On Tuesday, July 26, the Egyptian government has announced that it is close to finalising an IMF loan deal worth $12 billion. The IMF delegation tasked with working out the final deal is scheduled for a two-week visit on July 30. The stock exchange in Cairo has reacted favourably to the announcement and the main equity index has surged 3,3% immediately after the announcement and a further 4,8% on Wednesday morning. Besides the $12 billion, the deal will also enable Egypt to tap into other sources of financing, including the World Bank and the African Development Bank, of the 3-year development plan announced in February. The Egyptian government plans to acquire $21 billion in total in external financing over this time span.

The chronic economic and monetary problems, aggravated by the aftermath of the 2011 revolution form the backdrop of these negotiations. In particular, the tourist industry, which plays a crucial economic role, has suffered from an over 50% year by year decline in revenue after the suspected bombing of a Russian passenger flight over Sinai in October 2015. These problems have resulted in an increase of Egypt’s current account deficit and a weakening of the Egyptian pound. In reaction to that, the Egyptian Central Bank has attempted to prop up the currency, which has hurt its foreign currency reserves and necessitated the introduction of capital controls, while the black-market rate for USD is almost 50% higher than the official one. The IMF deal, combined with an official devaluation of the currency, should narrow this gap by strengthening the Egyptian pound on the black market.

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More on tourist industry slump (Mada Masr) >>

The IMF deal may encounter resistance inside Egypt, especially if it entails further food and fuel subsidy cuts. Previous attempts at a deal, made after 2011, foundered due to lack of political will for reforms demanded by the IMF. However, the subsidy cuts enacted in July 2014 did not result in large-scale protests, which augurs well for the implementation of reforms that will be included in the final deal.

More on previous negotiations (European Council of Foreign Relations) >>
More on subsidies in Egypt (International Institute for Sustainable Development) >>