The International Monetary Fund said on Thursday it had agreed a 46-month, $3 billion Extended Fund Facility with Egypt, welcoming a move to “durable exchange rate flexibility” and commitments to boosting social protections, according to Reuters.
The arrangement is expected to catalyze a large multi-year financing package, including about $5 billion in the financial year ending in June 2023, reflecting broad international and regional support for Egypt, the IMF said in a statement.
The Egyptian government’s fiscal policy under the EFF would be anchored to the reduction of general government debt and gross financing needs, the statement said.
The announcement came after Egypt’s central bank announced that it raised key interest rates by 2 percent and switched to a more flexible exchange rate system in a bid to combat the country’s mounting economic issues.
The bank’s Monetary Policy Committee said in a statement that it had raised the new lending rate to 14.25 percent and the deposit rate to 13.25 percent. The discount rate was also raised to 13.75 percent, it said.
The bank also announced that it had moved to “a durably flexible exchange rate” system, a change that would allow the international markets to “determine the value of the Egyptian pound against other foreign currencies.”
The interventions are designed to offset rising Inflation, which passed 15 percent in September, and lighten the financial pressure on lower- and middle-income households. The changes come as the Egyptian government continues its monthslong negotiations with the International Monetary Fund for a new loan to support a reform program that would help address the country’s troubled economy.
The Egyptian economy has been hard-hit by the coronavirus pandemic and the war in Ukraine, events that have disrupted global markets and hiked oil and food prices worldwide. Egypt is the world’s largest wheat importer, most of which came from Russia and Ukraine. The country’s supply is subject to price changes on the international market.
Following the bank’s announcement, the Egyptian pound dropped in value against the US dollar from around 19.75 pounds to a dollar to at least 22.50 pounds to a dollar, according to data provided by the National Bank of Egypt.
″Egypt is intent on intensifying its reform agenda to secure macroeconomic stability and achieve strong, sustainable and inclusive growth.″ the bank said.
The bank also said it would begin removing a system for importers, a red tape process introduced in February to control the demand on the currency for imports.
Late Wednesday, Egyptian Prime Minister Mustafa Madbouly also announced a 15 percent increase in the minimum monthly wage, from 2,700 pounds ($137) to 3,000 pounds.
Prime Minister Mustafa Madbouly’s announcement marks the fourth hike in the minimum wage since President Abdel Fattah El-Sisi took office in 2014.
About a third of Egypt’s 104 million people live in poverty, according to government figures.
