MEMPHIS REISEN

Egypt, IMF reach tentative deal on exchange rate adjustment: Sources – Dailynewsegypt

The Egyptian government has reached a tentative deal with the IMF that will be announced soon, contingent on a devaluation of the Egyptian pound, according to governmental sources who spoke to Daily News Egypt.

The sources said that the two parties agreed to adopt a managed float system, rather than a full-fledged flotation of the Egyptian pound.

The pound is currently trading in the parallel market at around EGP 71 per dollar, while the international depositary receipts of the Commercial International Bank and Edita Food Industries indicate a rate of about EGP 80 per dollar. In contrast, the official market rate is EGP 30.9 and has been unchanged for about a year.

The sources did not reveal the amount of the new loan after the increase, which was one of the topics of discussion of the IMF mission to Cairo that started this week.

The sources indicated that the exchange rate adjustment could happen within hours or days and that an agreement with the IMF to expand the existing extended fund facility program would be announced next week if it is implemented.

Egypt has an extended fund facility agreement with the IMF worth $3 billion, but only a first installment of no more than $350 million was disbursed, while the first and second reviews were not completed, resulting in the suspension of the program.

The IMF made the disbursement of funds conditional on several reforms, most importantly the exchange rate flexibility and the progress on the divestment program, which was stalled due to valuation disputes amid the depreciation of the pound in the parallel market.

Expectations suggest that the new loan after the increase, which the IMF’s deputy managing director Julie Kozak said was needed to implement reforms in Egypt, could range from $6 billion to $10 billion.

Moody’s, the credit rating agency, said that a loan of about $10 billion would barely cover Egypt’s financing needs and that the country could benefit from the 50% increase in members’ quotas approved by the IMF’s Executive Board.

This was in line with HSBC’s estimates that the loan could be increased by up to $8 billion.

The loan is expected to be accompanied by additional financing from multilateral partners, to bridge the financing gap for Egypt, which was estimated at $14 billion, including asset sales.