Egypt, IMF reach preliminary agreement for USD 3 billion loan
The International Monetary Fund reached a preliminary agreement with the Egyptian government on Thursday that paves the way for the economically troubled Arab nation to access a USD 3 billion loan, officials said on Thursday.
IMF officials said a staff agreement between the Egyptian government and IMF leaders had been reached following months of talks, as Egypt struggles to combat surging inflation caused, in part, by the war in Ukraine.
In a statement issued on Thursday, Egypts IMF mission chief Ivanna Vladkova Hollar said the 46-month deal known as an Extended Fund Facility Arrangement allows Egypt access to the USD 3 billion loan on the condition it implements a series of economic reforms.
In the hours before the announcement, Egypts central bank announced a series of economic measures, including a hike in key interest rates by roughly 2 percentage points and a switch to a more durably flexible exchange rate.
The bank said the exchange rate switch would now allow international markets to determine the value of the Egyptian pound against other foreign currencies.
Following the announcement, the Egyptian pound dropped to a record low against the US dollar from around 19.75 to at least 22.80, according to data provided by the National Bank of Egypt.
The Egyptian currency has already lost 20 per cent of its value against the US dollar this year.
Jason Tuvey, a senior emerging markets economist for Capital Economics, expects it will lose another 18 per cent before the end of next year.
The flexible exchange rate will result in some short-term economic pain but got the IMF deal approved and will go a long way to restoring macroeconomic stability, said Tuvey.
The commitment to durable exchange rate flexibility going forward will be a cornerstone policy for rebuilding and safeguarding Egypts external resilience over the long term,” said Hollar.
The Egyptian economy has been hard-hit by the coronavirus pandemic and the war in Ukraine, events that have disrupted global markets and hiked oil and food prices worldwide.
Egypt is the worlds largest wheat importer, most of which came from Russia and Ukraine. The countrys supply is subject to price changes on the international market.
In a statement issued on Thursday morning, Egypts central bank said it had raised the new lending rate to 14.25 per cent and the deposit rate to 13.25 per cent. The discount rate was also raised to 13.75 per cent, it said.
Egypts monetary reforms and the IMF loan are designed to help offset rising inflation, which passed 15 per cent in September, and lighten the financial pressure on lower- and middle-income households.
Some of the agreements main goals are to reduce Egypts overall debt and bring about broad reforms to its fiscal policy, Hollar said.
As part of its monetary reforms, the central bank said it would begin removing a system for importers, a red tape process introduced in February to control the demand on the currency for imports.
Late on Wednesday, Egyptian Prime Minister Mustafa Madbouly announced an 11.1 per cent increase in the minimum monthly wage, from 2,700 pounds (USD 137) to 3,000 pounds (USD 152). Madboulys announcement marks the fourth hike in the minimum wage since President Abdel Fattah el-Sissi took office in 2014.
In its statement, Egypts central bank said it was “intent on intensifying its reform agenda to secure macroeconomic stability and achieve strong, sustainable and inclusive growth.” About a third of Egypts 104 million people live in poverty, according to government figures.
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