Egypt has finalized a more substantial $8 billion agreement with the International Monetary Fund (IMF), as disclosed by Prime Minister Mostafa Madbouly. This enhanced deal builds on a previously established $3 billion, 46-month Extended Fund Facility from December 2022, initially aimed at transitioning Egypt towards a flexible exchange-rate system.
In a move to bolster the economy, the Egyptian central bank announced its decision to allow the Egyptian pound to float freely and implemented a significant interest rate increase of 600 basis points. Additionally, under the terms of the updated agreement, Egypt is set to receive an approximately $1.2 billion loan dedicated to supporting environmental sustainability initiatives, according to Madbouly.
The progress of the December 2022 program was hindered due to Egypt’s reversion to a fixed exchange rate for its currency and delays in a comprehensive plan to divest state assets and enhance the private sector’s involvement.
This new IMF agreement materializes shortly after Egypt secured a promising investment deal with the Emirati sovereign wealth fund ADQ, expected to bring $35 billion in investments by the end of April.
The recent monetary policy adjustments by Egypt’s central bank indicate efforts to secure this latest IMF agreement, aligning with the IMF’s advocacy for a more flexible exchange rate. Ahmed Helal, head of MENA at Global Counsel, highlighted the growing untenability of the gap between the official and black market exchange rates for the Egyptian pound, noting its adverse effects on business and investment due to heightened unpredictability and volatility.
The Egyptian economy has faced significant challenges, including the impact of government austerity measures, the COVID-19 pandemic, repercussions from the conflict in Ukraine, and the recent war in Gaza. Since January 2022, the Egyptian pound has depreciated by about 50 percent against the US dollar, while nearly 30 percent of the population lives below the poverty line, based on official statistics.–Web Desk