Egyptian President Abdel Fattah El-Sisi warned last Sunday that Egypt may have to reevaluate its $8 billion program with the International Monetary Fund if international institutions do not take into account the unusual regional challenges facing the country.
Al-Sisi believed that the economic reform program with the IMF may need to be reviewed and reconsidered, as economic pressures have imposed an unbearable burden on Egyptians who are suffering from the resulting price increases.
1) What does review mean?
Reviewing Egypt’s position with the Fund means reopening economic reform programs and postponing some of them for later periods, to mitigate the shock of their consequences on the local consumer.
Anadolu Agency quoted an unnamed source in the International Monetary Fund as saying that the international institution is determined to move forward with the reform plan without change, according to the timetables previously set with the Egyptian government.
The source said: “Among the reforms that have not yet been completed are the complete lifting of fuel subsidies, in addition to the lifting of electricity subsidies for some consumer segments, and the state’s exit from dozens of companies operating in the country.”
Egypt announced more than one deal during the current year in which it sells state shares in several companies for the benefit of the local private sector.
If disagreements arise between the two sides regarding the dates for implementing reforms, the Fund may move to postpone program reviews with Egypt, which will postpone the delivery of new tranches of the $8 billion loan.
In fact, the Fund announced at the beginning of this October that its review of Egypt, which was scheduled for this month, was postponed until next November, without giving reasons.
2) Why does Egypt want to review the agreement?
Going back to November 2022, at that time, Egypt agreed with the Fund on an economic reform program accompanied by a loan worth $3 billion, before it was suspended in 2023, due to disagreements between the two sides, most notably Cairo’s refusal to float the pound.
Cairo has been severely affected by the Russian-Ukrainian war since February 2022. This resulted in an increase in the bill for imports of goods denominated in foreign exchange, which led to a decline in the abundance of the dollar, and this was exacerbated by the exit of more than $20 billion in foreign investments in Egyptian debt instruments.
In 2023, the foreign exchange market in Egypt worsened, prompting the emergence of a black market for the currency. This was accompanied by the Fund suspending reviews of its reform program with Cairo, which usually results in disbursing a segment of the financial loan.
The reason for the dispute at that time was Egypt’s refusal to liberalize the exchange rate of the pound.
But with the outbreak of the Israeli war of genocide on the Gaza Strip, in October 2023, incoming tourism to Egypt declined, and then ship transit from the Suez Canal declined, as their revenues, along with exports, are among the country’s most important sources of foreign exchange.
In early 2024, the International Monetary Fund spoke on more than one occasion about Egypt being harmed by geopolitical tensions in the region, until it was agreed to expand the previous loan from 3 billion to 8 billion dollars, which was announced last March.
3) What warnings does Egypt fear?
Last March, Cairo liberalized the exchange rate of the pound, and as a result it fell against the dollar from 31 to about 50 pounds, before it fell slightly to the range of 48.6 pounds at the present time, according to data from banks operating in Egypt.
In the same month, Egypt raised fuel prices by up to 10%, followed by raising the price of subsidized bread by 300% from 5 piasters to 20 piasters per loaf.
Transportation prices and metro tickets also increased last July, the same month in which Egypt implemented a second increase in the prices of fuel sold to the final consumer, in addition to various increases in the prices of domestic and industrial gas.
Last August, Egyptian Prime Minister Mostafa Madbouly said that the government would gradually lift fuel subsidies, bringing them equal to the cost price by the end of 2025.
Last week, Egypt implemented a third increase in fuel prices by 17.4%, which raises fears of increases in the prices of transportation and food commodities, for which fuel is one of the production inputs.
Annual consumer price inflation in the Egyptian market rose last September to 26%, up from 25.6% in the previous August, an increase for the second month in a row.
