By The Financial District
Oct 28, 20222 min
The International Monetary Fund (IMF) reached a preliminary agreement with the Egyptian government Thursday that paves the way for the economically troubled Arab nation to access a $3 billion loan, officials said, the Associated Press (AP) reported.
Photo Insert: Before the announcement, Egypt’s central bank declared a series of economic measures, including a rise in interest rates by 2 percentage points and a switch to a more “durably flexible exchange rate.”
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.
Egypt’s IMF mission chief Ivanna Vladkova Hollar said the 46-month deal — known as an Extended Fund Facility Arrangement — allows Egypt access to the $3 billion loan on the condition it implements a series of economic reforms.
Before the announcement, Egypt’s central bank declared a series of economic measures, including a rise in interest rates by 2 percentage points and a switch to a more “durably flexible exchange rate.”
It 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 22.98, according to data published online by Egypt’s central bank.
The Egyptian currency has already lost 20% 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% 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.
About a third of Egypt’s 104 million people live in poverty, according to government figures.