By Lin Noueihed
CAIRO (Reuters) – Egypt could receive the first $2.5 billion tranche of a $12 billion International Monetary Fund loan as early as September, the head of the IMF’s mission in Cairo Chris Jarvis told Reuters in an interview on Thursday.
Egypt would receive the tranche immediately after IMF board approval without waiting for specific reform measures, he said.
“I would expect to see the IMF board over the coming weeks… and the disbursement immediately after the IMF board,” Jarvis said. Asked if this could be as early as September, he said: “it could be.”
The remaining tranches would be disbursed based on periodic reviews of government reform measures, Jarvis said. The first review would take place in February or March.
The IMF had earlier on Thursday greed in principle to grant Egypt a $12 billion three-year loan facility, to support a government reform program aimed at plugging a budget gap and rebalancing the currency markets.
The long-awaited Extended Fund Facility (EFF) deal is subject to final approval by the IMF executive committee.
The Egypt program will require additional financing in the first year, Jarvis said. Asked if anything could yet prevent approval at board level, Jarvis said: “One key element that remains to be sorted out is we need to ensure that the program is fully financed.”
He added that in addition to the IMF’s $4 billion, to be disbursed during the first year of the program, the World Bank would disburse $1 billion once the VAT law was passed, the next tranche of African Development Bank money would come, but there would be a need for more financing in the first year of the program.
“We need to ensure that that would be there before we go to the board. One of the things we are looking for is about $5-6 billion in bilateral support for Egypt.”
Egypt will make the case that this support needs to come earlier in the program to help provide a cushion as the country moves to a more flexible exchange rate regime, he added.
Among the reforms agreed are subsidy cuts, introducing Value Added Tax (VAT) and reducing bureaucracy for foreign investors. The IMF also wants Egypt to focus monetary policy on easing the chronic dollar shortage and reduce inflation to single digits.
Egypt’s reform program formed the basis of a $3 billion three-year loan deal with the World Bank in December. But the cash has yet to be disbursed as the Bank waits for parliament to ratify reforms, including VAT which has faced opposition.
The African Development Bank approved a $1.5 billion loan to Egypt in December. Egypt has already received the first tranche of $500 million.
Though Egypt had reached two staff level agreements with the IMF in the past that never made it to the board, Jarvis said this time backing from the government, central bank and presidency appeared strong.
(Writing by Ahmed Aboulenein)