IMF, Egypt reach initial deal, pound to undergo swift devaluation
Egypt has reached a preliminary agreement with the International Monetary Fund (IMF) on a revised loan, a government official said on Wednesday.
The agreement includes an immediate devaluation of the Egyptian pound and an increase in the financing program from $3 billion to $7 billion or more, along with an extension of its duration.
The official highlighted that the key feature of the agreement is the swift devaluation of the Egyptian pound to narrow the disparity between the official and parallel market rates of the pound against the dollar.
The deal is set to be presented to the political leadership for review, although no specific timeframe has been made announced.
Meanwhile, Egyptian newspaper Al Borsa cited government sources as saying that Egyptian authorities and the IMF mission have agreed to implement a managed exchange rate system, rather than fully liberalizing the pound’s exchange rate against other currencies.
According to the source, the adjustments to the exchange rate could happen within hours or days. If realized, an announcement of an expanded agreement with the Fund under the current extended facility program is expected next week.
Egypt currently has an extended credit facility agreement with the IMF worth $3 billion, but only a first tranche of $350 million has been disbursed, as the completion of the first and second reviews has not occurred, leading to a freeze of the program.
The IMF has made disbursement of funds conditional on several reforms, primarily exchange rate flexibility and progress in the tender program, which has faced setbacks due to disagreements over valuations amid the pound’s depreciation in the parallel market.
Estimates suggest that the value of the new loan, post-increase, which IMF spokeswoman Julie Kozak deemed necessary for implementing reforms in Egypt, will range between $6 and $10 billion.
The gap between the official and parallel market rates of the pound has widened, with the pound trading at 30.9 to the dollar in banks, while the dollar’s price exceeded 71 pounds on the black market.
On Tuesday, the IMF lowered its growth forecast for Egypt’s economy for the fiscal year 2023-2024 by 0.6 percent from its previous projections, down to 3 percent. In its World Economic Outlook report, the Fund anticipates the Egyptian economy’s growth to rise to 4.7 percent in the next fiscal year 2024-2025, marking a 0.3 percent decrease from its October estimates.
Ahmad Samir, a member of the Egyptian Senate’s Financial and Economic Affairs Committee, said last week that Egypt is currently undergoing the first and second review of a $3 billion loan program with the IMF, initially scheduled for March and September 2023.
In an interview with Al Arabiya Business, Samir said that upon completion of the two reviews, Egypt would receive about $700 million, and that the loan value could increase during discussions.
“There are financing figures ranging from 6 to 8 billion dollars and it may reach up to 12 billion dollars from the International Monetary Fund for Egypt,” he added.
