Egypt, IMF reach preliminary agreement for $3 billion loan

The International Monetary Fund reached a preliminary agreement with the Egyptian government Thursday that paves the way for the economically troubled Arab nation to access a $3 billion loan, officials said Thursday.

IMF officials said a staff agreement between the Egyptian government and IMF leaders had been reached following months of talks, as Egypt struggles to combat surging inflation caused, in part, by the war in Ukraine.

In a statement issued Thursday, Egypt’s IMF mission chief Ivanna Vladkova Hollar said the 46-month deal - known as an Extended Fund Facility Arrangement - allows Egypt access to the $3 billion loan on the condition it implements a series of economic reforms.

In the hours before the announcement, Egypt’s central bank announced a series of economic measures, including a hike in key interest rates by roughly 2 percentage points and a switch to a more “durably flexible exchange rate.” The bank said the exchange rate switch would now allow international markets to “determine the value of the Egyptian pound against other foreign currencies.”

Following the announcement, the Egyptian pound dropped to a record low against the U.S. dollar from around 19.75 to at least 22.80, according to data provided by the National Bank of Egypt.

The Egyptian currency has already lost 20% of its value against the U.S. dollar this year. Jason Tuvey, a senior emerging markets economist for Capital Economics, expects it will lose another 18% before the end of next year.

The flexible exchange rate “will result in some short-term economic pain” but got the IMF deal approved and will “go a long way to restoring macroeconomic stability,” said Tuvey.

“The commitment to durable exchange rate flexibility going forward will be a cornerstone policy for rebuilding and safeguarding Egypt’s external resilience over the long term,” said Hollar.

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. (AP)