Econostrum | Economic News in the Mediterranean

Egypt seeks further IMF support to underpin its comprehensive economic programme

Written by Frédéric Dubessy on Thursday, March 24th 2022 à 11:20 | Read 354 times

80% of wheat is imported from Ukraine and Russia (photo: DR)
80% of wheat is imported from Ukraine and Russia (photo: DR)
EGYPT. Faced with the development of the war in Ukraine and its consequences, the Egyptian authorities have requested financial support from the International Monetary Fund (IMF). In a press release published on Wednesday 23 March 2022, Céline Allard, Head of Mission for Egypt at the Bretton-Woods institution, said that "a set of macroeconomic and structural policy measures would help mitigate the impact of this shock on the Egyptian economy, protect the vulnerable, and preserve Egypt's resilience and medium-term growth prospects.

Egypt is heavily dependent on grain imports, with Ukraine and Russia accounting for around 80% of its wheat, while Egypt is the world's largest importer. Its subsidised bread programme feeds 70 million people.
Inflation reached 10% year-on-year in February 2022, mainly due to a 20% increase in food prices. The two conflict states are also among the largest providers of tourists, its main source of foreign exchange.

In an earlier communication on 15 March 2022, the IMF said that "rising food and energy prices and tighter global financial conditions are likely to have significant spillover effects" in the Mena (Middle East and North Africa) region. The text also cited Egypt as an example.

130 billion Egyptian pound economic programme

The IMF assistance would provide additional funding to support the implementation of an overall economic programme of 130 billion Egyptian pounds (€6.4 billion) announced on Monday 12 March 2022. Presumably as a token of goodwill before the negotiations. Cairo has already recently put in place an extension of social protection and ensured exchange rate flexibility. On Monday 21 March 2022, the government allowed the pound to depreciate by 14% while its rate had not moved since November 2020. The local currency even strengthened slightly, reaching 18.32 pounds to the dollar on Wednesday 23 March 2022.

"These are welcome measures," emphasises Céline Allard, for whom "maintaining the continued flexibility of the exchange rate will be essential to absorb external shocks and preserve financial buffers in this period of uncertainty. Prudent fiscal and monetary policies will also be necessary to preserve macroeconomic stability.

In addition to grain supply problems, Egypt, like other emerging countries, is also facing a flight of foreign investors since the start of the conflict.

​20 billion already borrowed by Egypt from the IMF

In its statement, the IMF said its staff was "working closely with the authorities to prepare for discussions on the programme to support our shared objectives of economic stability and sustainable, job-rich, and inclusive medium-term growth for Egypt. The country has already received IMF financing three times. In November 2016, it received $12bn over three years under the Extended Fund Facility (EFF) in exchange for drastic austerity measures (devaluation of its currency and revision of the subsidy system on essential commodities). In May 2020, thanks to the Rapid Financing Instrument (RFI), Egypt received $2.8bn to deal with the consequences of Covid-19, and in June 2020, a further $5.2bn after a Stand-by Arrangement (SBA). This $8bn made the country the largest borrower at that time after Argentina.

Cairo is again eligible for one of its three programmes.

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