Many in Egypt are hopeful after the International Monetary Fund (IMF) approved a loan amounting to approximately $9.2bn—a jump from the $3bn promised in previous discussions.
This comes after challenging days for the Egyptian economy, marked by unprecedented inflationary pressures, soaring prices, and a widening financing gap. The signing of this agreement crowns a series of corrective measures implemented in recent weeks.
These measures began with the government abolishing tax exemptions on its economic activities, reducing investment spending in the current fiscal year budget by 15%, refraining from initiating new projects during the plan’s implementation, and approving a social protection package.
This package—which includes salary and pension increases, a raised minimum wage, and tax exemptions for public and private sector workers—is set to be disbursed to Egyptians this month.
Simultaneously, the Central Bank of Egypt took proactive decisions on the same day as the loan signing. These decisions involved raising interest rates and liberalising the exchange rate as of 6 March 2024.
These actions were closely linked to the Central Bank's monetary tightening measures and the Ministry of Finance's fiscal measures, which aimed to stimulate the private sector through various government initiatives.
Before these measures, the successful Ras Al-Hekma deal and other agreements to manage dollar liquidity, totalling $35bn during the current and upcoming months, set the stage for ample dollar liquidity.
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This, in turn, facilitated the successful liberalisation of the exchange rate, making Egypt ready to sign the crucial IMF agreement. This agreement is pivotal, offering a support loan of approximately $9.2bn, expected to enhance Egypt’s credit rating and incentivise foreign investment.
Despite the positive reception and praise for these decisions, there’s an acknowledgement of the challenges ahead. The cost of social protections for wages and pensions amounts to about EGP 180bn ($3.65bn), presenting a considerable economic burden.
However, observers hope these measures will lead Egypt towards monetary stability, continued economic reform, and a resurgence of the private sector as a major contributor to the economy.
Adept management
In addressing the imminent challenges, economists underscore the critical need for adept management during the current phase of a successful exchange rate liberalisation process.
This requires a thorough review of recent macroeconomic policies and formulating a coherent macro vision for the Egyptian economy.
It’s imperative that executive measures align seamlessly with the overarching vision, navigating a path towards economic success that considers both local realities and global shifts.
Drawing insights from past experiences, this approach should shape a more sophisticated and developed economic model. Analysts contend that the Central Bank's decisions and the agreement with the IMF serve as a reassuring message to institutions and investors.
This is expected to bolster foreign currency reserves, propelling the economy forward and contributing significantly to economic growth.
The ripple effect is anticipated to expedite the government’s implementation of its privatisation programme, a crucial step that has yet to materialise.