Political Risk Increases in Egypt Despite IMF Financial Support

The new International Monetary Fund (IMF) executive board approved a 46-month, $3 billion financial support package for Egypt, saying it "will catalyze additional funding of about $14 billion," per Reuters. This financial arrangement, Extended Fund Facility (EFF), aims to reduce government debt to less than 80% of gross domestic product (GDP) in the medium term.

According to the article, Egypt negotiated its latest loan from IMF as a result of the "economic fallout from the war in Ukraine," which worsened a foreign currency shortage resulting in a large trade deficit for Egypt.

"Egypt showed resilience to the COVID-19 crisis, supported by previous Fund-supported programs. While economic recovery gained momentum in 2021, imbalances also started building amidst a stable exchange rate, high public debt and delayed structural reforms," Kristalina Georgieva, managing director and chairman of the IMF Executive Board, said in a press release.

Egypt's economy peaked at 97.8% of GDP in the 2016-17 fiscal year and the public debt burden decreased to 80% GDP after only two years, according to Credendo. But now, "interest payments to public revenue ratio remain high with 43% FY 2022/23, the fourth largest in the world (after Sri Lanka, Ghana and Pakistan), and it is expected to remain high in the coming year," the article reads. Despite these vulnerabilities, Egypt's economy is expected to grow rapidly in the 2022-23 fiscal year and sustain growth rates in the medium term.

However, the medium- to long-term political risk rating in Egypt was downgraded from 5/7 to 6/7, per Credendo. "As a net food and oil importer, Egypt has been hit hard by the sharp increase in commodity prices," the article reads. "Moreover, its reliance on foreign capital financing and its weak public finances creates a dangerous cocktail in a context of sharp tightening of global financial conditions. Last but not least, the net international investment position has deteriorated gradually over the last decade and is expected to deteriorate further amid the IMF support program and other loans for bilateral and multilateral creditors."