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The International Monetary Fund (IMF) today announced it has reached Staff-Level Agreement with the Egyptian government for $12 billion assistance to support the government's Economic Reform Programme (EEDC).   

The thrust of the Egyptian economic programme is to restore fiscal stability, accelerate growth, attract investment and improve the welfare of the Egyptian people. The policy framework aims to deliver real GDP growth of 6% by the end of fiscal year 2018/2019; accelerate job creation; improve exports; develop human resources; increase efficiency in government spending; among other objectives.

"I am pleased to announce that, in support of the government’s economic reform programme, the Egyptian government, the Central Bank of Egypt (CBE) and the IMF team have reached a staff-level agreement on a three-year Extended Fund Facility (EFF) in the amount of SDR 8.5966 billion (422 percent of quota or about US$12 billion)," IMF's mission chief for Egypt, Chris Jarvis, said in a statement released on Thursday at the end of the mission's visit to Egypt.

Jarvis said the EFF supports the government’s economic reform programme that has been approved by the parliament, especially because of the objective to restore macroeconomic stability and support strong, sustainable and job-rich growth.

However, the mission chief, who is also an Advisor at the IMF’s Middle East and Central Asia Department, said: “Egypt is a strong country with great potential but it has some problems that need to be fixed urgently."

Egypt's debt profile is 98% of GDP for the fiscal year 2015/2016, according to the IMF. The IMF programme, which is often hinged on fiscal disciple, expects to see a decline in the debt profile from the current threshold to about 88% of GDP in 2018/19.  

“The aim is to raise revenue and rationalize spending, to reduce the deficit and to free up public funds for high-priority spending, such as infrastructure, health and education, and social protection,” Jarvis said.

Professor of Applied Economics, at The Johns Hopkins University, Steve H. Hanke, said in a tweet on Wednesday, "#Egypt receives loans just to squander them, even now after capital raising. What did #sisi think would change?"

Nigeria, earlier in the year, rejected an IMF programme, ostensibly because the President Muhammadu Buhari’s administration was considering other financing options to fund the 2016 fiscal deficit. IMF programmes are of ill-repute in developing countries due to the imposition of conditionalities that many believe constrain domestic policymaking, based on stringent reforms that must be implemented. But Nigeria’s public finances remain precarious. The 2016 budget now faces serious implementation challenges as the prices of oil remain low. Many state governments are also unable to pay workers’ salaries for months.

With little known of the plans to fund infrastructure investment with deals with China, including a Panda bond which Finance Minister Kemi Adeosun said was being considered, Nigeria has turned to Eurobond, moving from the East to the West. Earlier in the week, the government invited bids for lead arrangers and financial adviser for a $1 billion Eurobond. Even if successful, this will represent about 30% of what is now $3.45 billion intended to be raised externally to fund half of the deficit in the 2016 budget.

Egypt has been facing fiscal crises. Foreign investments and tourism, which are Egypt's major sources of foreign exchange, have dropped due to political unrest since the Arab Spring of 2010 to 2012 as well as the spate of terror attacks. Egypt’s forex reserves fell to $15.5 billion at the end of July 2016, down from $17.5 billion recorded in the previous month.

Unemployment rate reached 12.8% in the fourth quarter of last year but it dropped to 12.7% in Q1 of 2016, according to the Central Agency for Public Mobilisation and Statistics (CAPMAS). However, the agency said unemployment rate in the cities during Q1 of 2016 increased to 15.2% compared to 15.1% in Q4 of 2015.  According to the World Bank, youth employment is at over 40%.

To attract investment, Minister of Investment, Dalia Khorshid, said last month that the government of President Abdel Fattah el-Sisi aims to put shares of state-owned companies and banks on the Egyptian Exchange to broaden the shareholders base, increase the depth of the capital market, and raise the market capitalisation. This will attract indirect investment of about $10 billion over three years, the minister said. The government also aims to impose value-added tax as one of the measures to raise revenue.

Speaking with the Wall Street Journal via telephone, Egypt’s deputy finance minister, Ahmed Kojak, disclosed that the IMF loan is at a current interest rate of around 1.55%, which is the standard percentage for any country receiving IMF assistance.

The IMF’s Executive Board is expected to consider Egypt’s request in the coming weeks. Kojad said as soon as the approval is given, “we’d be entitled to get as much as 50% of the first year’s share.”

The IMF said budgetary savings that come from the programme will be partially spent on social protection, specifically food subsidies and targeted social transfers. The social protection measures will preserve or increase support for insurance and medicine for the poor; subsidies for infant milk and medicine for children; health insurance for young children and female primary providers; and vocational training for the youth.  

“The government will also develop a plan to enhance the school meals programme. Priority will also be given to investment in public infrastructure,” Jarvis noted.