Egypt Targets Higher Growth

Egypt’s $12 billion three-year IMF loan program will be repaid in 10 years with a 4.5 year grace period and the reforms agreed with the international lender aim to boost growth and curb inflation, the finance ministry said on Sunday.

It said the reforms target GDP growth of 5.5% and inflation of less than 10% by the 2018-19 fiscal year, news outlets reported.

The International Monetary Fund approved on Friday a program aimed at helping Egypt close its budget gap and rebalance its currency markets.

Egypt’s headline inflation was near 14% in October and the economy grew 4.3% in the 2015-16 fiscal year.

As part of the agreement closed with the IMF executive board on Friday, the Arab world’s most populous nation received an immediate payment of $2.75 billion and the remainder of the loan over the next three years to help support the government’s economic reform program.

The loan will be divided into six tranches, two disbursements each year over the period of three years, IMF mission chief in Egypt Chris Jarvis said in an interview with local channel on Saturday.

The deal comes after many false starts over the past five years in concluding an agreement with the IMF.

“For many investors, the IMF agreement is the green light for investors because for many of them it was ‘I won’t believe it until I see it’,” said Simon Kitchen, a strategist at the Egyptian investment bank EFG Hermes. “Egypt has signed preliminary agreements with the IMF in the past five years, staff level agreements, but this is the only one that has been sealed.”

Kitchen said, however, that there were many challenges still facing the Egyptian government, such as resisting the inevitable calls for higher wages from civil servants.

Increasing uncertainty for the global economy after Britain voted to leave the European Union in June and US voters this month elected Donald Trump—who campaigned on an anti-free trade and immigration platform—may also dent some appetite for investing in Egypt. But overall, he said, there should be a number of investors who will put money into the country, especially in Treasury bills and bonds that now offer attractive yields and publicly traded companies that are cheap after the devaluation.

Other analysts were also positive on Egypt. S&P Global Ratings on Friday upgraded its outlook on Egypt to stable from negative while maintaining its B-/B long and short-term sovereign credit ratings owing to recent moves the government has made to get the economy back on its feet and the backing from the IMF.