Since President Abdel Fattah Al-Sisi asked the government to review Egypt’s agreement with the International Monetary Fund, several questions have surfaced, the most important of which is whether Egypt is entitled to review its agreement with the Fund? Does this affect the regularity and continuity of the programme? Does it negatively affect its moral status, strategic position, or the view of credit rating agencies? Has Egypt ever dealt with the Fund in such a situation? Are there historical examples of countries that previously reviewed the IMF loaning conditions?
Before we answer these questions, it must first be noted that Egypt was never late in paying any of its obligations, whether it is loan installments or interest. According to what the President mentioned, it managed to implement the 2016 economic reform program because the global and regional conditions were favorable and stable. As for the current program, Egypt, along with the whole world, had to deal with the repercussions of three global shocks. They started with COVID-19, then the Russian-Ukrainian war, then the Gaza war.
Indeed, Egypt is now regionally surrounded by risks that no other emerging countries in the world is exposed to. There are new and old geopolitical and geographic risks raging in the Middle East region due to the Israeli-Palestinian conflict on the one hand and Iran and Israel on the other hand. We are at the heart of this conflict, and if it expands and its parties expand, many repercussions on supply lines and thus rise in prices are to be expected. In addition, the Red Sea tensions, the repercussions caused Egypt to lose about 60% of its usual revenue.
Based on such circumstances and according to international norms, when a country deals with unexpected external circumstances such as wars or geopolitical tensions beyond its control, it can request a review of some of the IMF program’s conditions by easing or postponing them, not canceling them.
In these cases, such requests are considered part of the ongoing cooperative relationship between the country and the IMF, as both the government and the Fund are seeking a balance between implementing necessary reforms and maintaing stability and social peace.
Yes, the IMF could possibly agree to review the program’s conditions and postpone some of its provisions based on the request of the country concerned. The Fund understands that economic and political conditions can change in a way that affects the country’s ability to fulfill its obligations, and therefore it may be flexible in renegotiating the conditions.
As for Egypt, when the program was implemented, many challenges came up, such as inflation and the rising prices of basic commodities, which prompted the government to request amendments to some of the program’s provisions on several occasions, and an agreement was reached with the Fund to ease some conditions or postpone the implementation of certain goals to ensure the stability of economic and social conditions.
Several international historical experiences document the previous agreement with the Fund on more favorable terms when the economic reform program was implemented.
For example, Argentina was able to negotiate more favorable terms during its talks with IMF, especially with the economic crises it went through. Some conditions were modified to improve social protection and give the government more flexibility in dealing with local economic issues.
Europe and IMF also responded to the changing circumstances in Greece, by easing some requirements, such as extending the deadlines for implementing reforms and reducing the financial targets that Greece had to achieve.
In a similar previous case, Pakistan was able to convince the IMF to ease certain requirements to enable the government to implement policies that aim to support vulnerable segments.
Sometimes, it is permissible to modify the reform schedules or adjust the financial objectives due to difficult economic conditions, but the issue is not as easy as we think, as it requires time, efforts, and negotiations.
Egypt needs to prepare a whole file that explains the reasons for the request and the economic conditions. It also needs to provide a vision of the economic and social risks. Understandably, Egypt will try to get the support and backing of friendly and supportive countries. If it does this, Egypt can relieve some of the difficulties of implementing economic reform programs, and at the same time guarantee the cooperation of the Fund and other international financing institutions without delays.
That can only make the world have more respect for Egypt.
Mohamed Abdel Aal – Banking expert