Author(s): Bessma Momani
On November 11, 2016, the International Monetary Fund (IMF) and Egypt signed a $12 billion loan agreement with the aim of “addressing macroeconomic vulnerabilities and promoting inclusive growth and job creation.” Prior to the IMF program, these vulnerabilities included an overvalued exchange rate (and the corresponding rise of a parallel, or black market, exchange rate); foreign exchange scarcity, which severely undermined private sector activity; a dramatic drop in foreign exchange reserves; large fiscal deficits; and a high level of public debt.
Accordingly, key features of the IMF’s three-year Extended Fund Facility (EFF) program have included the liberalization of the exchange rate regime (i.e. floating the Egyptian pound), fiscal consolidation to lower budget expenditures, tax increases, deep structural reforms, and lifting business regulations to spur economic growth. The EFF program was also expected to secure an additional $3 billion from the World Bank, $1.5 billion from the African Development Bank, and $6 billion from bilateral donors.
While the program has technical merits, critical political challenges to its implementation remain, and thus it may fall well short of its goal to lay a foundation that can help transform the Egyptian economy. Lack of investor confidence in President Abdel-Fattah el-Sissi’s government may also upend the IMF-Egypt agreement….
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