The Egyptian Prime Minister said on Wednesday that the International Monetary Fund will increase its current lending program to Egypt to $8 billion, at a time when the Central Bank allowed the pound to fall, and said that it would allow freedom of currency circulation.
The new agreement is an expansion of the $3 billion, 46-month Extended Fund Facility that the IMF concluded with Egypt in December 2022, one of whose main provisions was a shift to a more flexible exchange rate regime.
The program faltered when Egypt returned to intervention in managing the exchange rate, in addition to delays in an ambitious program to sell state-owned assets and enhance the role of the private sector, according to Reuters.
Prime Minister Mostafa Madbouly said that within the framework of the new agreement, Egypt will also receive an additional loan of about $1.2 billion from the Fund’s Environmental Sustainability Fund.
Madbouly added that Cairo aims for the ceiling of public investments not to exceed one trillion Egyptian pounds ($20.2 billion) in the fiscal year 2024-2025.
Today’s agreement comes less than two weeks after Egypt announced an agreement with the UAE sovereign wealth fund ADQ, which it said would provide investments amounting to $35 billion by late April.
The fund agreement signed in 2022 included a structural reform program to achieve equal opportunities between the public and private sectors, and provisions specifically for tightening monetary policy, controlling financial conditions, and strengthening the social safety net.
At that time, Egypt also pledged to reduce subsidies and slow spending on national projects, which have been concentrated in lavish spending on infrastructure since President Abdel Fattah El-Sisi took power.
Egyptian Central Bank Governor: Monetary policy decisions today are necessary to reach the real return
Egypt began negotiating the program, which is the latest in a series of support packages from the Fund, after the economic repercussions resulting from the war in Ukraine prompted investors to withdraw $20 billion from Egypt within weeks, revealing the financial shortcomings that the country suffers from.
Then, the repercussions of the war in the neighboring Gaza Strip created new risks to Egypt’s dollar revenues, including revenues from shipping traffic crossing the Suez Canal, which declined by about half early this year due to Houthi attacks in the Red Sea.
IMF officials say that increasing financing for Egypt’s program is important for its success after being exposed to external shocks, and that Egypt’s stability is important for the entire region.
Minister of Finance: Egypt aims to reduce debt below 90% of GDP
Al Arabiya Business correspondent from Cairo, Fahima Zayed, said that the IMF mission is in Cairo amid expectations that the agreement will be announced very soon.
Raising interest 6%
On Wednesday morning, the Central Bank of Egypt raised interest rates by 600 basis points, equivalent to 6%, to reach levels of 27.25%.
According to a statement, the Monetary Policy Committee believes that the decision to raise key interest rates will help restrict monetary conditions in a manner consistent with the targeted path of reducing inflation rates.
Prime Minister of Egypt: Unifying the exchange rate prevents the accumulation of demand for foreign exchange
The Central Bank affirmed its commitment to maintaining price stability in the medium term. “To achieve this, the Central Bank is committed to continuing its efforts to shift towards a flexible framework for targeting inflation, by continuing to target inflation as the nominal basis of monetary policy while allowing the exchange rate to be determined according to market mechanisms. Unification is considered The exchange rate is a very important measure, as it contributes to eliminating the accumulation of demand for foreign exchange following the closing of the gap between the official and parallel market exchange rates.”
