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IMF urges Egypt to embrace flexible exchange rate

Egypt is keen to diversify funding sources and enter new financial markets, such as India, said finance minister Mohamed Al Al Maait Reuters/Amr Abdallah Dalsh
Egypt is keen to diversify funding sources and enter new financial markets, such as India, said finance minister Mohamed Al Al Maait
  • Fund chief Jihad Azour says Cairo needs ‘full mechanism of flexibility’
  • Russia’s invasion of Ukraine has hit Egypt’s economy hard
  • Fears of further devaluation of pound scaring off foreign investors

The IMF chief responsible for the Middle East and Central Asia called on Egypt on Wednesday to liberalise its exchange rate fully, amid stasis in Cairo over a series of reforms demanded by the international community.

Speaking at an event in the Dubai International Financial Centre, Jihad Azour said that the Fund was in discussion with the Egyptian government about pushing through policy changes.

“When things change then policies need to change rapidly,” Azour said.

“The goal is to protect Egypt from external shocks. Moving to a flexible exchange rate regime that provides credibility to markets allows Egypt to be less affected by external shocks. This will require the full mechanism of flexibility.”

Egypt has been badly affected by Russia’s invasion of Ukraine which has driven up food and fuel prices and caused inflation to rise sharply.

The IMF signed a $3 billion extended fund facility with Cairo in December last year requiring, among other commitments, currency liberalisation and privatisation of a series of state-owned companies.

Disbursements under the IMF’s near-four-year programme are subject to eight reviews but the first has been delayed and no date has been set.

The Egyptian authorities have been trying to defend a peg at EGP30.9 to the dollar since March but a black market rate has developed in parallel.

Jihad Azour, the IMF's director of the Middle East and Central AsiaReuters/Jamal Saidi
Jihad Azour, the IMF’s director of the Middle East and Central Asia

Fears over a further devaluation of the Egyptian pound and inaction over policy are widely assumed to be discouraging foreign investors.

In February the government of prime minister Moustafa Madbouly announced that it would float 32 state and military-owned companies on the Egyptian Exchange but has subsequently offered no stakes and announced no sales.

Azour pointed to the success of IMF-backed programmes in Jordan and Morocco, which he said have enabled the two countries to access international capital markets.

The IMF is also in early-stage talks with Lebanon over a programme but political paralysis means that the country lacks a government.

Azour said that the Fund had reached an agreement on a number of policies with the interim Lebanese government: “Some of those reforms are in the process of being implemented but the work is not finished yet for us to present the programme.

“The currency keeps depreciating, inflation is very high, the capacity of the state to raise revenue is limited and social indicators are showing a deterioration. Therefore there is a delay.”