I.M.F. Agrees to Much Larger Rescue Package for Egypt

The International Monetary Fund has agreed to more than double a bailout package for Egypt, which is going through its worst economic crisis in decades, exacerbated by war in the neighboring Gaza Strip and in Ukraine.

The fund now plans to provide Egypt $8 billion, up from an initial $3 billion announced in October 2022.

The I.M.F.’s mission chief to Egypt, Ivanna Vladkova Hollar, noted at a news conference that the already-struggling Egyptian economy had been further hurt by the conflict between Israel and Hamas, which has cut into the country’s vital tourism trade.

At the same time, revenue from the Suez Canal dropped by half after Houthi militants, who say they are acting in solidarity with Palestinians in Gaza, began attacking cargo ships using Red Sea shipping routes.

Prime Minister Mostafa Madbouly of Egypt said that the deal would enable the government to secure an additional $1.2 billion, above the $8 billion, from the I.M.F’s environmental suitability fund and would encourage development partners like the World Bank and the European Union to also give Egypt more loans to help it reach financial stability.

Last week, Egypt secured a deal worth $35 billion with the United Arab Emirates to develop parts of its Mediterranean coast. Egyptian officials celebrated it as the largest foreign direct investment in Egypt’s history.

Hours before the I.M.F. deal was announced, in an attempt to rein in soaring inflation, Egypt’s Central Bank devalued the currency by more than 35 percent — it was the fourth devaluation since October 2022 — and raised interest rates by 600 basis points.

Mr. Madbouly said his government and the I.M.F. had reached consensus on the targets of Egypt’s structural reform plan.

“The aim is to raise foreign currency reserves, lower the debt burden, guarantee the flow of foreign direct investments and work towards high growth rates for the Egyptian economy,” he said.

The government and the monetary fund are committed to social protection measures for vulnerable people who will be affected by the reform plans, Mr. Madbouly said.

Over the past 18 months, a severe foreign currency shortage in Egypt, which overwhelmingly relies on imports, has sent prices — and anxiety about the future — off the charts. The cost of some basic food items quadrupled, debt burden reached an all-time high, and the currency lost a huge portion of its value, decimating the purchasing power of people’s incomes and the value of their life savings.

The Central Bank Governor, Hassan Abdalla, said the government’s medium-term plan aimed to bring down inflation, which hit a record-high of nearly 40 percent last summer, to a single digit.

Before the I.M.F. deal, growing economic pressure had forced the government to shift tactics, including freezing some costly megaprojects ordered up by President Abdel Fattah el-Sisi, including a lavish new capital in the desert.

Additional pressure came from the I.M.F., which refused to hand over much of the initial loan until Egypt made good on some economic policy conditions. Among them was encouraging private-sector growth by eliminating the competitive advantages enjoyed by Egypt’s military-owned businesses.

Over the past decade, Egypt’s economy has been struggling for stability. Many observers say mismanagement, including overspending on megaprojects and the longstanding overreliance on imports, left Egypt vulnerable to successive external shocks. Apart from the war in Gaza, there was the coronavirus pandemic and the war in Ukraine, which affected both tourism and essential wheat imports.

Mr. el-Sisi has repeatedly defended his government’s policies, saying that the 2011 uprising that toppled President Hosni Mubarak set off lasting economic precarity.

In daily interactions on the streets of Cairo, however, and on social media, many blame the president, whom they accuse of spending on vanity projects and weakening the economy to the point of undermining Egypt’s influence in the region.

Some experts say the I.M.F., which has lent Egypt billions of dollars since 2016, is part of the problem.

“They don’t go deep enough into what’s happening in the machine,” said Mohamed Fouad, a financial consultant and former Egyptian lawmaker.

Mr. Fouad expects that the international lender will now be making more calculated decisions.

“Their biggest mistake,” he said, “came between 2016 and 2020, when everyone was cheering along, only focusing on the macroeconomic aspect. But the foundation was shaky.”

Vivian Yee contributed reporting.