The exchange rate of the dollar against the Egyptian pound stabilized during these moments of trading, today, Tuesday, as it continues its movement around the level of 49 pounds, this comes in conjunction with the change in the tone of the International Monetary Fund towards Egypt on the terms of the financial support package.
The International Monetary Fund (IMF) on Monday relaxed some of the conditions of Egypt’s $8 billion financial support package and gave Cairo additional time to implement needed reforms.
Egypt had reached a financing agreement with the IMF in 2022, but payments were delayed several times as a result of Egypt’s failure to comply with certain conditions, especially with regard to exchange rate flexibility.
Relaxation of conditions by the Fund
The new review, approved by the IMF in late July and announced on Monday evening, includes relaxing some of the fund’s benchmarks. This third review for Egypt came after the increase in package size in March. The Fund conducts two reviews annually before disbursement of payments.
The IMF also agreed to postpone the publication of the annual audits of financial accounts issued by the Central Auditing Organization to the end of November instead of the original date of the end of March, pending the amendment of the law regulating the work of the Central Auditing Organization.
The IMF gave Egypt an additional deadline until the end of August to prepare the central bank’s recapitalization plan, instead of the original date of the end of April, to estimate the amount of new capital required and develop an appropriate strategy.
The IMF also noted that Egypt may abandon quarterly fuel price increases if it commits to raising prices to cost-parity levels by the end of 2025.
The IMF board was due to approve the review on July 11, but the meeting was postponed to July 29, four days after the Egypt raised fuel prices by up to 15 percent.
Debt reduction
The IMF also revealed that government agencies in Egypt will reduce their debts to the Central Bank by EGP 100 billion annually (equivalent to about $ 2 billion), until they reach zero, as part of the action plan related to the bank’s claims on government agencies.
The audit report noted that government entities had already paid EGP 150 billion of CBE claims by the end of July, and that CBE overdrafts by the Ministry of Finance had dropped significantly since February, reaching zero by May 31.
With regard to debt service, the IMF reported that Egypt payments rose significantly to about 9% of GDP during the first ten months of the current fiscal year, representing about 51% of total spending and 84% of total revenues.
Financing needs
The report added that the allocation of unexpected revenues to the Ministry of Finance from the sale of development rights in the Ras El Hikma project contributed to reducing overall financing needs and reducing debt.
The report predicted that foreign exchange reserves will reach $47.2 billion by the end of the current fiscal year, compared to $42.125 billion at the end of June.
As part of an agreement with the UAE, Abu Dhabi’s sovereign wealth fund ADQ has acquired the rights to develop the Ras El Hikma Mediterranean region in Egypt for $24 billion, and the fund has indicated that it plans to invest $11 billion of Emirati funds already deposited with the Central Bank of Egypt in additional projects.
The IMF stressed that the Egyptian authorities’ commitment to use a large part of the new financing from the Ras El Hikma agreement to boost reserves, speed up the settlement of accumulated foreign currency debt and reduce government debt in advance is a wise move.
Regarding the impact of the Ras Al Hikma project on the economy, the report predicted that it will have a positive impact by boosting growth and improving the balance of payments, with annual foreign direct investment inflows expected between $2.5 billion and $5 billion.
Exchange rate flexibility
The IMF stressed that the foreign exchange rate in Egypt has been relatively stable since the March reforms, and that only market mechanisms determine the exchange rate.
The IMF praised the move to eliminate the accumulation of demand for foreign exchange in Egyptian banks, pointing out that the value of daily transfers between banks (interbank) in foreign currency has risen significantly recently.
The fund explained that many international companies operating in Egypt have confirmed their smooth access to foreign currency for the purposes of redistributing profits.
The IMF stressed that the Egyptian banking sector is stable, noting that banks in general achieve profitability and have sufficient capital liquidity, noting the high net foreign assets of banks, which reflects a clear increase in foreign capital inflows.
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Risks hindering the reform program
The IMF noted that there are some risks that may hinder the implementation of the reform program, including the lack of transition to an adequately liberalized foreign exchange regime, the failure to achieve sufficient increases in energy prices to reach cost levels, and the difficulty of integrating the off-budget investment program into macroeconomic policy, which may negatively affect growth prospects.
The IMF stressed the need to sustainably boost tax revenues to increase primary surplus, develop a strong debt management strategy, strengthen the governance of state-owned banks, improve the competition framework, and modernize trade facilitation measures to increase efficiency and remove trade barriers.
For her part, Ivana Vladkova Holar, head of mission of the IMF in Egypt, expected that the fourth review of the Extended Facility financing program with Egypt will take place from September 15 until the end of the year, noting that the completion of the review will allow the disbursement of $ 1.3 billion, which is the largest segment of the total value of the program.
Dollar today against the Egyptian pound
The price of the US dollar in Egypt continued its movement below the 49th level against the Egyptian pound in Egyptian banks during these moments of trading today.
The highest price of the dollar against the Egyptian pound was recorded at the Industrial Development Bank, reaching levels of 48.73 for buying, 48.83 for selling.
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