CAIRO (AP) — The Intercountry Monetary Fund reached an initial agreement with Egypt’s government Thursday, paving the way for the ailing Arab country to get a $3 billion loan, officials said Thursday.
The IMF said a “personnel agreement” was reached between the Egyptian government and IMF leaders after months of talks, as Egypt struggles to combat runaway inflation caused, in part, by the war in Ukraine.
On Thursday, the IMF’s Egyptian mission chief, Ivanna Vladkova Hollar, said the 46-month agreement, known as the Expanded Financing Facility Agreement, allows Egypt to access the $3 billion loan provided it implements a series of economic reforms.
In the hours before the announcement, Egypt’s central bank announced a series of economic measures, raising policy rates by 2% and moving to a more flexible exchange rate system.
“The Central Bank of Egypt’s transition to a flexible exchange rate regime is a welcome step to correct external imbalances, improve Egypt’s competitiveness and attract foreign direct investment,” Hollar said.
Egypt’s economy has been hit hard by the coronavirus pandemic and the war in Ukraine, events that have disrupted global markets and boosted the value of oil and food around the world. Egypt is the world’s largest importer of wheat, most of which came from Russia and Ukraine. The source of the country is subject to diversification of value in the foreign market.
According to Holler, some of the main objectives of the agreement are to reduce Egypt’s total debt and to carry out radical reforms in its fiscal policy.
On Thursday morning, Egypt’s central bank said it had raised the new lending rate to 14. 25% and the deposit rate to 13. 25%. The rate of reduction also rose to 13. 75%, he said.
By moving to a “sustainably flexible exchange rate,” the bank said it would allow foreign markets to “determine the Egyptian pound against other foreign currencies. “
Egypt’s economic reforms and IMF loans are designed to offset emerging inflation, which topped 15% in September, and ease economic pressure on low- and middle-income households.
Following the bank’s announcement, the Egyptian pound lost against the U. S. dollar, from around 19. 75 pounds to the dollar to at least 22. 50 pounds to the dollar, according to information provided by the National Bank of Egypt.
In its statement, Egypt’s central bank said it “decided to accentuate its reform timeline to ensure macroeconomic stability and achieve strong, sustainable and inclusive growth. “
As a component of its reforms, the bank also said it would begin scrapping an importer formula, a bureaucratic procedure initiated in February to request foreign currency for imports.
On Wednesday night, Egyptian Prime Minister Mustafa Madbouly also announced a 15% increase in the monthly minimum wage, from 2700 pounds ($137) to 3,000 pounds ($152). Prime Minister Mustafa Madbouly’s announcement marks the fourth increase 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.
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