Cairo-After hours of conflicting news and rumors, the Egyptian government announced it had officially requested a loan from the International Monetary Fund (IMF).
IMF has not determined yet the amount of loan, yet Egyptian sources confirmed it is four billion dollars annually over three years.
An IMF delegation is expected to arrive in Cairo Friday night to discuss the multibillion-dollar loan for Egypt as its currency plumbs record lows in the black market.
Egypt’s economy has been struggling since a mass uprising in 2011 ushered in political instability that drove away tourists and foreign investors. Reserves have halved to about $17.5 billion since then.
Director of the Middle East and Central Asia department at the IMF Masoud Ahmed confirmed that Chief of IMF Mission to Egypt Christopher Jarvis will arrive on Friday.
Ahmed added: “The Egyptian authorities have asked the IMF to provide financial support for their economic program. We welcome this request, and look forward to discussing policies which can help Egypt meet its economic challenges.”
Capital Economics, an economic research consultancy, said that IMF support would help the Central Bank remove some of the restrictions on access to foreign currency, which have disrupted economic activity.
“It is said a devaluation of the Egyptian pound was now “probable”,” Capital Economics added:
According to the London-based consultancy, with the apparent shift towards more orthodox policymaking in the government and the central bank, “it seems that policymakers are now more willing to push the deal through.”
IMF didn’t determine the amount of the loan, whereas the Egyptian government pointed out in a statement issued on Tuesday: “The prime minister stressed the need to cooperate with the IMF through the support program to enhance international confidence in the economy and attract foreign investment, and therefore achieve monetary and financial stability… targeting $7 billion annually to fund the program over three years.”
After hours of misleading news, Egyptian Finance Minister Amr al-Jarhy said: “Egypt is seeking three loan installments of $4 billion each over the next three years, with an interest rate of 1 to 1.5 percent. Additional financing will come from international bond issuances, support from the World Bank and the African Development Bank, as well as floating shares in public sector enterprises.”
A source confirmed that such a step will help prevent the currency from plummeting. Egyptian pound fell this week to its lowest-ever valuation at around 13 to a U.S. dollar
During the past weeks, Egyptian government had been denying the news about any negotiations with IMF for a loan. A government source told Asharq Al-Awsat that the constant denial was to maintain the market’s stability.
The source, who preferred to remain anonymous, explained that the Egyptian economy is highly strained and any announcement regarding an IMF loan before an agreement has been reached would have caused confusion.
The developments reflected positively on the market and led the Egyptian stocks to rally 5% after the potential IMF bailout of the country.
Bloomberg said Egyptian stocks and bonds rallied after the government said it’s negotiating with IMF for a loan to help revive its battered economy.
The EGX 30 Index rose the most in more than four months, registering the biggest gain among more than 90 gauges tracked by Bloomberg globally. The EGX 30 climbed 5 percent, the most since the Central Bank’s March 14 devaluation of the pound, to around 7,914.
Commercial International Bank Egypt’s 5.8 percent gain was the largest contributor to the increase.