According to officials, the International Monetary Fund and the Egyptian government have achieved a preliminary agreement that will allow Egypt to apply for a $3 billion loan.
Ivanna Vladkova Hollar, the head of Egypt’s IMF mission, said in a statement that Egypt is eligible for the $3 billion loan under the terms of a 46-month agreement known as an Extended Fund Facility Arrangement provided it performs a number of economic reforms.
Following months of negotiations, IMF officials announced that a staff agreement had been struck between the Egyptian government and IMF authorities as Egypt battles soaring inflation that is partly a result of the conflict in Ukraine.
Egypt’s central bank announced a number of economic measures in the hours prior to the announcement, including an increase in significant interest rates of about 2 percentage points and a reform to a more “durably flexible exchange rate.”
According to the bank, the adjustment in exchange rates now enables global markets to “judge the worth of the Egyptian pound versus other foreign currencies.”
Data from the National Bank of Egypt show that after the announcement, the Egyptian pound hit a record low against the dollar, falling from roughly 19.75 to at least 22.80.
In relation to the dollar, the Egyptian pound has already lost 20% of its value this year. Capital Economics’ Jason Tuvey, a senior developing markets economist, predicts further losses of 18%.
The Egyptian currency has already lost 20% of its value against the U.S. dollar this year. Jason Tuvey, a senior emerging markets economist for Capital Economics, expects it will lose another 18% 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 Egypt’s external resilience over the long term,” said Hollar.
The coronavirus pandemic and the conflict in Ukraine, which have disrupted international markets and raised oil and food prices globally, have had a significant negative impact on the Egyptian economy.
The majority of the wheat Egypt imports comes from Russia and Ukraine, making it the largest importer in the world. The nation’s supply is susceptible to shifts in price on the global market.
The new loan rate is now 14.25 percent, while the deposit rate is now 13.25 percent, according to the central bank of Egypt. It added that the discount rate has been increased to 13.75%.
The IMF loan and Egypt’s monetary reforms are intended to lessen the financial burden on lower- and middle-income people and counteract the country’s growing inflation, which reached 15% in September.
According to Hollar, some of the agreement’s primary objectives include lowering Egypt’s overall debt and implementing significant fiscal policy changes.
The central bank announced that as part of its monetary reforms, it will start dismantling a system for importers, a bureaucratic procedure put in place in February to limit the demand for the currency for imports.
Egyptian Prime Minister Mustafa Madbouly made the announcement late on Wednesday. The new minimum monthly income would increase by 11.1%, from 2,700 pounds ($137) to 3,000 pounds ($152).
Since President Abdel Fattah el-Sissi assumed office in 2014, the minimum wage has increased four times, according to Madbouly’s declaration.
