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IMF set to lend struggling Egypt $3 billion

By the CNN Wire Staff
The International Monetary Fund has tentatively agreed to lend $3 billion to Egypt to support the country's economy.
The International Monetary Fund has tentatively agreed to lend $3 billion to Egypt to support the country's economy.
STORY HIGHLIGHTS
  • NEW: Egypt's economy shrank 7% amid the January revolution
  • The IMF praises Egypt's draft budget in signing loan agreement
  • The deal still needs the approval of the IMF board
RELATED TOPICS
  • Egypt

Cairo (CNN) -- The International Monetary Fund has tentatively agreed to lend $3 billion to Egypt to support the country's economy for the next year, the IMF announced Sunday.

The five-year, 1.5% interest loan must be approved by the IMF board in July. But the agency praised the draft budget Egyptian officials have drawn up for the country's new fiscal year, which starts July 1.

"Following a revolution and during a challenging period of political transition, the Egyptian authorities have put in place a home-grown economic program with the overarching objective of promoting social justice," said Ratna Sahay, the agency's deputy director for the Middle East, in a statement announcing the deal. "The measures are aimed at supporting economic recovery, generating jobs, and assisting low income households, while maintaining macroeconomic stability."

Egypt's economy shrank by 7% as a result of the January revolt, reducing its expected annual growth rate for the just-completed fiscal year to 2%. In April, the IMF projected a 1% growth rate for the coming year, with unemployment hovering around 9%.

The Egyptian economy, heavily dependent on tourism, has taken a beating since the upheaval that drove longtime strongman Hosni Mubarak from power began in January. The country is now in the hands of a military council, which is trying to revive growth and plans new parliamentary elections in September.

Cairo sought IMF assistance in May, indicating it may need as much as $12 billion in international loans to fund its plans. Its $87 billion draft budget aims to produce "rapid and sustainable employment generation and better living standards" for Egyptians, where more than 40% of the population lives in poverty.

Egypt plans to spend $9.4 billion on infrastructure projects and job-training programs and another $2.5 billion on education and housing, with a goal of building 1 million "green" housing units over five years.

And the government has proposed a 9% increase on food and fuel subsidies for the coming year, in part because of the impact of rising commodity prices. Sahay said the agreement does not require Egypt to cut food or fuel subsidies as a condition of the loan.

Mohamed Fadel Fahmy contributed to this report for CNN.

 
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