06:33 PM Wednesday 06 March 2024
International Monetary Fund
Shaima Hefzy wrote:
The International Monetary Fund said, in a statement today, Wednesday, that the Egyptian authorities have taken decisive steps to move towards a flexible and reliable exchange rate system, after the Central Bank today allowed a new devaluation of the pound to about 50 pounds to the dollar in banks.
The Fund explained, “This reform, which began by unifying the exchange rate between the official and parallel markets, will help increase the availability of foreign exchange, eliminate the current accumulation of unmet foreign exchange demand, and re-establish a good foreign exchange network.”
There was agreement that a flexible exchange rate system would help Egypt manage external shocks and would support the authorities’ decision to move toward a full inflation targeting system over time, according to the statement.
The Fund believes that raising interest rates by 6% today indicates “an additional tightening of monetary policy to reduce inflation and reverse the recent trend of dollarization. In this regard,” it added, “We welcome the recent decision taken by the Central Bank of Egypt to increase the interest rate by 600 basis points. In addition to the 200 basis points taken last month.”
“Thirdly, fiscal consolidation to maintain debt sustainability. The authorities agreed to maintain fiscal prudence in the medium term and intensify efforts to mobilize additional domestic revenues, including through rationalization of tax exemptions as well as using a large portion of liquidation proceeds to reduce debt.
The Fund said that there is a fourth determinant, which is a new framework to slow down spending on infrastructure, including projects that have so far operated outside the scope of regular budget oversight. In particular, the authorities indicated that they would limit the total amount of public investments from all sources (i.e. budget, state-owned enterprises, economic authorities and other entities), and the Prime Minister issued a decree establishing a monitoring mechanism. Under his supervision and with the participation of all relevant parties present, led by the Central Auditing Organization.
“Fifthly, the authorities also agreed on the necessity of providing adequate levels of social spending to protect vulnerable groups,” according to the statement.
2024-03-06 16:33:00
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