According to the International Monetary Fund, Egypt has created a “well-functioning” currency market that is evident in the pound’s current rate. The IMF added that the currency may strengthen after a period of “overshooting” since last year’s float.
Egypt floated its currency in the month of November to qualify for the IMF loan, which according to officials will help raise funds and restore investor confidence. The pound lost about half its value, with prices soaring at the fastest pace in almost 12 years in December -- pushed higher by a rise in fuel prices and a new value-added tax.
The pound went up 0.9 percent to 18.65 per dollar on Thursday. Egypt’s benchmark stock index, however, fell 3.5 percent.
The IMF predicts the inflation to go down in the second half of 2017. When that starts to happen, interest rates will “come down to permit credit recovery,” the IMF staff said in the report presented to the lender’s board before it approved the loan.
The program of economic reforms will take time to take effect according to the IMF with growth predicted to be around 4 percent in the current fiscal year “well below” its potential. Egypt cut its growth forecast for this fiscal year to 4 percent from 5 percent this month.
In the final year of the program, gross foreign reserves are anticipated to reach around $33 billion and Egypt will pay all its arrears due to international oil companies by the time June 2019 ends.
Egypt’s government also plants to keep wage growth for its government workers below the projected inflation. This will help reduce the budget deficit to 4.7 percent of GDP in the final year of the program. In the last fiscal year, it was 12.1 percent.