The Executive Board of the International Monetary Fund (IMF) has approved Egypt’s request for emergency financial assistance of SDR 2,037.1m ($2.772bn) under the Rapid Financing Instrument (RFI) to meet the urgent balance of payments needs stemming from the outbreak of the COVID-19 pandemic.
In a Monday press statement, the IMF said Egypt achieved a remarkable turnaround prior to the COVID-19 shock, carrying out a successful economic reform programme supported by the IMF’s Extended Fund Facility (EFF) to correct large external and domestic imbalances.
Egypt last month requested fresh assistance from the IMF under both a stand-by agreement and the RFI, saying it was needed to shield the Middle East’s fastest-growing economy from the pandemic fallout.
IMF said the pandemic posed an immediate and severe economic disruption that could negatively impact Egypt’s hard-won macroeconomic stability if not addressed. The Fund added that the RFI will help alleviate some of Egypt’s most pressing financing needs, including spending on health, social protection, and supporting the most impacted sectors and vulnerable groups.
Also, the IMF will remain closely engaged with the Egyptian government and the Central Bank of Egypt (CBE), to provide policy advice and further support, as needed, the statement read.
“The COVID-19 pandemic has drastically disrupted people’s lives, livelihoods, and economic conditions in Egypt. The global shock has resulted in a tourism standstill, significant capital flight, and a slowdown in remittances, resulting in an urgent balance of payments need,” said Geoffrey Okamoto, First Deputy Managing Director and acting Chair.
“The government of Egypt has responded to the crisis with a comprehensive package aimed at tackling the health emergency and supporting economic activity. The authorities acted swiftly to allocate resources to the health sector, provide targeted support to the most severely impacted sectors, and expand social safety net programmes to protect the most vulnerable. Similarly, the CBE adopted a broad set of measures, including lowering the policy rate and postponing repayments of existing credit facilities,” he added.
Okamoto explained that the new loan will limit the decline in international reserves and provide financing to the budget for targeted and temporary spending, aimed at containing and mitigating the economic impact of the pandemic. “The authorities are committed to full transparency and accountability on crisis-related spending including through publishing information on procurement plans and awarded contracts, as well as ex-post audits of such spending,” he added.
Okamoto concluded that Egypt still needs additional expeditious support from multilateral and bilateral creditors to close payments gap, ease the adjustment burden, and preserve Egypt’s hard-won macroeconomic stability.