Will another IMF loan solve Egypt’s problems?

Egyptian authorities met with IMF staff on the sidelines of the IMF and the World Bank annual meetings held in Washington over October 10 – 16 to discuss the soon-to-be-announced economic reform package. A statement released by IMF Spokesperson, Gerry Rice, notes that the Egyptian authorities had held “very productive in-person discussions” and a Staff-Level Agreement is expected to be reached “very soon”. The loan would be the fourth engagement with the multilateral institution since 2016, potentially taking the funds borrowed to over $20bn, begging the question of whether another IMF loan will really solve Egypt’s economic problems? Our conclusion: it will help, but it is not the cure. Political will to stick with the reform agenda, which has been lacking following previous IMF commitments, is needed.

What you will learn:

• The latest press release from the IMF gives an idea of the key policy areas expected to be on the reform agenda, and not much has changed. Fiscal consolidation, safeguarding public debt sustainability, currency flexibility, enhancing the private sector, reducing the role of the state in the economy, et cetera − we’ve heard it all before.
• Too often we have seen a pickup in enthusiasm towards the reform agenda in the run-up to IMF deals, followed by a loss in momentum thereafter. If the Egyptian authorities really want to solve their economic woes, they need to remain committed to the reform agenda, regardless of whether an IMF deal is in the picture or not.
• Another IMF deal will certainly give renewed impetus to the reform agenda, which is essential for restoring investor confidence and opening the floodgates for loans from other creditors. It will also give the external position a much-needed boost, but it will not plug Egypt’s huge external financing shortfall, which is estimated at around $40bn this year.