Egypt plans to renew financing deal with global banks

With the aim to boost foreign reserves while the government implements economic reforms, Egypt’s financing agreement with a consortium of global banks is expected to be renewed for another year.

The repurchase financing agreement of $2 billion that had a one year maturity guaranteed that banks provided funds against international bonds issued by the finance ministry and listed on the Irish stock.

Speaking at an interview, Egyptian Finance Minister, Amr El-Garhy said “I think the central bank will renew it. It is a joint decision between the central bank and the finance ministry”.

Battered by political and economic upheaval, the Egyptian government has embarked on an ambitious reform program and  has taken decisive measures aimed at rising macroeconomic stability and sustainable public finance.

One of the measures taken to revive the country’s economy included signing a $12 billion, three-year financial bailout program with the International Monetary Fund in 2016 and receiving two tranches of the loan worth $4bn over the year. The government then floated its currency, the pound, cut fuel and energy subsidies and increased taxes.

The central bank has since boosted a key interest rate by 700 basis points in a bid to ease inflation pressures that fueled foreign buying of government Treasury bills which is said to remain strong.

Commending the Egypt’s economic reform programme on the sidelines of the annual meeting of the International Monetary Fund (IMF) and the World Bank in Washington, D.C, World Bank President Jim Yong Kim said “Egypt’s economic reform programme is moving on the right track and as a result of the economic reforms, especially the step of reducing subsidies, Egypt’s government implicitly saved about $13bn for low-income citizens”. He stressed that the reforms made investors more confident in the Egyptian economy.

On the other hand, IMF Mission Chief to Egypt, Subir Lall said “we have seen that economic activity in Egypt has been gathering strength and efforts at reining in the budget deficit have begun to bear fruit. With the liberalization of the foreign exchange market, foreign currency shortages have disappeared. Looking ahead through the end of this year and into next year, the policy mix is also supportive of a decline in inflation from the high levels in the summer”.

The World Bank expected that Egypt’s budget deficit will decline to 8.8% of GDP in fiscal year (FY) 2017/18. Meanwhile, Egypt’s GDP growth is predicted to stand at 4.5% in FY 2017/18 and to grow gradually to reach 5.3% by 2019. In the same context, inflation will decrease to 23.3% this FY and to 22.1% in FY 2018/19. It is expected to fall to 14% by 2019. World Bank noted that Egypt would have to tighten its fiscal policy, if the same inflation rate continues, which will affect economic growth.

El-Garhy noted that “the government’s goal is to attract more investment and create a steady 6 percent economic growth rate over the next five to seven years, starting in fiscal year 2018/19”. People have to be sure that we have a strong macro/fiscal consolidation that would basically facilitate the decision making process for investors to come into the country, with a focus on tourism, agriculture and technology, he added.