2024/06/24

$2 billion boost: Egypt secures budget support from development partners

Dr. Rania Al-Mashat, Minister of International Cooperation, said that the past period has witnessed intensive negotiations and coordination between multilateral and bilateral development partners and the relevant national authorities to mobilize budget support financing to support structural reform policies and encourage private sector participation in development. This was done through three main axes that represent a common factor in various budget support programs implemented with international partners, namely macroeconomic stability and resilience enhancement, competitiveness and business environment improvement, and green transformation promotion.

The Ministry of International Cooperation revealed in a statement that these efforts resulted in the mobilization of concessional financing worth approximately US$2 billion, including US$700 million approved by the World Bank Board of Directors under the Development Policy Financing (DPF) program, in addition to 1 billion euros equivalent to US$1.69 billion from the European Union, which is scheduled to be signed during the activities of the (Egyptian-European) investment conference under the umbrella of the "Macroeconomic Support and Budget Deficit Support Facility" (MFA), and concessional development financing from the African Development Bank (AFDB) worth US$131 million, as well as financing worth US$100 million from the Economic Development Cooperation Fund (EDCF), for which the related procedures are being finalized.

Dr. Al-Mashat emphasized the past months' intensive negotiations with development partners. These efforts aimed to mobilize budget support for structural reforms and encourage private sector participation in development. Three key areas form the core of these programs: macroeconomic stability and resilience, improved competitiveness and business environment, and promotion of green transformation.

The Minister reaffirmed the Ministry's commitment to maximizing the benefits of international partnerships. This integrated approach, with specific focus areas, supports structural reforms and empowers the private sector. Dr. Al-Mashat highlighted the government's implementation of over 30 measures and policies aligned with these goals within the framework of development partner programs.

World Bank Approves $700 Million in Development Policy Financing (DPF) for Egypt

As part of its ongoing support for Egypt's economic reform program, the World Bank Group has approved a $700 million DPF loan. The financing package includes $500 million from the World Bank and $200 million from co-financing partners. The loan has a 35-year term, including a 5-year grace period and a 30-year repayment period, and is linked to the LIBOR reference rate. This approval aligns with the World Bank's March 2024 announcement to provide $6 billion in support of Egypt's economic and structural reform efforts over the next three years, with $3 billion allocated to the government and $3 billion to empower the private sector.

Minister of International Cooperation Dr. Rania Al-Mashat explained that in coordination with the World Bank and eight national entities, including the Ministries of Finance, Housing, Justice, Electricity, the Competition Protection Authority, and the Cabinet's Information and Decision Support Center, a number of policies have been implemented under the DPF program. These policies aim to achieve three main objectives: enhance the competitiveness of the economy, strengthen macroeconomic resilience and support the green transition.

EU Macroeconomic Support Facility (MFA) for Budget Support

The upcoming financing agreements with the European Union (EU) are a testament to the strong and growing relationship between Egypt and the EU under President Abdel Fattah el-Sisi. These agreements represent the first tranche of a €7.4 billion package announced during the Egypt-EU Summit in March 2024, in line with the political declaration to elevate bilateral relations to a strategic partnership.

Dr. Al-Mashat stated that this initial tranche of €1 billion will be made available in the second half of 2024 following its signing during the (Egyptian-European) investment conference. This tranche is part of the €5 billion allocated by the EU under the MFA. The remaining tranches of €4 billion are scheduled to be disbursed between 2025 and 2027. The Minister highlighted that the first tranche will be provided in the form of concessional financing with long repayment terms and low interest rates. Additionally, a matrix of actions and policies will be implemented under this tranche to support structural reform efforts in Egypt. The details of these policies will be announced following the signing of the financing agreement.

African Development Bank (AFDB) Financing

In the same context, the Ministry announced that during Dr. Rania Al-Mashat, Minister of International Cooperation's visit to Kenya to attend the African Development Bank's annual meetings in June 2024, an agreement worth $131 million was signed with the bank to encourage private sector investment, support economic diversification, and promote the green transition. The financing available from the African Development Bank has a maturity of 21 years, including an 8-year grace period.

Korean Economic Development Cooperation Fund (EDCF) Financing

In addition, the Korean Economic Development Cooperation Fund is providing $100 million in financing. On the sidelines of the Korean-African Summit held in the Korean capital Seoul from June 3-5, 2024, which was attended by the Minister of International Cooperation, the final draft of the financing agreement was finalized with the Korean side and the African Development Bank in preparation for submitting the agreement to the bank's board of directors for final signature.

The financing will be managed by the African Development Bank, as it is responsible for managing the fund's resources under the Korea-Africa Energy and Investment Agreement (KAEIF). The concessional interest rate on the financing is 1.5%, and the repayment period is 20 years, including a 5-year grace period.

In continuation of these efforts, the Ministry of International Cooperation is continuing its efforts with development partners to mobilize more concessional financing to meet the country's requirements and support macroeconomic support priorities. Negotiations are currently underway with the Asian Infrastructure Investment Bank to provide $300 million in financing, in addition to preparatory work that took place in mid-June 2024 with an African Development Bank mission to prepare for the second phase of the Private Sector Development and Economic Diversification Support Program to provide the necessary financing to complete support for comprehensive economic reform efforts.