With inflation in the high teens, and other factors putting
pressure on the national economy, the country of Egypt has pursued a plan to
take out a $12 billion loan from the International Monetary Fund (IMF) — and the
eventual resolution of this deal is coming soon.
Reports released earlier this month show that IMF leaders still
have to deliberate on some aspects of the plan to lend Egypt a sum of money
that, by any national benchmark, represents a substantial investment in the country’s financial recovery.
The Egypt loan has been delayed, in part, because of
technicalities at the IMF: an Oct. 5 report showed officials saying that
Egypt’s loan was not discussed at one annual IMF meeting because it is supposed
to be reviewed by executive board members in a meeting that, as of that time,
had not yet been scheduled.
However, with likely implementation within the year, Egypt’s
proposal and pending IMF acceptance begs the question of what has to happen to
right the Egyptian ship of state — or just to fully ratify the provision of the
IMF money.
Some analysts are showing that for ratification of the IMF
loan, Egypt will have to act further to devalue its currency, a move the
nation’s leaders have put off throughout the summer.
“The devaluation will have to happen, in my view,” CI
Capital economist Hany Farahat said in a July 3
Reuters piece.
Other concessions may also be necessary.
“Currency devaluation appears likely for Egypt as it seeks to
secure a $12 billion loan from the IMF,” Aniket Mittal, senior analyst of investment research and analytics at Aranca, recently told Gulf News Journal. “While an initial agreement was reached between the IMF and Egypt in
August 2016, the final approval from the agency would require the country’s
government to relax the exchange rate controls, reduce subsidies and secure $5-6 billion in bilateral financing.”
Some of these contingencies, Mittal said, will be more difficult to manage than others.
“Closing the bilateral financing requirements for the IMF loan
appears slightly more challenging for Egypt,” Mittal said, citing pressure on
GCC countries because of weak oil markets and plummeting oil prices.
That said, Mittal believes it is important for Egypt to turn to another
area of the world, and coordinate some of this borrowing activity with a
country that’s typically seen as having an emerging role on the world stage.
“China’s role would hold key,” Mittal said. “Also, given the
renewed relationship of Egypt and China and China’s interest in the Suez for
global trade, it would not be surprising to see China help Egypt meet the
bilateral financing targets.”
Will Cairo get a helping hand from an ascendant China? How will
its financial pivoting activities affect the national debt and monetary
outcomes?
More will become evident as the IMF moves forward, finalizing the significant loan for a country that could be the hardest hit by
change in a region rapidly diversifying away from a devaluing commodity.
