Egypt: Likelihood of IMF agreement increases

During last month’s IMF-World Bank annual meetings, it was stated that the Egyptian authorities have requested an Article IV consultation mission from the IMF, which expects the mission to take place in the course of November.

Moreover, the IMF recognised that some economic stabilisation has been achieved and that fiscal consolidation has started, which could support investor confidence, but also that ‘more needs to be done to create an economic environment for growth and jobs going forward’.

Impact on country risk

The recent statements indicate that the likelihood of the conclusion of an IMF loan in the coming year is increasing. Such a loan – and the economic policy program it entails – would free IMF and bilateral financial support.

Moreover (and perhaps more importantly) it could provide some comfort for foreign investors with regard to Egypt’s longer term financial-economic stability. Indeed, Egypt remains very dependent on financial support from friendly GCC countries, which amounted to an estimated USD 20 billion during fiscal year (FY) 2013/14.

This support was vital to stabilise the country’s ailing foreign exchange reserves (currently covering around 2.5 months of imports) and to mitigate its very large public deficit, from 14% of GDP in FY 2012/13 to 12.2% in FY 2013/14 (after grants, which amounted to more than 4% of GDP) but it is not a long-term solution.

Reforms of energy subsidies and taxation have already started in order to address Egypt’s fiscal and external imbalances, but more measures will be required. This could still incite resistance in different segments of the population, but for the time being,

President Sisi’s rule looks sufficiently solid to overcome such opposition.

Country risk analyst, Daan Rowies, Credendogroup

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