• Egypt said to be negotiating an IMF loan Reuters quoted an unnamed minister saying that Egypt was in unofficial talks with the IMF for USD5bn loan. Commenting on the news, CBE Governor Tarek Amer told Bloomberg that Egypt had not filed an official request for a loan, not necessarily denying the idea that Egypt is in preliminary talks with the fund. Amer added “in case of a loan Egypt would be eligible for amounts more than double what’s been stated” – we estimate that a stand-by agreement for 400% of Egypt’s IMF quota would be worth over USD11bn. Such negotiations would be a positive step towards restoring much-needed macro stability – we have previously argued that there were few other solutions out there other than an IMF programme that can restore stability.
• Key Q&A on a possible IMF agreement When could a loan be signed? A staff level agreement could theoretically be achieved by September /October at the earliest, in our view. In the meantime, Parliament would have passed the FY16/17 budget and VAT. These moves would leave the government in a credible position to sign a deal, in our view, as we noted in our previous report. Please check next page for a more detailed discussion on a typical timeline and the fund’s available funding instruments. What size would the potential loan be? We look at the IMF’s loan as the plug in the funding equation, meaning the size of the loan will largely depend on the government’s options to seek other sources of funding to plug the external funding gap. These other sources include the World Bank, European Union, international capital markets and GCC. We estimate the funding gap at USD15-20bn for the coming two years. What policies would be required to guarantee the loan? Egypt’s FX regime is likely to be the main focus for the programme given it is the key challenge facing the economy. We do not believe the matter will simply be about devaluation as much as changing the currency regime to one that allows for some EGP flexibility in order to boost the ability to attract foreign capital. The CBE announced that it intended to shift to a more flexible regime in March 2016. Fiscal reforms are likely to focus on: i) further subsidy cuts; ii) wage restraints; and iii) administrative reforms to enhance tax collection. Other areas of focus could be enhancing the business environment and rationalising spending on mega projects.

Mohamed Abu Basha