Lim­ited im­pact on Egypt’s in­fla­tion af­ter us­ing mar­ket exchange for val­u­a­tion of non-es­sen­tial im­ports: IMF

Fund fully sup­ports de­ci­sion by CBE to elim­i­nate repa­tri­a­tion mech­a­nism, says Lall

The Daily News Egypt - - Front Page - By Ha­gar Om­ran

The IMF Mis­sion Chief for Egypt, Su­bir Lall, in­formed Daily News Egypt that the de­ci­sion by Egypt’s Min­istry of Fi­nance to use the mar­ket exchange rates (XE) for the val­u­a­tion of non-es­sen­tial im­ports is an im­por­tant progress, ad­ding, “Be­cause of a small share of nonessen­tial im­ports in the con­sump­tion bas­ket, the im­pact on in­fla­tion should be one-off and lim­ited.”

The prior prac­tice of us­ing un­der-the-mar­ket rates im­plied an im­plicit and un­due sub­sidy, as­serted Lall, not­ing that the de­ci­sion should also im­prove the ef­fi­ciency of re­source al­lo­ca­tion, in­clud­ing for for­eign di­rect in­vest­ments, thereby ben­e­fit­ing the econ­omy as whole.

In Novem­ber, the Cen­tral Agency for Pub­lic Mo­bil­i­sa­tion and Statis­tics an­nounced that the an­nual in­fla­tion rate hit 17.5% in Oc­to­ber 2018, com­pared to 31.8 % in Oc­to­ber 2017. How­ever, on a monthly ba­sis, the rate in­creased by 2.8%, com­pared to Septem­ber.

In­fla­tion surged in Egypt since the floata­tion of the Egyp­tian pound in Novem­ber 2016, reach­ing a record high level in July due to en­ergy sub­sidy cuts that have been grad­u­ally eas­ing since July.

More­over, Lall noted that the IMF fully sup­ports the de­ci­sion by the Cen­tral Bank of Egypt (CBE) to elim­i­nate the repa­tri­a­tion mech­a­nism.

“This is an im­por­tant move to XE rate flex­i­bil­ity-a cor­ner­stone of the au­thor­i­ties’ strength­ened pol­icy frame­work since 2016,” men­tioned Lall, stress­ing that in the early stage of the eco­nomic re­form pro­gramme, the repa­tri­a­tion mech­a­nism helped at­tract port­fo­lio in­vest­ments into trea­sury bills, bonds, and stocks.

The uni­fi­ca­tion of the for­eign exchange mar­ket, and flex­i­bil­ity of the XE, have elim­i­nated the risk that for­eign port­fo­lio in­vestors would not be able to ac­cess dol­lars when their in­vest­ments ma­ture, added Lall. He fur­ther in­di­cated that the repa­tri­a­tion mech­a­nism pro­vided pro­tec­tion for for­eign port­fo­lio in­vest­ment, dur­ing the early stages of im­ple­ment­ing the flex­i­ble XE sys­tem.

“This pol­icy move cur­rently re­flects the pay­off from the strong pol­icy frame­work which has been put in place by the CBE in the past two years as well as the re­silience of the Egyp­tian econ­omy,” ac­knowl­edged Lall.

IMF’s Mis­sion Chief for Egypt, Su­bir Lall

Newspapers in English

Newspapers from Egypt

© PressReader. All rights reserved.