Egypt will “bleed” precious reserves unless it devalues its currency again, the managing director of the International Monetary Fund said, as she praised other steps her institution’s second-largest borrower has taken to right its stricken economy.

In a wide-ranging interview, Kristalina Georgieva also said Zambia and Ghana, which have both defaulted on their debt, are making progress under their IMF programs, while Tunisia doesn’t need a restructuring yet but should act soon to shore up its economy.

Egypt’s devalued the pound three times since early 2022, with the currency losing almost half its value against the dollar. Georgieva said it’s delaying the inevitable by holding off from doing so again and the longer it waits, the worse it will get.

‘Sooner the Better’

“The sooner we can reach an agreement on the road map for this the better,” she said. “The issue here is very simple. Egypt would bleed reserves protecting the pound and neither the country nor overall the environment is such that this is desirable. That’s a problem that has to be solved.”

Egypt’s net international reserves last year fell to the lowest level since 2017 before stabilizing in recent months to reach $35 billion in September — still down by more than a fifth since their 2020 high.

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Keeping the pound stable has come at a cost, however, draining the economy of foreign exchange through a drawdown of commercial banks’ net foreign assets, which shrank in August by over 5% to $13.1 billion, according to calculations by Cairo-based HC Research.

Still, Georgieva said an IMF review under the country’s $3 billion rescue program is making progress.

“In the last couple of days there have been some constructive engagements,” the IMF head said ahead of a speech she made in Abidjan, Ivory Coast. “There will be more systematic work of our team with Egypt. So stay tuned. Let’s see what would come out in the next weeks.”

The situation in Tunisia, another troubled economy in North Africa, is less dire but still needs urgent action to complete arrangements over a $1.9 billion rescue package from the lender, Georgieva said.

A debt restructuring is not required as “they are not yet hanging at the cliff,” she said. Nevertheless “the sooner the country takes some measures to strengthen their fiscal position, to strengthen their overall economic performance the better.”

Egypt and Tunisia have some of the highest bond yields in the world, underscoring how wary investors are of owning their debt. Egypt’s dollar notes have an average yield of 18.5%, according to Bloomberg indexes, while a Tunisian bond maturing in 2025 trades above 40%.

Further south on the continent both Zambia and Ghana, two nations that have defaulted on their debt, are in line for further support, Georgieva said.

A memorandum of understanding with Zambia’s bilateral creditors has been agreed in principle and will be signed after a few details have been ironed out, she said.

What Instead?

Ghana, which won $3 billion in support from the IMF, is undergoing a first review of that program and that review will be completed in November, according to Georgieva.

“Ghana is doing actually quite well. You have seen that their position has improved over the last month, the economy is in a much better place. I would very much hope that we can have the disbursement,” she said referring to a $600 million tranche of IMF money that’s due to be disbursed in November.

“That is part of the confidence building that we are projecting,” she said.

In broader comments, Georgieva said resolving the unsustainable debt crises of many nations is the “top priority” and defended the G20 Common Framework for debt treatment, which has been criticized for the slow pace its takes applicants to win relief.

As more applicants come forward the process is getting quicker: Chad took 11 months between an initial staff level agreement to financial assurances, Zambia nine months, Sri Lanka six months and Ghana five months, she said.

“I hear lots of people saying, oh this doesn’t work.” she said. “My question to them is, ok, you forget about it. What do you have instead?”

Georgieva Says IMF to Boost Climate Funding, Weighs Nature Swaps

In a further recognition of the difficulty many of the world’s poorest nations are having repaying debt, Georgieva said she backs the idea of debt payment suspensions when countries are hit by climate disasters.

“I’m very much in favor of including clauses in debt, be it bonds or loans, that put debt service suspension in place. So if a natural disaster happens, the country is not forced to choose between saving lives and paying creditors,” she said. “We all need to think about how we go about debt service in a world of more frequent and devastating climate disasters.”

--With assistance from Mirette Magdy, Moses Mozart Dzawu and Matthew Hill.