Money Matters - Simplified

IMF agrees on $3bn loan for Egypt

The Egyptian government is struggling to fund a budget deficit of around $20 billion, and has sought financial help from multilateral financial institutions.

The International Monetary Fund (IMF) will give a loan of $3 billion to Egypt to enable the country come out of the financial quagmire that it finds itself in.

The loan, which has been offered subject to certain conditions, will be used by Egypt to tide over its cash crunch. The country is staring at a $10 billion budget deficit as it enters the next fiscal beginning July this year.

Ailing economy
The tourism industry, which was so very critical to the economy of Egypt, has taken a major beating since president Hosni Mubarak was ousted in February earlier this year.

The pro-democracy uprising and the political unrest in the country has thwarted the foreign investment as well.

With unemployment rate of over 10 percent, the revival and sustained survival of the economy hinges on the new government that is to be chosen later this year.

Egypt has received financial support from other quarters as well. Saudi Arabia, the third-largest Arab country, has provided $4 billion in grants and loans. The World Bank has granted $4.5 billion over two years by way of loans to the ailing economy.

Given the circumstances, the one-year loan bearing a below-market interest rate of 1.5 percent, is a real blessing. The said loan from IMF has to be repaid within 5 years.

"Of course the IMF in Egypt is usually linked to conditionality-this is the history of the IMF. This loan does not require any kind of conditionality as it did in the past,” Egypt's finance minister, Samir Radwan said of the soft conditions associated with the loan.

The ‘home grown’ financial plan
The loan would help the world’s most populous Arab nation fulfil its “home-grown” financial plan that entails an increase in subsidies for food and fuel.

As a part of the financial plan the taxes will be raised but so will the minimum wage rate. The overarching objective of the plan is to promote social justice.

Ibrahim El Essawy, an economist and former member of Egypt's leftist Al Tagammu Party opined that the government was adhering to the old system of administration.

“They said we will not change our economic policy except in some minor details, referring to some slight reforms on taxes and imposing a moderate minimum wage and so on,” opined Essawy.

Egypt has received financial support from other quarters as well.

Saudi Arabia, the third-largest Arab country, has provided $4 billion in grants and loans. The World Bank has granted $4.5 billion over two years by way of loans to the ailing economy.