Balance of payments strains have prompted Egypt, Morocco and Tunisia to turn to the IMF over the past six months or so, but agreements in Egypt and Tunisia are faltering. The IMF postponed its first review of Egypt’s deal amid the government’s slow progress in pursuing orthodox macro policies, particularly related to the shift to a flexible exchange rate. And in Tunisia, President Saied has dashed hopes of getting the staff-level agreement for a deal approved by the IMF’s Executive Board after voicing his opposition to the Fund’s conditionality. This reinforces our long-held view that the currency could face a sharp devaluation and that a messy sovereign default will follow. We’re a bit more optimistic about Morocco’s Flexible Credit Line which was approved. The country has a stronger external position and seems more committed to reforms.
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