A major IMF deal for Egypt involving a credit of up to $12bn could be finalised by September, Fitch Ratings says in a report released today.
“Securing an IMF funding deal would be credit positive for Egypt, but implementation risks are high and the country will continue to face several economic challenges,” Fitch Ratings says. “Egypt has requested financial support, and an IMF visit to Cairo started on 30 July. The finance minister has said that Egypt is seeking USD12bn over three years.”
Fitch Ratings says the Egyptian government is aiming to raise a total of $21bn over the next three years.
“In our opinion, this could still fall short of Egypt’s total financing needs, which we estimate could be closer to $10bn annually, but a package would also likely stimulate some return of portfolio investment inflows,” Fitch Ratings says. “By supporting Egypt’s external finances, a deal would pave the way for further necessary currency devaluation. A deal would also speed up fiscal reform and boost confidence in the economy, currently struggling with a budget deficit of close to 12 per cent of GDP, mediocre economic growth and double-digit inflation.”
The 2015 current account deficit widened to close to 5 per cent of GDP. Egypt’s foreign currency reserves were $17.5bn at end-June 2016. The Central Bank of Egypt devalued the pound by 14 per cent in March 2016.
“…seeking IMF support is politically contentious in Egypt and we expect some opposition to a deal,” Fitch says. “To counter this, the government will argue that it is pursuing its own economic programme and the IMF agreement would be in support of this, rather than imposing policies.”
“Considerable implementation risks remain,’ Fitch Ratings says. “An IMF programme is likely to include provisions to move to a more flexible exchange rate, wide-ranging fiscal measures including implementation of VAT and further subsidy reductions, and ongoing civil service reform.”
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