IMF says talks with Egypt progressing as currency pressure bites

The IMF and Egyptian authorities were discussing the impact on Egypt of the war in the Gaza Strip, and any additional funding would also depend on economic reforms prioritised under the programme, IMF Middle East and Central Asia director Jihad Azour said at a media briefing. Reviews and disbursements under the programme have been delayed after Egypt reverted to keeping its currency pegged to the dollar, despite a commitment to shift to a flexible system.

The International Monetary Fund said on Wednesday it was making progress in talks with Egypt on how to resume disbursements of a $3 billion loan, after a sharp slide in the currency on the black market increased the urgency for an agreement. The IMF and Egyptian authorities were discussing the impact on Egypt of the war in the Gaza Strip, and any additional funding would also depend on economic reforms prioritised under the programme, IMF Middle East and Central Asia director Jihad Azour said at a media briefing.

Reviews and disbursements under the programme have been delayed after Egypt reverted to keeping its currency pegged to the dollar, despite a commitment to shift to a flexible system. Meanwhile, the Egyptian pound has weakened to 71.5 for a dollar on the black market from about 50 in late December, against an official rate of 30.85 pounds.

Economists and diplomats have also linked the delays in the IMF programme to a lack of swifter progress in Egypt's plans to sell state assets and reduce the role of the state and the military in the economy in favour of the private sector. In a possible sign of progress, Egypt's cabinet on Wednesday approved regulations that would abolish many tax and fee exemptions enjoyed by state-owned enterprises.

The IMF says a flexible exchange rate can protect Egypt against external shocks, and that boosting the private sector will encourage GDP growth. The IMF has revised down its 2024 growth forecast for Egypt to 3% from 3.6%. The 46-month IMF programme, under which $347 million has so far been disbursed, also seeks to help Egypt broaden social protections for the poor, and tame inflation that rose to record highs last year remains above 30%.

"The goals of the programme approved in October 2022 remain the same and that's the basis of the discussion now. There are negotiations between the IMF team and the Egyptian authorities now, they are making progress on these issues," said Azour. FOREIGN CURRENCY SHORTAGE

Egypt was already suffering from a slow-burning economic crisis and chronic shortage of foreign currency when the war in Gaza broke out, posing a new threat to tourism and Suez Canal revenues, two of its most important sources of dollars. Those challenges were being discussed as the IMF looked at whether extra funding was needed under the current programme, said Azour.

"However, it is also tied to the priorities and the measures that should be undertaken and the reforms, and what is the funding gap and how we can close that funding gap," he said. In its regional economic outlook update, released on Wednesday, the IMF said it was engaging with Egypt "on the policy and financing package that could support moving forward with the program reviews".

Asked how much extra financing could be provided, Azour said it was too early to provide additional information. Egyptian media say the size of the package could be increased to as much as $7 billion. ($1 = 30.8500 Egyptian pounds) (Additonal reporting by Patrick Werr, Editing by Andrew Heavens, Philippa Fletcher and Alison Williams)