Tough choices ahead for Egypt as IMF delays next review until October

Negotiations have been under way between Egypt and the International Monetary Fund (IMF) for the fourth review of the loan programme offered by the global lender to be held on time, amid news of the meeting being rescheduled for October.

"Any delay is likely to place Egypt in an unenviable position for the government is committed to cover due payments in US dollar to foreign oil and gas companies amid a shortage of foreign cash," an Egyptian government official told The New Arab on condition of anonymity for not being authorised brief the media.

"The government is expected to face a shortage of cash to cover for foreign debt in case the review meeting is delayed," the senior official added, without elaborating further. 

Earlier this week, unconfirmed regional news outlets reported that Egypt had not reportedly fulfilled the stipulations qualifying for the coming review, prompting the IMF to postpone the meeting, initially scheduled on 15 September, for a month. 

Upon completion of the fourth review, Egypt is expected to receive US$ 1.3 billion as part of the IMF's extended fund facility (EFF).  

Neither the Egyptian government nor the IMF have yet officially commented on the possible delay till the publication time.

On Monday 26 August, the IMF released this week its official report about its third review of Egypt, detailing suggestions for economic reform for the government to follow.

The report concluded that revenues derived from Egypt's sources of national income had declined for months due to regional turmoil, which include the Suez Canal due to the tension in the Red Sea.

In March 2024, the IMF extended Egypt's loan programme from US$ 3billion to US$ 8 billion after long negotiations.

The IMF recommended a more aggressive approach to the liberation of the Egyptian economy from state control.

"While there has been progress on some critical structural reforms, greater efforts are needed to implement the State Ownership Policy (SOP). Such measures include accelerating the divestment program, pursuing reforms to streamline business regulations to set up new firms, expediting trade facilitation practices, and creating a 'level playing field' that avoids unfair competitive practices by state-owned companies," the report noted.

Running out of options

Amid an unforgiving economic crisis, foreign debts, and a significant budget deficit, Egypt had already resorted to the sale of state assets to address such challenges.

In February, also this year, Egypt and the United Arab Emirates signed an investment partnership to develop the Ras al-Hekma (also spelt al-Hikma) Mediterranean. The deal, worth US $35 billion, is meant to bolster Egypt’s economic growth and address the ongoing foreign currency crisis.

"Bolstering financial sector resilience and the governance practices and competition in the banking sector should also be key priorities. These measures are crucial for steering Egypt toward private-sector-led growth that can generate jobs and opportunities for everyone," the report said.

In February this year, Egypt and the United Arab Emirates signed an investment partnership to develop the Ras al-Hekma (also spelt al-Hikma) Mediterranean. The deal, worth US$ 35 billion, is meant to bolster Egypt’s economic growth and address an ongoing foreign currency crisis.

"The allocation of a portion of the financing from the Ras El-Hekma deal to reserve accumulation and debt reduction provides an additional cushion against shocks," the report suggested. 

In July, Egypt's annual urban inflation eased to 25.70 per cent compared to 27.50 per cent in the prior month based on official numbers. It remained above the 5 to 9 per cent limit of the Central Bank of Egypt, though.

Among the controversial measures taken by Egypt to meet the IMF loan provision was liberation of the local currency against the US dollar. The move has ended a parallel, informal market where the value of the American amounted to almost 100 per cent higher than its official rate.

However, IMF argued in the report Egypt did not meet several structural benchmarks under the third review, expecting the North African country to fully lift fuel subsidies by December 2025 to fulfil the deal terms.

The IMF deal stipulates that Egypt must gradually lift subsidies on other basic good and electricity and reduce tax exemptions.

Such measures, already taken gradually over the past months, have been sparked an uproar in the Arab World's most populous country, where almost one-third of about 106 million population is under the poverty line.

Earlier this year, the government raised the price of subsidised bread by 400 per cent, the first increase since 1988, further adding to a general state of discontent towards the government’s performance, especially among poor and limited-income households.