CAIRO (Reuters) - Egypt has asked the International Monetary Fund for financial support to help it deal with the coronavirus crisis and will begin talks with it within days, Prime Minister Mostafa Madbouly said on Sunday.
The government took the step because the virus is putting pressure on Egypt’s tourism sector, an important contributor to the economy, as well as other sectors, Madbouly said.
“We will begin discussions with the IMF concerning the new finance within the next few days,” Madbouly said.
The IMF said in a statement that it expects an Egyptian request for rapid financing to be presented to its board within weeks.
“We fully support the government’s aim to safeguard the significant gains made under the successfully completed three-year Extended Fund Facility last year,” Kristalina Georgieva, Managing Director of the IMF, said in the statement.
“This comprehensive package of financial support, if approved, would help strengthen confidence in the Egyptian economy, make further progress to protect the most vulnerable and provide the basis for a strong economic recovery,” Georgieva added.
The crisis has shut down Egypt’s tourism industry, which accounts for 12%-15% of gross domestic product, after the country closed its airports to most traffic in March. It is also threatening remittances from Egyptians working abroad, exports of natural gas and income from the Suez Canal.
Egypt is seeking funds based on the IMF’s Rapid Financing Instrument and its Stand-by Arrangement, a statement released by the cabinet said. The two programmes are designed for countries facing urgent or potential balance of payments needs.
“The request for support from the IMF is important during these exceptional circumstances to maintain the stability of Egypt’s economic indicators and to guard against negative effects that could hinder its ability to return to economic growth,” the statement said.
Central Bank Governor Tarek Amer told the joint news conference with Madbouly that Egypt was seeking a one-year support programme. He added that the country nevertheless had sufficient foreign reserves to cope with the impact of the epidemic for one or two years.
“It makes perfect sense to build additional cushions given the uncertainty,” said Mohamed Abu Basha, an economist with EFG Hermes.
Radwa El-Swaify, head of research at Pharos Security Brokerage, estimated that Egypt would seek around $3 billion-$4 billion from the IMF.
“The new loan will most likely be used to support the budget deficit and to restructure a number of loans after a fall in Egypt’s sources of dollars until after the corona crisis is over,” she said.
In February, before the virus arrived in the North African country, Egypt had said it was in talks with the IMF about technical assistance on non-financial structural reforms.
Egypt signed a three-year, $12 billion Extended Fund Facility with the IMF in November 2016 after allowing its currency to weaken sharply, implementing a valued-added tax and raising fuel prices to reduce its balance of payments budget and deficits.
Reporting by Ehab Farouk and Nadine Awadalla; Writing by Aidan Lewis, Amina Ismail and Patrick Werr; Editing by Hugh Lawson and Gareth Jones