Egypt’s bailout package from the International Monetary Fund has been successfully expanded to $8 billion. This comes after the government took the audacious decision to let the Egyptian pound fall to an all-time low compared to the US dollar.
According Voice of America, this crucial discovery represents a major advancement in Egypt’s efforts to manage the country’s most difficult economic crisis in decades.
Egypt’s commitment to economic reform was recognized by the IMF on Wednesday, which commended the country for its “decisive steps to move towards a credible flexible exchange rate regime.”
This recognition followed a 40% sharp devaluation of the pound by the Egyptian central bank, together with a significant hike in interest rates, in an attempt to alleviate a serious foreign exchange shortage.
Egypt met a critical requirement imposed by the IMF by adopting a flexible exchange rate policy and letting the market decide the value of the pound.
This change was necessary in order for the nation to get more funding from the IMF, expanding upon an initial $3 billion aid package granted in 2022.
Egypt’s economic situation is made more apparent by the pound’s devaluation to over 50 against the dollar. This is especially true given that the official rate of exchange was about 31 to the dollar for over a year, which is much more than what it is worth on the black market.
Although the central bank has previously hesitated to lower the pound more, its recent measures indicate that it is committed to an economic strategy that is more open and driven by the market.
It is expected that by raising interest rates, this strategy will address inflation objectives and align the official and black market currency values.
The Egyptian government has been cautious in controlling the depreciation of the pound in order to avoid aggravating the financial hardship on households, given that as of January, the country’s inflation rate was approaching 30%.
Egypt has been given a lifeline, nevertheless, by a historic $35 billion investment from ADQ, an investment company headquartered in Abu Dhabi.
In the history of the country, this is the biggest single investment. The central bank now has the tools it needs to stabilize the currency after deregulation thanks to this capital inflow.
Egypt’s economic position remains complex despite the changes, mostly due to regional factors such as the ongoing conflict between Israel and Hamas in Gaza. This highlights Egypt’s crucial role in enabling aid and diplomatic efforts.
Further compounding Egypt’s economic woes, maritime dangers in the Red Sea have negatively impacted the country’s earnings from the Suez Canal.
