursed.
“The staff level agreement is subject to approval by the IMF’s executive board. Completion of the review would make available about $1.25bn, bringing total disbursements under the programme to about $4bn,” it added.
Last November, the IMF clinched a deal with Egyptian authorities on a three-year loan programme and paid out $2.75bn of the first $4bn tranche of the loan.
Egypt’s Central Bank Governor, Tarek Amer, said that the deal is a new vote of confidence in the local economy.
“This deal is telling foreign investors that we are taking the right steps to revive the economy,” Amer told state-run MENA news agency.
“We are expecting more foreign inflows, which could spur growth and development,” he added.
The IMF described the agreement as a “testimony to the great efforts the government and the Central Bank of Egypt (CBE) have been making to reform the economy.”
“The authorities’ economic reform process is off to a good start,” it confirmed.
“The liberalisation of the exchange rate, as well as the introduction of a value-added-tax and continuing with energy subsidy reform to strengthen the fiscal position, have all had significant effects. Foreign exchange shortages are resolved, and interbank market activity is recovering.”
Egypt, which floated its currency last November, introduced a series of austerity measures, including tightening fiscal policies, reducing subsidies, and raising taxes.
The fund also said it supports the CBE’s objective to bring down the rate of inflation to single digits over the medium term consistent with its price stability mandate.
“We are confident that the central bank has the tools to achieve this.”
The IMF called on the CBE to raise interest rates as a means to tame the rising inflation.
Egypt’s inflation extended its rally in April, standing at 32.9% year-on-year (y-o-y), the highest in almost 30 years, according to official data released on Wednesday.
On 23 April, IMF managing director Christine Lagarde said at a press conference that Egyptian policymakers need to put special focus on inflation.
Following Lagarde’s statements, IMF’s director for the Middle East and Central Asia, Jihad Azour, said in a press conference that “interest rates are the right instrument to manage Egypt’s inflation.”
“The authorities see reducing inflation as a key priority for safeguarding the welfare of people across Egypt. We support the CBE’s objective.”
“Egypt has regained investors’ confidence, as shown in the great appetite for Egypt’s Eurobond sale in January 2017, and private sector remittances and portfolio investments have increased considerably.”
The IMF also said that the manufacturing sector—key for job creation—is witnessing a strong rebound, while exports have increased significantly.