The Egyptian government seeks to curb inflation through the IMF borrowing program (social media)

Egypt is close to an agreement with the International Monetary Fund (IMF) to expand its current $3 billion bailout program to USD 6 billion, unnamed sources told Bloomberg on request.

The sources did not rule out that Egypt will borrow more than $6 billion, while other multilateral partners may provide new financing.

According to Bloomberg, it is not clear whether the deal will take weeks or months to seal, but it saw it as a boost for Egyptian President Abdel Fattah al-Sisi, who recently won the presidential election for a third term.

Under pressure

According to a report broadcast by Reuters today, the continued deterioration of the economy puts Egypt under pressure to take long-awaited measures following the presidential elections, foremost of which is devaluation and interest rate hikes as well as accelerating sales of government assets.

Analysts believe that the government postponed the painful steps until after Sisi won the presidential elections for a new six-year term. The focus is now shifting to how to deal with overvalued currency, near-record inflation and massive domestic and foreign debt alike.

HSBC's Simon Williams said there were many big choices the government had to make, but a reliable currency was the key to a real economic recovery.

The dollar was 29 pounds on the parallel market a year ago and now sells for more than 50 pounds, compared to the official price of 30.85 pounds.

Foreign exchange futures, which predict the pound's position in late January, expect it to hit 35 pounds to the dollar, while those looking to next year put it at around 50 pounds.

Uncertainty over exchange rates has led Egyptians abroad to refrain from repatriating their money, ravaging one of the main sources of foreign exchange, and remittances fell by about $10 billion to $22 billion in the 12 months to the end of June 2023.

The authorities have implemented three sharp devaluations since early 3, but each time they have returned to fixing the rate despite pledges to the IMF to shift to a permanently flexible system.

Egypt seeks to expand bailout program with IMF from $3 billion to $6 billion (Al Jazeera)

Debt burden

A $3 billion financial package reached with the IMF a year ago stalled because Egypt did not allow its currency to float or make progress on the sale of state assets, and the fund postponed the disbursement of about $700 million due in 2023.

However, the IMF said this month it was in talks to expand the package because of the economic risks posed by Israel's war on Gaza, and appeared to have shifted its focus from the exchange rate to inflation targeting.

IMF Managing Director Kristalina Georgieva said earlier this month: "Our focus is to make the economy work at its best. In that sense, yes, we prioritize fighting inflation and then of course we will look at the exchange rate in this context."

IMF spokeswoman Julie Kozak later said that Egypt's program includes the need to tighten monetary and fiscal policy, along with a flexible exchange rate regime, "to gradually move to an inflation-targeting system."

Dollar flows face new threats after the impact of the aggression on the Gaza Strip on tourism and attacks on ships in the Red Sea, which prevent some of them from sailing through the Suez Canal, and Egypt, according to data from its central bank, achieved revenues of $ 13.6 billion from tourism and $ 8.8 billion from Suez Canal fees in the fiscal year 2022-2023.

Egypt needs dollars to pay off its medium- and long-term public external debt, which jumped by $8.4 billion in the six months to July 189 to $7.42 billion, and at least $26.2024 billion of external debt is scheduled to be repaid in <>.

In January, the IMF estimated Egypt's 46-month financing deficit at $17 billion.

Source : Al Jazeera + Agencies