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Egypt secures $8 billion IMF loan as it floats its currency

Egypt's currency witnessed a dramatic plunge following its floatation, reaching an all-time low of 52 pounds to the dollar by Wednesday afternoon.

Egypt secures $8 billion IMF loan as it floats its currency
[Source photo: Krishna Prasad/Fast Company Middle East]

Two weeks after Egypt had secured a deal with the Emirati sovereign wealth fund ADQ to deliver $35 billion in investments by late April, the International Monetary Fund (IMF) said it would increase its current loan program with Egypt by $5 billion to alleviate near-term financing pressures.

The deal comes as the Central Bank of Egypt (CBE) said it would let the pound currency trade freely to stabilize the economy. The decision to float the currency triggered a devaluation, with the Egyptian pound reaching a record low of 52 pounds to the US dollar on Wednesday afternoon. 

The new agreement expands the $3 billion, 46-month Extended Fund Facility that the IMF struck with Egypt in December 2022 to allow a more flexible exchange rate system.

This move follows months of stalled negotiations due to delays in implementing reforms requested by the IMF, such as reduced public spending and increased private-sector participation.

The floating of the currency marks a historic moment for Egypt, as it abandons its previous system of controlled exchange rates and embraces a market-driven approach. 

“The CBE is committed to a smooth transition to a flexible inflation targeting regime,” stated the bank in a press release. “This includes allowing the exchange rate to be determined by market forces while maintaining inflation as a key focus.”

The central bank’s aggressive interest rate hike aims to combat inflation, reaching a record high of 38% last year but slightly receding to 35%. The bank has pledged to maintain these elevated rates until inflation targets are achieved.

This latest move aligns with predictions from international financial institutions, which anticipated a year of tight monetary policy in Egypt and a potential economic recovery in 2025.

The Egyptian economy has been hit hard by years of government austerity, the COVID-19 pandemic, the fallout from the war in Ukraine, and, most recently, the war in Gaza.

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