Updated April 24th, 2024 at 13:17 IST
Egypt commits to ending direct central bank lending under IMF programme
This approval followed Egypt's landmark $35 billion investment deal with the United Arab Emirates, which alleviated foreign currency shortages.
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Egyptian central bank lending: Egyptian authorities have pledged to halt the practice of bypassing the finance ministry to borrow substantial sums directly from the central bank, news agency Reuters reported, quoting a staff report prepared for an International Monetary Fund (IMF) board meeting last month.
This direct borrowing, which amounted to as much as 765 billion Egyptian pounds ($15.9 billion) to state agencies as of February 2023, poses risks to the economy by fueling inflation and weakening the exchange rate, economists warn. The IMF report, excerpts of which were reviewed by Reuters, noted this lending, which potentially contravenes a 2020 central bank law, though it did not specify when this lending began.
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Neither Egypt's central bank, finance ministry, nor the IMF immediately responded to requests for comment.
The approval of an expansion of Egypt's current loan programme to $8 billion at the IMF board meeting on March 29 highlights the urgency of addressing economic challenges exacerbated by the Gaza crisis. This approval followed Egypt's landmark $35 billion investment deal with the United Arab Emirates, which alleviated foreign currency shortages.
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The IMF report highlighted the need for greater transparency and control over public sector spending, especially by requiring public entities to report investment spending to a cabinet-level committee. Notably, oversight will extend to entities overseeing projects like Egypt's new capital city, with its estimated $58 billion construction cost.
In efforts to streamline economic activity, Egypt aims to limit total public investment spending, including on-budget allocations, at 350 billion pounds in the first half of 2024 and 1 trillion pounds in 2024/25, representing a significant decline from previous years amid soaring inflation rates.
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The IMF programme also stresses a divestment strategy aimed at enhancing transparency and attracting foreign investment. While the sale of state assets slowed initially, the government plans to accelerate divestments, focusing on large transactions and advanced sales like windfarms and power plants.
Furthermore, the government issued regulations in February to eliminate preferential tax treatment for state-owned companies, including those affiliated with the military, signaling a shift towards reducing the state's economic footprint.
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Arab countries have committed to maintaining $19 billion in deposits with Egypt's central bank until the end of the IMF programme in September 2026.
(With Reuters inputs.)
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Published April 24th, 2024 at 13:17 IST