Mapping IMF intervention in the Arab world
Egypt is about to get approval from the International Monetary Fund for a US$12 billion loan
Courtesy: International Monetary Fund

The International Monetary Fund has supplied six Arab countries with a total of US$57.43 billion in loans, credit and aid packages since the start of the Arab uprisings in 2011, over $42 billion of which was in 2016 alone.

The agreements have varied, depending on the economic conditions of the recipient countries, but in general they have been tied to cuts in government spending and subsidies as a means of decreasing budget deficits.

IMF programs

YearCountryAmount Program


2016Egypt$12 billionEFF
Tunisia$2.9 billionEFF
Jordan$723 millionEFF
Iraq$5.34 billionSBA
Morocco$3.74 billionPLL
Morocco$5 billionPLL
2013Tunisia$1.7 billionSBA
2012Jordan$2 billionSBA
Morocco$6.21 billionPLL

One of the IMF’s lending programs is the Extended Fund Facility (EFF), which is the type of funding the IMF board is about to approve for Egypt. This kind of loan is usually provided to countries experiencing difficulties with their balance of payments, after a review of their trade, investment, services and financial flows. Such loans generally have a longer period of time in which they can be paid back, “given that structural reforms to correct deep-rooted weaknesses often take time to implement and bear fruit,” according to the IMF.

The EFF loan Egypt is seeking is the largest in the Arab world, followed by Tunisia in 2016 worth $2.9 billion, and Yemen in 2014 worth $500,000. Jordan is also looking to seal a deal for an EFF loan of $723 million this year.

Other types of IMF deals are Stand-by Arrangements, which are loans designed to help countries manage short-term financial issues. These agreements usually range from 12 to 24 months, and repayment is expected within three to five years of obtaining the loan.

This category includes a $5.34 billion loan given to Iraq last July, a $1.7 billion loan to Tunisia in 2013 and a $2 billion loan to Jordan in 2012.

Morocco signed a $3.74 billion agreement with the IMF for three years in 2016, following a $6.21 billion agreement in 2012 and a $5 billion loan in 2014, and is the only Arab nation to have received a Precautionary and Liquidity Line (PLL) loan from the IMF. This type of loan is usually reserved for countries that have solid economic policies and are facing moderate risks that do not require major reforms.

Countries listed by order of loan amounts AmountYear
Egypt $12 billion2016
Morocco $6.21 billion2012
Iraq$5.34 billion2016
Morocco $5 billion2014
Morocco$3.74 billion2016
Tunisia$2.9 billion2016
Jordan$2 billion2012
Tunisia$1.7 billion2014
Jordan$723 million2016

Similar conditions

A common objective for the various IMF programs in the region is the reduction of budget deficits, as the IMF argues this usually increases economic growth.

The IMF demanded Iraq reduce its budget deficit from 14 percent to less than 1 percent by 2021, although realistic expectations are at around 2 percent.

Morocco agreed to reduce its budget deficit to 3 percent through fiscal measures, which have been in effect since 2013, including a decrease in government spending. The IMF, however, also acknowledged an expected drop in the nation’s growth rate, from 4.5 percent in 2015 to 3 percent in 2016, according to the Moroccan state budget. This period witnessed an increase in unemployment rates, from 8.9 percent in 2011 to 9 percent and 9.2 percent in 2012 and 2013 respectively, reaching 9.9 percent currently.

The IMF argues decreasing government spending, particularly on employment, is a fundamental measure for reducing budget deficits. A consultation report on an IMF visit to Jordan in 2014 recounts how the country addressed the social impact of a series of external crises affecting its economy since 2011, such as a decline in tourism and foreign direct investments. Jordan raised subsidies and wages before changing tack and decreasing government wages in mid-2012, when it first signed a deal with the IMF.

Concerning its deal with Iraq in July, the IMF recommended “reducing overall spending to a sustainable level by freezing expenditure in nominal terms at the aggregate level executed in 2015 in order to restore fiscal balance in the medium term.” In this way, the IMF sought to reduce spending on wages in Iraq to 39 trillion Iraqi dinars (around $US33 billion) in 2016, and 33 trillion Iraqi dinars in 2013.

After Tunisian wages increased by 12 percent in the 2016 budget, director of the IMF Christine Lagarde criticized the direction the country was taking in a letter to the Tunisian Central Bank in September 2015, in which she said the savings “achieved from reducing energy subsidies, due to a decrease in price on the global market, was consumed by the increase in government wages.”

The fund argued Yemen required clear financial discipline and cuts to government spending on wages, in a statement regarding the 2014 agreement. The IMF demanded the country reduce government spending from 30.8 percent of GNP to 26.6 percent by 2018. Mechanisms for reducing state spending in Yemen largely focused on cutting subsidies, despite the high poverty rate in the nation.

Jordan adopted similar measures, including the complete lifting of fuel subsidies in exchange for cash transfers to 70 percent of the population, and increasing the cost of water and electricity. However, in its consultation report, the IMF said further subsidy decreases are necessary.

The agreement with Iraq included provisions such as increasing state income from electricity tariffs, and decreasing subsidies on wheat, rice and other food staples.

Morocco lifted subsidies on diesel, benzene and kerosene, with the IMF arguing for greater flexibility in the exchange rate.

Tunisia decreased subsidies from 5 percent in 2014, to 3.7 percent in 2015 and 2.8 percent in 2016. The 2016 Tunisian loan from the IMF required the amendment of the Central Bank law, which increased Tunisia’s dependence on external loans through an almost total ban on Central Bank financing via loans or the acquisition of state-released bonds, according to the Tunisian Economic Institute.

Debt continues

In a press statement concerning a new agreement with Tunisia, the IMF anticipated a decrease in public debt. However, the 2013 loan did not lead to such a decrease as a percentage of domestic product, it actually increased from 45.9 percent in 2013 to 53.4 percent in 2016.

In the case of Morocco, the loan contributed to an increase in external borrowing. A review of the external debt of Morocco indicates it increased from $29 billion in 2011 to $42.7 billion in 2014, according to the World Bank.

Beesan Kassab 

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