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Egypt’s decision to increase its interest rates, which allowed its currency to depreciate by more than 35 percent has paid dividends.
The International Monetary Fund (IMF) said on Wednesday that it will raise its current loan arrangement with Egypt by US$5 billion. The lender has kept good on its word, proffering an expanded US$8 billion deal.
This is following a US$35 billion deal Egypt signed with the UAE.
A report by Reuters revealed that Egypt secured the US$8 billion loan after it delivered a rate increase of 600 basis points to stabilize the economy.
“So under this framework, you would observe not just devaluations, but you would observe two-way movements in the exchange rate as it moves in response to economic conditions,” the IMF’s Egypt mission chief, Ivana Vladkova Hollar, stated before the deal.
According to the Egyptian administration, the North African country will also receive a US$1,2 billion loan for environmental sustainability, increasing its total amount from the IMF to nearly US$9 billion. This was in line with reduced estimates from several analysts.
The country’s currency fell beyond 50 Egyptian pounds to the dollar. from around 30,85 pounds, a weight Egypt has attempted to justify for months. According to Reuters, it closed at 49,4 to the dollar.
The country’s flexible exchange rate is perhaps the reason why the IMF is more confident in expanding the loan from US$3 billion to US$8 billion.
“The comprehensive policy package seeks to preserve debt sustainability, restore price stability, and reinstate a well-functioning exchange rate system while continuing to push forward deep structural reforms to promote private sector-led growth and job creation,” the IMF said in a statement. – Business Insider Africa
Peter Tanyanyiwa
Online Reporter