Struggling with Inflation, Egypt to Get Infusion of Funds from IMF

In the midst of Egypt’s prolonged economic strains, the International Monetary Fund (IMF) has granted Cairo initial approval for an additional disbursement of $1.2 billion following a review of its initial loan agreement. The funding will be made available to Cairo following approval by the IMF Executive Board.

As a part of the review process, Egypt requested to amend its reform commitments. Initially, Cairo was required to produce a primary balance surplus of 4.5 percent of GDP for fiscal year (FY) 2025/26. Under the new agreement, the target has been reduced to a four percent surplus. This adjustment is intended to free up funds for social programs supporting vulnerable groups, while still aiming to maintain debt sustainability.

Egypt’s Decade of Decline

In the decade since President Abdel Fatah El Sisi came to power, Egypt’s economy has faced mounting challenges. Annualized inflation clocked in at 25.5 percent last month, which actually represented a two-year low in a period where the rate peaked at 38 percent. Spikes are driven by a number of factors, including subsidy cuts on essentials like bread, and rising global food and energy costs due to the COVID-19 pandemic and Russia’s invasion of Ukraine.

Meanwhile, the Egyptian pound has depreciated by 39 percent over the past year, trading at more than 50 to the dollar. In addition, Houthi attacks in the Red Sea have decreased Suez Canal revenues by up to 60 percent, slashing a primary source of foreign currency for Cairo.

To counter these challenges, Cairo has made a concerted effort to secure foreign investments. Its campaign has resulted in substantial pledges, although it remains unclear how much investment has materialized. In February 2023, the United Arab Emirates committed $35 billion to develop Egypt’s Mediterranean coast. In June, European firms signed deals with Egyptian companies that could potentially be worth over $42 billion. In September, Saudi Arabia committed $5 billion, and another $15 billion shortly thereafter. 

⁠IMF Loan Bails Out Cairo

In December 2022, the IMF announced an initial 46-month loan agreement totaling $3 billion to stabilize Egypt’s economy. The size of the loan then expanded to $8 billion in March. The IMF also mandated reforms such as adopting a flexible exchange rate, enhancing social spending, and privatizing state-owned companies. Egypt met all but one performance targets by mid-2023 and requested a waiver for missing the target on foreign assets reserves.

Meanwhile, GDP growth dropped from 6.7% in FY 2021-22 to 3.8% in FY 2022-23 largely due to “weak confidence and foreign exchange shortages,” according to the IMF. The October 2023 war in Gaza and subsequent Houthi attacks in the Red Sea further compounded this decline.

How Can the United States Support Egypt’s Reform Efforts?

While the IMF may offer sound macroeconomic advice, Sisi’s interests may push in the opposite direction. First, efforts to tackle inflation would likely require further currency devaluation and subsidy cuts, both of which risk triggering social unrest. In addition, privatization efforts have been sluggish. In 2022, parliament approved the sale of 35 state-owned enterprises, yet by 2023, only five had sold minority stakes. In February 2023, Prime Minister Mostafa Madbouly announced plans to sell stakes in 32 state-owned companies, including two military-owned firms, by early 2024 — many of which were part of a failed 2018 initiative. Additionally, Madbouly promised an updated privatization plan by the end of November, but it has yet to be released.

As the largest financial contributor to the IMF, holding approximately 17 percent of the voting power, the United States is uniquely positioned to push for stricter conditions on both current and future loan disbursements to Cairo. Washington should press for the expedited privatization of significant state and military-owned enterprises. By demanding measurable progress, the United States can ensure that IMF funding drives sustainable economic recovery.

Mariam Wahba is a research analyst at the Foundation for Defense of Democracies (FDD), where Marina Chernin is an intern. For more analysis from Mariam and FDD, please subscribe HERE. Follow Mariam on X @themariamwahba. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focused on national security and foreign policy.