According to Reuters, the International Monetary Fund announced a 46-month, $3 billion Extended Fund Facility with Egypt on Thursday, hailing a step toward “durable currency rate flexibility” and efforts to strengthen social rights.
According to the IMF, the agreement is expected to accelerate a major multi-year financing package, including around $5 billion in the fiscal year ending in June 2023, indicating broad international and regional support for Egypt.
According to the announcement, the Egyptian government’s fiscal policy under the EFF would be centered in the reduction of general government debt and gross financing needs.
The announcement comes after Egypt’s central bank boosted key interest rates by 2% and shifted to a more flexible exchange rate system in an effort to address the country’s rising economic problems.
The bank’s Monetary Policy Committee announced in a statement that the new loan rate had been hiked to 14.25 percent and the deposit rate to 13.25 percent. It also said that the discount rate has been hiked to 13.75 percent.
The bank also announced the adoption of a “durably flexible exchange rate” mechanism, which will allow international markets to “set the value of the Egyptian pound versus other foreign currencies.”
The actions are intended to alleviate financial pressures on lower- and middle-income households by offsetting rising inflation, which reached 15% in September. The revisions come as Egypt’s government continues its months-long talks with the International Monetary Fund for a new loan to support a reform program aimed at addressing the country’s struggling economy.
The Egyptian economy has been severely harmed by the coronavirus pandemic and the war in Ukraine, both of which have disrupted global markets and raised global oil and food prices. Egypt is the world’s largest importer of wheat, the majority of which comes from Russia and Ukraine. The supply of the country is affected by price variations on the worldwide market.
According to data released by the National Bank of Egypt, the Egyptian pound fell in value against the US dollar following the bank’s announcement, from roughly 19.75 pounds to a dollar to at least 22.50 pounds to a dollar.
′′Egypt is determined to accelerate its reform agenda in order to achieve macroeconomic stability and strong, sustainable, and inclusive growth,′′ the bank stated.
The bank also stated that it would begin dismantling a system for importers, a red tape process implemented in February to regulate the currency’s demand for imports.
Egyptian Prime Minister Mustafa Madbouly also announced a 15% raise in the minimum monthly income, from 2,700 pounds ($137) to 3,000 pounds, late Wednesday.
The declaration by Prime Minister Mustafa Madbouly is the fourth increase in the minimum wage since President Abdel Fattah El-Sisi assumed office in 2014.
According to government estimates, one-third of Egypt’s 104 million people live in poverty.
Source: Reuters
