AfDB, Egypt ink US $500-million loan agreement to support the country’s ongoing reforms

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The African Development Bank (AfDB) and the Government of Egypt have signed on Thursday, December 17 a loan agreement of US $500 million aimed at supporting the Government’s ongoing bold economic reform program and sustaining strong economic growth.

The loan agreement was signed in Cairo by the Egyptian Minister of International Cooperation, Sahar Nasr, and the AfDB Vice-President for Agriculture, Water, Human Development, Governance and Natural Resources, Aly Abou-Sabaa, in the presence of the Prime Minister of Egypt, Sherif Ismail.

“The AfDB Board of Directors approved the project two days ago and commended the Government of Egypt for the excellent progress it is making in implementing bold reforms that will put the economy on a strong and sustainable growth path while paying particular attention to the social mitigating measures. They also commended the Government for the success of the transition process with the recent completion of the parliamentary elections. We value our partnership with Egypt and look forward to continue our support for the benefit of the people of Egypt,” Abou-Sabaa said.

The Governance and Energy Support Project, in the amount of US $500 million, is the first in a programmatic series of three single-tranche budget support operations. Under this agreement, two similar loans whose amount will be determined later are envisaged to be extended to Egypt in 2016 and 2017.

“The approval of this programmatic project is a message of trust from the AfDB Board in the Egyptian economy,” said Mrs. Sahar Nasr.

This operation will contribute towards the attainment of inclusive, resilient and sustainable economic growth in Egypt.

The past years have taken a toll on confidence, economic activity, investment and tourism in Egypt. Fiscal revenue and foreign exchange earnings collapsed while expenditure rose sharply, causing persistent inflation, large budget deficits, sizable external imbalances, and reserve loss.

Egyptian authorities committed in 2014 to achieve inclusive growth and job creation by implementing and pursuing structural reforms, promoting investment, and protecting the poor. They are seeking to restore macroeconomic stability through fiscal adjustment, supported by a tight monetary policy to contain inflation.

The Governance and Energy Support Project will target the three most critical areas of reform which have been in the past difficult to deal with, but which the Government is now addressing in a bold and sustained way. These include: increasing Government revenues through higher revenue collection, reprioritization and rationalization of expenditure and implementing public finance management reforms and internal audit mechanism; ensuring sustainable energy supply through improved governance, efficiency and private-sector engagement in the energy sector; and improving the business environment through investment laws, industrial license requirements as well as enhancing competition.

This operation brings the AfDB’s active portfolio in Egypt to US $2.23 billion (32 operations) with a disbursement rate of 47%. Total AfDB approvals for Egypt in 2015 amount to US $692 million – three loans (US $685 million) and five grants (US $7 million).

Since 1974, the Bank Group had financed in Egypt some 100 operations valued at approximately US $6.3 billion. Bank-funded projects have been primarily in the areas of infrastructure/energy and the social sector (mainly loans to small and medium-sized enterprises).