CAIRO – The International Monetary Fund signed an initial agreement with Egypt on Thursday to loan it $12 billion over three years, in hopes the funds will help fix an ailing economy in the Arab world’s most populous country.
The IMF said the loan, which is subject to approval by its executive board, comes in support of a government reform program that aims to alleviate the demand for black market dollar trading, bring down the budget deficit and government debt, as well as raise growth and create jobs.
“Egypt is a strong country with great potential but it has some problems that need to be fixed urgently,” it said in a statement, adding that planned government measures include tax increases and cuts in energy subsidies. Egypt earlier this week already announced it would raise electricity prices by a least a quarter, a jump forward in its plans to eliminate the subsidies altogether by 2019.
Egypt’s economy has been struggling since the 2011 uprising that overthrew longtime autocrat Hosni Mubarak, with high inflation, foreign currency shortages, and lack of tourism and investment that has hit both business and the broader population’s well-being.
It called on the IMF, the U.S.-based global lender of last resort, after having exhausted billions of dollars in aid from wealthy Gulf Arab benefactors recently humbled by low oil prices — and now turned off by persistent bureaucratic hurdles to investing in Egypt.
Cairo hopes the loans can generate momentum that will boost growth and reassure potential investors.
The government’s economic program states it will focus efforts on alleviating any effects on the poor, who will in all likelihood feel the pain on the short-term that could spark trouble on the streets. The program also says it aims to ensure that any economic upturn will bring benefits to the entire population of 91 million — and not just elite slices of society as has been the case in the past.
The move comes as criticism of strongman Abdel-Fattah el-Sissi’s economic leadership mounts, prompting the general-turned-president to defend himself in recent appearances and giving nearly daily statements to state media portraying himself as a defender of the poor.
The subsidy cuts and reforms required by an IMF loan have led successive Egyptian leaders — including the elected but divisive Islamist el-Sissi overthrew in 2013 — to balk, fearing that austerity and tax hikes could stoke further unrest among the country’s impoverished masses before any benefits could be felt.