US working with G7 countries to fund IMF Egypt program

The United States views the International Monetary Fund’s proposed $12 billion bailout for Egypt as “essential” and is working with other G7 economic powers to ensure that it is fully funded with bilateral financing, a senior US Treasury official said on Tuesday.

Nathan Sheets, Treasury undersecretary for international affairs, told a policy forum that the United States supports the IMF’s Egypt program and believes that reforms required by the IMF will be challenging, but are necessary to make Egypt’s economy more competitive and unlock the potential of its young population.

“We in the United States are supportive of the Egypt program as Egypt is working closely with the IMF in taking necessary steps,” Sheets said at the Center for Strategic and International Studies, a Washington think tank. “We’re also working very closely with our G7 partners to ensure that that program is fully funded.”

Egypt needs to arrange up to $6 billion in bilateral gap financing before the IMF board can approve the program and release an initial loan tranche of about $2.5 billion. Prime Minister Sherif Ismail said earlier on Tuesday that about 60 percent of the total had been secured.

IMF officials have said that they have held discussions on bilateral financing for Egypt with Saudi Arabia, China, and G7 countries. Ismail said last week that Egypt’s central bank had received a $2 billion deposit from Saudi Arabia. Sheets did not say specifically whether the United States would provide funding, but said: “the program is essential” for Egypt.

As part of a reform program that formed the basis of the IMF agreement, Egypt approved a long-awaited first-ever value-added tax of 13 percent. The IMF also wants Egypt to focus monetary policy on easing a dollar shortage and reduce inflation to single digits.

IMF Managing Director Christine Lagarde earlier this month said that Egypt needed to take “prior actions” including steps towards a more liberalized exchange rate and reduce fuel subsidies before the IMF board could approve the program.

Black market traders in Egypt said they were selling dollars at 15.5 pounds on Tuesday, up from 15 a week earlier, while the official rate is 8.8 pounds per dollar. The widening gap is increasing pressure on Egypt to devalue its currency and end uncertainty that has discouraged foreign investment.