Egypt Nets New IMF Loan but Pound Plunges

Egypt secured an additional US$5 billion in loans from the International Monetary Fund on Wednesday after the central bank raised interest rates and allowed the pound to plunge in value by nearly 40%.

The bank said it was committed to “allowing the exchange rate to be determined by market forces” and unifying the official and black-market exchange rates. The pound fell a record low of about 50 to the US dollar, after more than a year of an enforced official exchange rate of about 31. Shoppers in Cairo voiced concern. “It affects us in every way,” said Ezzat Hemaida. “Once the merchants knew the rate had changed, prices rose immediately.”

A flexible exchange rate and tighter monetary policy were among the conditions set by the IMF, which for the past year has delayed its loan tranches and reviews. Egypt has already devalued its currency three times recently, but had previously held back from fully floating the pound amid concerns for the impact on Egyptians, two-thirds of whom live on or below the poverty line.

The economy, dominated by military-linked enterprises and focused on expensive infrastructure megaprojects, has been hit hard by recent shocks. Investors pulled billions out of the country when Russia invaded Ukraine and the cost of wheat and other imports surged. Remittances from overseas Egyptian workers, a key source of foreign currency, slumped by as much as 30% in July-September 2023 alone. And the other main source of foreign currency, Suez Canal revenue, has been cut in half by Houthi attacks in the Rea Sea.