Hike funding

Egypt in IMF talks on possible financing amid war pressures

(Bloomberg) – Egypt is in talks with the International Monetary Fund over possible support that could include a loan, as shock waves from the war in Ukraine add pressure to the North African country’s economy.

Bloomberg’s Most Read

Discussions focus on several options, including a so-called precautionary and liquidity line – credit that can be drawn on if needed – or some other form of financial assistance, according to people familiar with the matter. They asked not to be identified because the talks are confidential.

A non-financial arrangement such as a so-called policy coordination instrument, where reforms are discussed and agreed, is also on the table, one of the people said. Egyptian officials are still in talks with the Washington-based lender over what might be the best option given the difficult global environment, the people said.

Egypt’s finance ministry and central bank did not respond to requests for comment. In response to questions, the IMF’s mission chief for Egypt, Céline Allard, did not answer whether the talks were taking place, but said that “we continue to monitor the situation closely and remain closely engaged with the authorities. Egyptians”.

Egyptian dollar bonds rose on Thursday, with the yield on the 2032-maturity note down three basis points to 9.95% at 10:50 a.m. London.

This awareness underscores the urgency of securing support at a time when the combination of soaring commodity and energy prices and a wave of global monetary tightening is straining the economy of one of the most indebted countries in the Middle East. Egypt had preliminary discussions on assistance before the Ukrainian war.

Egyptian officials have acknowledged that the invasion of Ukraine will have economic repercussions which the state is working to mitigate.

more expensive food

The world’s largest wheat importer, Egypt will see “lower tourist flows, higher food prices and greater funding challenges”, Fitch Ratings said this week. Russians and Ukrainians previously accounted for around a third of all tourist arrivals, while the war is “also increasing Egypt’s vulnerability to non-resident investment outflows from its local currency bond market”, it said. he declares.

Egypt has been a favorite in recent years for supervised portfolio investors who have funneled billions of dollars into its local debt market. These inflows, boosted by high real yields and earlier IMF deals, have been an important buffer during the pandemic as international tourism receipts have suffered.

In 2020, Egypt secured a stand-by arrangement of $5.2 billion as well as $2.8 billion under the IMF’s Rapid Financing Instrument, helping the authorities deal with the impact of the coronavirus pandemic.

The country embarked on a three-year IMF program in late 2016, accepting a $12 billion loan while sharply devaluing the currency and cutting subsidies. These moves have helped revive investor interest in the battered economy following the 2011 uprising that toppled President Hosni Mubarak.

Fitch said this week that a new IMF program was among “the policy options available to the Egyptian authorities to shore up the country’s external position.” It is also possible that Arab allies in the Gulf will use an influx of funds from rising oil prices to support Egypt, he said.

Read: Biggest wheat buyer blames ‘greedy traders’ for soaring prices

IMF Managing Director Kristalina Georgieva told a recent media roundtable on Ukraine that “I worry about Egypt.”

“If we have sustained high food and energy prices, how is that going to affect people in Egypt,” she said, according to a transcript. “And in that sense, we are already engaged in discussions with Egypt on how to target vulnerable populations and vulnerable businesses.”

(Updates with dollar bond yield in fifth paragraph.)

Bloomberg Businessweek’s Most Read

©2022 Bloomberg LP