IMF to assist Cairo with $2.5 billion dollar loan for pandemic effort

The new epidemic has virtually dried up tourism revenues, the source of about $12.6 billion a year.
Tuesday 12/05/2020
Empty Sphinx complex of the Giza Pyramids in Egypt. (AFP)
Shortfall. Empty Sphinx complex of the Giza Pyramids in Egypt. (AFP)

CAIRO –The Egyptian government continues to borrow from abroad as it seeks additional budget resources to face the economic fallout of the coronavirus pandemic.

The International Monetary Fund (IMF) has agreed to lend Egypt $2.7 billion in emergency assistance. This came after the country secured a $12 billion bailout package from the IMF in 2016 in exchange for floating the currency, bringing Cairo’s total borrowing from the fund to $14.7 billion.

Through the new loan, Cairo is seeking to gain the trust of international investors in its economy’s ability to meet their needs and requirements.

The country found itself unable to achieve its immediate goals amid the pandemic without borrowing and building its foreign currency reserves again, although the levels of foreign exchange reserves were enough to cover its non-oil merchandise imports for eight months at their current levels.

According to the latest data, the value of merchandise imports amounts to $54.9 billion, with an average of $4.6 billion a month.

The new epidemic has virtually dried up tourism revenues, the source of about $12.6 billion a year.

This shortfall limited foreign currency resources used to finance the purchase of imported products needed for the manufacture of exports to a level of about $16.9 billion.

Basant Fahmy, a member of the Egyptian parliament’s economic affairs committee, said that Egypt faces a large deficit as a result of the losses in foreign currency revenues, the decline in remittances from Egyptian expatriates and the slowdown in the revenues from the Suez Canal as a result of the global recession.

Remittances from Egyptian workers abroad are the country’s main source of foreign currency, bringing in some $25.1 billion last year.

Egyptian workers are now returning from Gulf countries in even larger numbers than during the 2008 crisis.

Economist Yasser Emara said that the government seeks to simulate the same 2016 scenario after liberalisation of the exchange rate regime. Unable to secure foreign investment at that point, Egypt had to rely on the IMF. It hopes to use this loan to draw in more investors in the future.

The country’s overall external debt has already been on the rise, hitting $112.6 billion at the end of last December, from $96.6 billion at the end of December 2018.

Economists have warned against pursuing a policy of heavy borrowing as it increases the burden of future generations.

The per capita share of Egypt’s external debt is about $1,126 dollars, a figure that is expected to rise with the rapid pace of borrowing.

Economists say Cairo needs to confront its economic problems by trying to develop non-hydrocarbon industrial production to limit the items it currently imports from abroad, especially in the food sector. It also needs to find solutions to manufacturing problems that hinder its  value-added output.