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Egypt Gets Final I.M.F. Approval for $12 Billion Loan

CAIRO — The International Monetary Fund approved a $ 12 billion loan for Egypt on Friday, a move intended to avert the collapse of the country’s economy, inspire confidence in the government and attract foreign investment.

The I.M.F. agreed to approve the loan at an executive board meeting in Washington after Egypt raised $ 6 billion in external financing and agreed to significant economic changes. The loan was initially approved in August.

The loan “will help Egypt restore macroeconomic stability and promote inclusive growth,” the I.M.F. said in a brief statement on Friday. The polices Egypt has undertaken to obtain the loan would help “restore competitiveness, place the budget deficit and public debt on a declining path, boost growth and create jobs while protecting vulnerable groups,” it said.

The I.M.F. loan will be dispersed over three years, beginning with an immediate $ 2.75 billion installment, the statement said.

Government officials were not immediately available for comment.

Egypt sought the I.M.F. loan after it could no longer count on its chief benefactor, Saudi Arabia, which has propped up the country since Abdel Fattah el-Sisi seized power in 2013. The relationship between the countries has deteriorated, and Saudi Arabia did not send expected shipments of discounted petroleum products for October and November. Egypt was forced to spend precious currency reserves to purchase them from other sources.

Egypt’s economy has been crumbling since the 2011 uprising that toppled President Hosni Mubarak. Tourism has collapsed amid political upheaval and militant attacks. Remittances from Egyptian workers in the Persian Gulf have dropped, and revenue from the Suez Canal has fallen amid a slowdown in global economic trade. Egypt’s economic problems were exacerbated by the government’s spending on projects that drained its currency reserves, like an $ 8 billion expansion of the Suez Canal.

A scarcity of foreign currency this year led to soaring inflation and shortages of essential goods, like sugar, rice and medicines.

To meet the I.M.F.’s requirements, the government was forced to agree to painful policy changes that it had long avoided. It created a value-added tax. It raised the price of gas, to about 21 cents from 16 cents for a liter of gasoline – still extremely cheap, but expensive for low-paid Egyptians. The government floated the currency earlier this month, and it lost nearly 50 percent of its value, wiping out savings and halving salaries. From a fixed exchange rate that had the Egyptian pound officially trading at 8.8 to the dollar, the pound has now devalued to 16.7 against the dollar.

The I.M.F. loan will inject more money into Egypt’s economy make it more attractive to foreign investors, said Angus Blair, chief executive officer of Pharos Investments, a bank based in Cairo.

“If you look at what’s happening, they are making the right choices,” Mr. Blair said. Referring to fellow bankers, he said, “It’s not going to be easy, but they are pleased that there is new thinking, which is what Egypt needed.”

Source: NYT > World

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