S&P expects Egypt will approach IMF for loan to ease coronavirus impact

Rating agency S&P anticipated on Friday that Egypt would approach the International Monetary Fund (IMF) for a standby credit facility programme or borrow from its emergency financing to help fight the coronavirus.

The additional funds would help to shore up foreign exchange reserves and partly fund the government’s fiscal response to the pandemic, S&P explained in its report.

“The government’s temporary policy measures to soften the economic blow from the coronavirus outbreak will strain already-weak public finances.”

In Early March, Egyptian government announced a stimulus package of 100 billion Egyptian pounds ($6.3 billion) or 2 percent of GDP. The package includes higher wage allowances, pensions, and targeted cash transfers under the Takaful and Karama programmes, higher spending allocation for the health sector, monthly salaries for day labourers of 500 pounds for three months, lower energy costs for the industrial sector, and tax relief for affected sectors.

“As a result, we expect the general government fiscal deficit will increase to 8.3 percent of GDP in fiscal 2020 and 8.5 percent in fiscal 2021, from 8 percent in fiscal 2019.”

“The reversal in fiscal consolidation, as per our forecasts, will increase government debt to 89 percent of GDP in fiscal 2021, compared with our previous estimate of 83 percent.”

However, S&P said it expects government debt will gradually decline from 2022, supported by the removal of temporary stimulus measures and energy and electricity subsidies, and lower debt servicing costs.