The executive board of the International Monetary Fund confirmed a deal with Egypt to increase its bailout loan from $3 billion to $8 billion, in a move that is meant to shore up the Arab country’s economy which is hit by a staggering shortage of foreign currency and soaring inflation.

In a statement on late Friday, the board said its decision would enable Egypt to immediately receive about $820 million as part of the deal which was announced earlier this month.

The deal was achieved after Egypt agreed with the IMF on a reform plan that is centered on floating the local currency, reducing public investment and allowing the private sector to become the engine of growth, the statement said.

Egypt has already floated the pound and sharply increased the main interest rate. Commercial banks are now trading the US currency at more than 47 pounds, up from about 31 pounds.

The measures are meant to combat ballooning inflation and attract foreign investment.

The Egyptian economy has been hit hard by years of government austerity, the coronavirus pandemic, the fallout from Russia’s full-scale invasion of Ukraine, and most recently, the Israel-Hamas war in Gaza. The Houthi attacks on shipping routes in the Red Sea have slashed Suez Canal revenues, which is a major source for foreign currency. The attacks forced traffic away from the canal and around the tip of Africa.

“Egypt is facing significant macroeconomic challenges that have become more complex to manage given the spillovers from the recent conflict in Gaza and Israel.

“The disruptions in the Red Sea are also reducing Suez Canal receipts, which are an important source of foreign exchange inflows and fiscal revenue,” said IMF’s Managing Director Kristalina Georgieva.

The IMF said such external shocks, combined with delayed reforms, have negatively impacted economic activity. Growth slowed to 3.8% in the fiscal year 2022-23 due to weak confidence and foreign currency shortages, and is projected to slow further to 3% in the fiscal year 2023-24 before recovering to about 4½ per cent in 2024-25, the IMF statement said.

The annual inflation rate was 36% in February, but is expected to ease over the medium term, the IMF said.

The currency devaluation and interest rate hike have inflicted further pain on Egyptians already struggling with skyrocketing prices over the past years. Nearly 30% of Egyptians live in poverty, according to official figures.

Finance Minister Mohamed Maait said the confirmation by the IMF’s executive board “reflects the importance of the correcting measures” taken by the government.

Egypt also this month signed a deal with the European Union that includes a 7.4 billion-euro ($8 billion) aid package for the most populous Arab country over three years.

To quickly inject much-needed funds into Egypt’s staggering economy, the EU intends to fast-track 1 billion euros ($1.1 billion) of the package, using an urgent funding procedure that bypasses parliamentary oversight and other safeguards, according to European Commission President Ursula von der Leyen.

First tranche: Egypt will receive the first tranche of an expanded loan agreement with the International Monetary Fund (IMF) next week, Prime Minister Mostafa Madbouly said during a news conference on Saturday.

Madbouly did not specify the figure, but the IMF said on Friday the expanded $8 billion financial support programme enables the immediate release of $820 million.

The agreement expands a $3 billion, 46-month Extended Fund Facility signed in December 2022 which was put on hold after Egypt did not follow through on pledges to unpeg its currency, speed up the sale of state assets and implement other reforms.

The IMF agreed to widen the agreement after Egypt’s economy was further hurt by the Gaza crisis, which slowed growth in tourism and triggered attacks from Yemen on shipping in the Red Sea, halving Suez Canal revenue.

Tourism and shipping are two of Egypt’s main sources of foreign exchange.

Separately, the International Monetary Fund (IMF) said on Friday that Algeria’s near-term outlook was broadly positive but that inflation remained a concern.

The IMF also said in a statement that the Algerian economy is estimated to have grown by 4.2% in 2023 owing to a rebound in hydrocarbon production and a strong performance in the industrial, construction, and service sectors.

Algeria’s real growth is forecast to remain strong in 2024, at 3.8%, supported in part by large fiscal spending, the IMF said, following the conclusion of its Article IV consultation with Algeria.

The North African nation’s medium-term economic prospects hinge on efforts to diversify its economy and on its ability to attract private investment, subject to various risks, the Fund added.