Egypt says it has reached a deal with the IMF to increase a bailout loan to $8 billion
Egypt announced on Wednesday that it has finalized a deal with the International Monetary Fund (IMF) to increase a bailout loan to $8 billion. Prime Minister Moustafa Madbouly made this announcement in televised comments, revealing that Egypt had been in negotiations with the IMF for months to raise the initial $3 billion bailout loan agreed upon in 2022. Madbouly emphasized that this new agreement would open avenues for the government to secure loans from additional financial institutions, including the World Bank.
The announcement coincided with Egypt’s Central Bank taking measures to address economic challenges. These measures included raising the main interest rate and floating the currency, both of which were key demands from the IMF. These actions aim to counter inflationary pressures, attract foreign investment, and tackle the country’s significant shortage of foreign currency.
In response to the currency announcement, the Egyptian pound began floating and experienced a rapid depreciation, losing over 60% of its value against the dollar within hours. Commercial banks were subsequently trading the U.S. currency at more than 50 pounds for $1, compared to the previous rate of about 31 pounds for the dollar.
To complement these economic adjustments, the central bank raised the key interest rate by 600 basis points to 27.75%. Additionally, the overnight deposit and lending rates were increased by 600 basis points to 27.25% and 28.25%, respectively, as stated by the bank.
The Egyptian economy has faced various challenges, including government austerity measures, the impact of the coronavirus pandemic, repercussions from the war in Ukraine, and most recently, the Israel-Hamas conflict in Gaza. The economic vulnerability of Egypt was further highlighted by the disruption caused by the war in Ukraine, considering Egypt’s status as the world’s largest importer of wheat and its significant dependence on food imports to sustain its population of over 104 million people.
