Fitch Solutions sees growing likelihood of new IMF deal for Egypt

A senior Finance Ministry official said the government is divided over whether to seek a new loan agreement with the International Monetary Fund (IMF), as rising energy prices and borrowing costs have prompted research firm Fitch Solutions to warn that Egypt may need fresh financing from the lender.

The debate comes as Egypt approaches the end of its current IMF financing program in December and faces mounting pressure to secure foreign currency. While some government officials favor negotiating a new loan, others oppose taking on further financial commitments as external debt continues to climb, having exceeded $160 billion, according to the official.

The source added that, during its latest discussions with government representatives, the IMF mission raised concerns about the lack of progress in reducing the state’s role in economic activity, the failure to give the private sector sufficient room to lead development, and delays in implementing the government’s privatization program.

The discussions also addressed the steps expected after the current Extended Fund Facility (EFF) program ends in December.

The official’s remarks came days after Julie Kozack, the IMF’s Director of Communications, announced that an IMF mission had visited Egypt from Oct. 25 to Nov. 5 and made significant progress in talks on the program’s final review.

The mission had begun discussions with Egyptian government representatives on the eighth and final review of the EFF, paving the way for approval of the program’s final tranche, worth approximately $1.5 billion of the total $8 billion loan, along with an additional $800 million under the Resilience and Sustainability Facility.

Meanwhile, Fitch Solutions said in a report published on its website on Nov. 5 that mounting pressure from higher energy prices and financing costs had increased the likelihood that Egypt would seek a new financing agreement with the IMF.

Fitch Solutions is the research and analytical arm of global financial services group Fitch. It operates separately from Fitch Ratings and does not issue official credit ratings for countries or companies. Instead, it provides macroeconomic forecasts, market and sector risk analysis, and financial data for investors and policymakers.

In June, the Egyptian government denied having any plans to enter a new agreement with the IMF in the near term. Prominent economists, including former Finance Minister Youssef Boutros-Ghali, also said there was no need for a new agreement.

However, the Fitch Solutions report explained that the easing in oil prices following the June signing of the Islamabad Memorandum of Understanding between the United States and Iran had allowed Egypt to avoid seeking a new IMF loan at the time. The subsequent rise in oil prices and renewed economic pressures later prompted the firm to revise its forecast.

The dollar exchange rate in Egypt hit record levels in October as foreign investors withdrew short-term capital, a trend increasingly linked to rising global oil prices. Although the pound has recovered some ground since late last month, the government has introduced austerity measures to limit the impact of the latest increase in global energy prices.

Fitch outlined the pressures facing the Egyptian economy in its report, saying, “We now project a wider current account deficit, while elevated global bond yields are lifting Egypt’s external borrowing costs.”

The firm also described the initial public offering of Banque du Caire as “an effort to address IMF concerns and keep the door open to a new agreement.”

The offering, considered the largest in the history of Egypt’s capital market, attracted more than $500 million in foreign investment. The bank was valued at approximately 80.8 billion Egyptian pounds ($1.5 billion), according to a Nov. 2 statement by the Egyptian Exchange.

The source did not rule out the possibility that the latest discussions with the IMF mission had also covered the steps expected after the current EFF program ends in December.

Egypt signed its current financing agreement with the IMF in Dec. 2022, initially securing a $3 billion loan. The amount was increased to $8 billion in 2024 after the country came under economic pressure from the fallout of Israel’s war on Gaza.