Ras El Hekma agreement is “completely separate” from IMF discussions: “The[USD 35 bn] Emirati investment in Egypt is an important step, but it is not linked to the Fund’s discussions with Egypt. These two topics are completely separate,” the IMF’s Middle East and Central Asia head Jihad Azour told Al Arabiya Business (watch, runtime: 10:55). The first and second reviews of Egypt’s loan program are purely dependent on the Madbouly government’s reform program, which aims to achieve economic stability and boost social security, he added.

But It does make an agreement with the Fund all the more likely: Theannouncement of the Ras El Hekma agreement indicates that both the Fund and the UAE have “a greater confidence” in Egypt, IBIS Consultancy economist Ali Metwally told Enterprise. The Ras El Hekma agreement “may be one of the most important steps to complete the agreement, because our expectations as economists were that reaching an agreement with the Fund and disbursing tranches urgently would coincide with agreements with Egypt’s partners such as the UAE and Saudi Arabia,” Metwally said.

Exchange rate flexibility is a key component to help the Egyptian economy withstandshocks, but it should be paired with fiscal and economic reforms that will help keep inflation low and boost the private sector’s role in the economy, Azour said.

Remember: IMF staff and Egyptian officials are continuing to make “excellent progress” towards finalizing the long-stalled first and second reviews of Egypt’s loan program, with the main elements of the program already agreed on, the Fund’s director of communication Julie Kozack said on Saturday.

CLOSING THE FINANCING GAP-

Our financing gap should be covered for the next three to fours years, think analysts: The ADQ investment, in addition to an expanded IMF loan and further FDI inflows, will cover Egypt’s financing gap for the next three to four years and help Egypt “avoid financial pressures from external obligations,” Metwally told us. The funds will provide “sufficient” support for Egypt until the US Federal Reserve and the EU start cutting rates, Metwally added. Goldman Sachs’ Farouk Soussa also sees the investment covering the county’s financing gap for the next four years.

Mind the gap: Egypt’s external financing requirements for 2024 stand around USD 56 bn,consisting of debt repayments and our current account deficit, writes Al Ahly Pharos’ Esraa Ahmed in a research note seen by Enterprise. Fresh FX injections, Arab countries expected to roll over their Egypt deposits, and the waived UAE deposits will help pay the majority of it, leaving the remaining external financing requirements for the year at around USD 11 bn, which can be covered by FDI and borrowing, she continued.

Devaluation pressures to alleviate: The transaction will “provide a good cushion for thecurrent FX crunch and pave the way for implementing the IMF agreement and ensuing EGP exchange rate adjustment,” said Ahmed. “These developments will allow for a less harsh EGP devaluation, maybe to the EGP 40-45 range, far lower than the previous parallel FX market’s speculations,” she added, explaining that the injection of funds will help Egypt “unfreeze economic activity and withstand the front-loaded obligations.” Metwally forecasted an even more pared back devaluation of 20-25%, which would put the EGP somewhere between 37-39 against the greenback.

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