IMF more than doubles Egypt bailout deal to $8bn following devaluation
![A man walks past a currency exchange point, displaying an image of the U.S. dollar, in Cairo, Egypt, 6 March 2024 (Reuters/Mohamed Abd El Ghany)](/sites/default/files/styles/max_2600x2600/public/images-story/egypt-cairo-forex-office-6-march-2024-reuters.jpg?itok=6ioJejrr)
Egypt signed a $8bn deal with the International Monetary Fund on Wednesday after months of speculations, which includes a $5bn increase from an original deal, Prime Minister Mostafa Madbouly announced.
The deal comes a few hours after a decision by the central bank to float the Egyptian pound, one of the requirements of the international lender.
The agreement is an expansion of the $3bn, 46-month Extended Fund Facility deal between the IMF and the Egyptian government in December 2022.
Dispersal of the funds has been delayed as Cairo failed to meet conditions such as a shift to a flexible exchange rate and reduce the state's footprint in the economy.
Madbouly added that his government will receive an additional loan of about $1.2bn from a separate facility aimed at enhancing environmental sustainability.
New MEE newsletter: Jerusalem Dispatch
Sign up to get the latest insights and analysis on Israel-Palestine, alongside Turkey Unpacked and other MEE newsletters
The Central Bank of Egypt (CBE) announced earlier on Wednesday it was raising its key rate by an unprecedented six points to a record 27.25 percent, which caused the Egyptian pound to fall by more than a third of its value against the dollar, bringing the official rate closer to the black market rate.
Following this decision, the pound plummeted to approximately 50.5 EGP to the US dollar, at 14:00 local time, down from 31 in the year preceding the decision. This almost matches the black market rate of 50.78 recorded at the same time.
'Since last year, we have gradually seen prices rise based on the pound price on the black market'
- Mohamed Gad, economics researcher
The IMF's mission chief for Egypt, Ivanna Vladkova Hollar, welcomed the CBE’s measures as "decisive steps to move to a flexible exchange rate system, starting with unifying the exchange rate between the official and parallel market rates".
IMF deals and currency devaluations are usually feared to have knock-on effects on the cost of living for the poor in Egypt, home to more than 110 million people.
The World Bank estimated that nearly 30 percent of Egypt's population was poor in 2019 and many millions more at risk of falling below the poverty line.
The impact of the devaluation on inflation, however, remains uncertain, as the import-dependent economy already relied on black market rates.
Egypt's headline inflation reached 33.7 percent in December, and is expected to reach a peak of 45 percent in the fourth quarter of 2024, according to Oxford Economics think tank.
Prices already high
Many food products are already priced according to black market pound prices, which dropped as low as 70 pounds against the US dollar in recent months.
“Since last year, we have gradually seen prices rise based on the pound price on the black market,” Mohamed Gad, an economics researcher at the Egyptian Center for Economic and Social Rights, told Middle East Eye.
“Importers' dependence on the black market US dollar made them raise prices of consumer products,” he added.
'Many traders are taking advantage of the crisis and raising prices, so it is difficult to predict what level inflation will reach at this time'
- Mohamed Gad, an economics researcher
As a result of the current flotation, Gad anticipates another hike in the price of basic commodities that are priced at the official pound rate and have already been fixed by the government, such as fuel, wheat, and subsidised bread.
According to Gad, pricing chaos already exists. “Many traders are taking advantage of the crisis and raising prices, so it is difficult to predict what level inflation will reach at this time,” he added.
Mohamed Abdallah, an owner of a small market in Cairo's Agouza, said he changes the prices of the products on his cashier machine each time he receives a new shipment, depending at what prices he buys the new goods.
He mentioned that a packet of green tea was worth 91 EGP ($1.84) two weeks ago, but now he sells it at 145 Egyptian pounds ($2.93) and “this will change again and again,” he told MEE.
Two weeks ago, Egypt agreed to a $35bn deal with the United Arab Emirates to develop the prime area of Ras el-Hekma on its northwestern coast.
Economists expected the immediate $15bn cash inflow from the deal to facilitate currency devaluation and the subsequent agreement with the IMF.
Mostafa, a private company employee who preferred to use only his first name, said that the decision to devalue the currency was expected due to the IMF’s conditions, but he fears the consequences of a lack of government control on the currency market.
“The central bank's announcement that the exchange rate would be determined by market forces made me concerned about the idea that the prices that we had expected to fall after the Ras el-Hekma deal would rise even more,” he told MEE.
He added that when Cairo receives the IMF loan, together with the funds from the Ras el-Hekma deal, the impact on markets may not be visible until four or five months later.
“I feel more concerned about the current situation, since prices are not going down and they vary from one place to another, and given that there is no control from the authorities on prices,” he added.
Middle East Eye delivers independent and unrivalled coverage and analysis of the Middle East, North Africa and beyond. To learn more about republishing this content and the associated fees, please fill out this form. More about MEE can be found here.