Finmin moved EGP 452 bn to EGPC weeks before IMF November mission

Fuel for the Fund: Weeks before the IMF’s November mission last year, the Finance Ministry moved EGP 451.8 bn in dues and guarantees to the Egyptian General Petroleum Corporation (EGPC), according to three government officials and a document seen by EnterpriseAM — in what seems to have been a necessary step to unlock the review of Egypt’s USD 8 bn loan program.

Subsidies, commitments, and IOUs: The bulk — EGP 166 bn — was unpaid fuel and electricity subsidy reimbursements the ministry itself owed EGPC, while more than EGP 98 bn were debt guarantees to the corporation, and a further EGP 13.6 bn was owed by the electricity and water ministries.

Why it matters: EGPC was trapped by unpaid government bills. Because other ministries were not paying their tabs, the corporation could not pay foreign partners to drill for more oil. By settling these historic dues and covering debt guarantees, the government is unclogging a major operational bottleneck that has historically choked off FDI, as well as satisfying IMF requirements.

IN CONTEXT- The IMF forced the government’s hand. During recent reviews (pdf), the Fund flagged EGPC as a fiscal liability, noting that sovereign guarantees for the corporation currently stands at 18% of GDP. The IMF noted that fixing the corporation’s finances requires a mix of higher production levels, energy price adjustments, and stronger collection mechanisms, which could reduce government guarantees to EGPC by 25% in the upcoming FY.

Foreign firms are stepping back up to the rig. The liquidity injection has allowed the corporation to slash its arrears to foreign energy firms to just USD 700 mn from a peak of USD 6.1 bn, with plans to clear the remaining balance next month. In response, global energy giants have already pledged to deploy USD 19 bn in new exploration and production over the next three years.

DATA POINT- Total state loans are expected to be EGP 6.2 tn for the current year, with EGPC currently accounting for 60% of these guarantees, a government official tells us. Guarantees are also set to jump to EGP 6.9 tn in the upcoming FY, representing 28.1% of the GDP.

What’s next: The Fund’s mission is arriving in Cairo on 15 June to conduct the combined seventh and eighth reviews. The government has submitted updates this week to the IMF, which include enforcing a hard budget constraint capping its sovereign guarantees, among other measures to ensure its ability to meet the Petroleum Authority’s dues.

And speaking of the IMF…

IMF Chief Kristalina Georgieva praised our commitment to economic reforms, fiscal discipline, and improving the business environment during a meeting with President Abdel Fattah El Sisi on the sidelines of an Africa-France summit, which was held in Nairobi over the past two days, according to an Ittihadiya statement. Georgieva “affirmed the IMF’s keenness to maintain close cooperation with the government in support of these efforts.”