The International Monetary Fund (IMF) has approved a US$3 billion loan for Egypt which aims to help the country meet the balance of payments need and provide support to the budget.

The additional funds should make it easier for importers to obtain letters of credit (L/Cs) that have been increasingly hard to come by this year as a result of the exposure of Egypt - one of the world's largest wheat importers - to soaring commodity and oil prices in the wake of Russia's invasion of Ukraine.

Leveraging financing

The extended fund facility (EFF) provided by the IMF is expected to catalyse additional financing of about US$14 billion from Egypt's international and regional partners, including new financing from Cairo's allies in the Gulf states as well as other international partners.

The IMF anticipates that these funds will be raised through the ongoing divestment of state-owned assets as well as traditional forms of financing from multilateral and bilateral creditors.

Private sector growth

The authorities' economic programme supported by the EFF arrangement envisages the implementation of a comprehensive policy package to preserve macroeconomic stability, and pave the way for sustainable, inclusive, and private sector led growth.

The package includes a permanent shift to a flexible exchange rate regime, monetary policy aimed at gradually reducing inflation and wide-ranging structural reforms.

While the IMF package is expected to make it easier for importers to access L/Cs, the central bank's recent loosening of restrictions on import L/Cs (DC World News, 16 December 2022) could put pressure on the Egyptian pound.

This article represents the views of the author and not necessarily those of the ICC or Coastline Solutions.