A top-up from the IMF is looking more and more likely: The IMF has given its clearest indication yet that it could agree to increasing the size of Egypt’s USD 3 bn loan program, with a spokesperson last week confirming that the subject is being discussed and that additional funds will be “critical” in light of the war in Gaza.

What they said: “It is clear that additional financing will be critical to ensure the success in the implementation of the policy package for Egypt,” IMF Communications Director Julie Kozack told reporters at a press conference on Thursday, noting the potential impact of the conflict on Egypt’s economy, particularly its tourism sector.

Amount TBD: The “exact size of the financing is part of the ongoing discussions” between the IMF and Egyptian authorities, Kozacksaid. Unconfirmed media reports in October had suggested that local authorities were negotiating for an additional USD 2 bn.

But the usually well-sourced nighttime talkshow host Lamees El Hadidi says we could get up to 4x what the fund had originally pledged. El Hadidi said unnamed sources told her authorities are in talks with the Fund over potentially raising the value of the loan to USD 10-12 bn (watch, runtime: 5:13). (We have more in Lat Night’s Talk Shows, below).

The head of the IMF recently hinted at a top-up: IMF Managing Director Kristalina Georgieva said last month that the Fund is “seriously considering” increasing the program in light of the war.

Also from the presser: The two sides have made “important progress” in the discussions over a flexible exchange rate, tighter fiscal and monetary policies, and lower inflation, Kozack said.

  • The IMF has postponed two reviews this year after authorities failed to meet several conditions of the facility, including a commitment to implement a fully flexible exchange rate.
  • Georgieva indicated the float of the EGP may not be in the cards for the immediate future, telling Asharq Business that the Fund is currently prioritizing getting inflation under control over exchange-rate reform.

IT’S NOT ONLY THE IMF WHO’VE HAD A CHANGE OF HEART-

The war in Gaza is likely to focus minds: The war means “more international partners will likely be willing to provide additional support,” Abu Dhabi Commercial Bank chief economist Monica Malik told Bloomberg.“No one wants to see Egypt fail now, or economic conditions to worsen.”

Exhibit A: The EU. The EU has been rumored to be putting together a plan to mobilize as much as EUR 10 bn of investment alongside debt relief measures to help stabilize the economy and curb migration across the Mediterranean.

Nerves in the bond markets are easing following the war: The escalation of the conflict inGaza has the bond markets pricing in a lower likelihood of default on expectations that our international backers will ride to the rescue. Egypt’s USD bonds are still trading well in distressed territory at around 15% but the spread with US treasuries has narrowed markedly during the conflict, falling 200 bps since the middle of October.

Bulge bracket sentiment on our debt is shifting:The hope of fresh assistance has had Goldman Sachs penciling in a lower likelihood of a debt crisis, and Morgan Stanley putting Egypt’s 30-year notes on a list of “nine bonds to buy.”

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