Egypt Shrugs Off IMF as Gulf Aid Flows After Army TakeoverAhmed A. Namatalla
Egypt, which has sought an International Monetary Fund loan since 2011, said it no longer wants one as Gulf states supply it with billions of dollars.
The government doesn’t “currently have the desire or the need to ask for assistance from the IMF,” Finance Minister Ahmed Galal said in a statement today. The ministry’s head of debt management, Samy Khallaf, said in a phone interview there are “signs of further financial support” from Gulf nations, on top of $12 billion already pledged since July.
Egypt, where political turmoil has prompted the military to seize power twice in the last three years, already received $5 billion of that money, which was pledged by Saudi Arabia, United Arab Emirates and Kuwait after the overthrow of President Mohamed Mursi on July 3. The funds helped replenish the country’s foreign-exchange reserves to $18.9 billion, the highest level in 20 months, and pare the decline of the Egyptian pound, which has dropped 11 percent since December.
Gulf aid “alleviates the risk of an immediate crisis,” William Jackson, London-based emerging-markets economist at Capital Economics Ltd., said by phone. In the longer term, the abandonment of IMF talks is “worrying, because it reduces the need for authorities to make painful reforms such as fiscal consolidation and allowing the pound to weaken to a more competitive level.”
Egypt’s benchmark $1 billion of 5.75-percent Eurobonds due in 2020 advanced, sending the yield down 10 basis points to 8.94 percent at 4:14 p.m. in Cairo. That’s the lowest level on a closing basis in two weeks. The pound was little changed at 6.986 per dollar, having gained 0.6 percent since Mursi’s fall.
Galal said $6 billion of the Gulf funds are interest-free deposits with the central bank that will be added to reserves, while $3 billion in grants will be invested in infrastructure projects. The remaining $3 billion will be in the form of petroleum products to cover local demand.
The government is considering steps including a value-added tax, limited tax exemptions for informal businesses to encourage registration, and widening the use of electronic smart cards to control distribution of subsidized fuel, Galal said.
The Finance Ministry will sell local-currency notes with a maturity of 18 months in September, after canceling similar-maturity debt sales since July, Khallaf said. The sale is part of its plan to raise a record 200 billion Egyptian pounds ($29 billion) over three months, according to the ministry.
Domestic debt, mainly bought by local banks, is the primary source for funding Egypt’s budget deficit, which swelled to about 14 percent in the 12 months to June, from 10.8 percent a year earlier. Public debt stood at 92 percent of economic output at the end of June, Galal said.