The IMF announces an “imminent” agreement with Egypt regarding a new financial package
The International Monetary Fund said, in a statement at dawn on Friday, that it had agreed with Egypt on the main policy elements of the economic reform program, in another indication that the final agreement to increase the country’s loan, amounting to $3 billion, is nearing completion.
Ivana Vladkova Hollar, head of the International Monetary Fund mission to Egypt, said the two sides had made “excellent progress” in discussions on a comprehensive policy package that could begin long-awaited reviews of the country’s economic reform program.
Hollar added in a statement: “To this end, the IMF team and the Egyptian authorities agreed on the main policy elements of the program. The authorities expressed their strong commitment to move quickly on all important aspects of Egypt’s economic reform program.”
Earlier, Thursday evening, Kristalina Georgieva, Director of the International Monetary Fund, said that the Fund and Egypt are in the “final stage” of negotiations to increase the loan program. Following the announcement, Egypt’s sovereign dollar bonds rose by more than a cent during the first hours on Friday.
Egypt held talks over the past two weeks with the International Monetary Fund. To revive and expand the loan agreement, which was signed in December 2022.
The Fund suspended the disbursement of loan shares last year after Egypt fixed the exchange rate of the pound against the dollar at 30.85 pounds to the dollar since last March, while the dollar is currently trading in the parallel (black) market at a level of 71 pounds.
Hollar, who concluded a two-week visit to Cairo on Thursday evening, said that discussions will continue virtually in the coming days “to determine the amount of additional support needed to help fill Egypt’s growing financing gaps from the International Monetary Fund and other bilateral and multilateral development partners in the context of the most recent shocks.”
Georgieva said, in a press conference held in Washington late on Thursday evening: “We are now in the very last stage, where we are working on the implementation details… We have come very close, and we are not talking about a prolonged period at all,” adding that the talks represent “a priority.” “maximum” for the IMF, given Egypt’s importance to the region.
The Monetary Policy Committee of the Central Bank of Egypt decided at its meeting, on Thursday evening, to raise key interest rates by 200 basis points. The bank said, in a statement published on its website, that it decided to increase the overnight deposit and lending yield, and the central bank’s main operation rate, by 200 basis points, to reach 21.25, 22.25, and 21.75 percent, respectively. The credit and discount rates were also raised by 200 basis points to reach 21.758 percent.
The bank indicated a slowdown in economic activity. The result of restrictive monetary policies pursued by major central banks on demand. Global inflationary pressures have also recently decreased; As a result of the restrictive monetary policies that were followed in many advanced and emerging economies, expectations of inflation rates for those economies declined, compared to what was presented at the previous meeting.
Despite this, there is a state of uncertainty about inflation expectations, especially with regard to global commodity prices, as a result of the geopolitical tensions that the world is currently witnessing, as well as the disruption of shipping traffic in the Red Sea.
On the local level, the bank said that it expects the GDP growth rate to slow during the fiscal year 2023-2024, compared to the previous fiscal year, and that it will gradually recover later. This was in line with the actual developments in the data, as well as the negative repercussions resulting from the state of regional instability and the disruption of navigation in the Red Sea on the services sector. Regarding the labor market, the unemployment rate stabilized to record 7.1 percent during the third quarter of 2023.
The bank indicated that general and core inflation rates continued to decline to 33.7 and 34.2 percent, respectively, annually during last December, while current developments indicate the continuation of inflationary pressures and their rise above their usual pattern, which is reflected in the inflation of both food and non-food commodities.
Most analysts were not expecting the rate hike move. The average expectation in a Reuters poll of 16 analysts was for the central bank to stabilize interest rates. Six analysts expected an increase ranging between 100 and 300 basis points.
Rania Yaqoub from Three Way Securities Trading attributed the interest rate hike to the rise in inflation in January, especially with regard to basic commodity prices, with the expectation that this rise will continue during the current and next months.
She added: “It is known that raising the interest rate has a negative impact on the investment climate… but in reality, under the current circumstances, and given that we expect flexible exchange rate movements and a devaluation of the local currency against the dollar, I believe that the matter will have no effects.” It is more harmful to the economic climate than the current situation, especially since we are almost in a state of recession and a cessation of economic activity. Because of exchange rates.”
Monica Malik from Abu Dhabi Commercial Bank said: “It is likely that this increase comes before the devaluation of the pound and the announcement of an agreement to increase the value of the International Monetary Fund loan.”
Farouk Soussa of Goldman Sachs disagreed with the opinion of the imminent devaluation of the currency, and said that raising the interest rate “is the beginning of a process of tightening monetary policy,” but added that this process “will take some time, and must be supported by enhanced liquidity in the foreign exchange market.” ».
Egypt’s economy was damaged by the Gaza war, which affected tourism and reduced shipping through the Suez Canal, a major source of foreign currency.
The Monetary Policy Committee said that growth fell to 2.7 percent in the third quarter of 2023, down from 2.9 percent in the second quarter, and is expected to continue to decline until next June.
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2024-02-02 11:29:07
