IMF more than doubles Egypt bailout deal to $8bn following devaluation

[DJKeefy]

Many now fear an imminent rise in fuel and food prices, as the government shifts to a flexible exchange rate that saw the currency dwindle in a matter of hours.

Egypt signed a $8bn deal with the International Monetary Fund on Wednesday after months of speculations, which includes a $5bn increase from an original deal, Prime Minister Mostafa Madbouly announced.

The deal comes a few hours after a decision by the central bank to float the Egyptian pound, one of the requirements of the international lender.

The agreement is an expansion of the $3bn, 46-month Extended Fund Facility deal between the IMF and the Egyptian government in December 2022.

Dispersal of the funds has been delayed as Cairo failed to meet conditions such as a shift to a flexible exchange rate and reduce the state's footprint in the economy.

Madbouly added that his government will receive an additional loan of about $1.2bn from a separate facility aimed at enhancing environmental sustainability.

The Central Bank of Egypt (CBE) announced earlier on Wednesday it was raising its key rate by an unprecedented six points to a record 27.25 percent, which caused the Egyptian pound to fall by more than a third of its value against the dollar, bringing the official rate closer to the black market rate.

Following this decision, the pound plummeted to approximately 50.5 EGP to the US dollar, at 14:00 local time, down from 31 in the year preceding the decision. This almost matches the black market rate of 50.78 recorded at the same time.

'Since last year, we have gradually seen prices rise based on the pound price on the black market'

The IMF's mission chief for Egypt, Ivanna Vladkova Hollar, welcomed the CBE’s measures as "decisive steps to move to a flexible exchange rate system, starting with unifying the exchange rate between the official and parallel market rates".

IMF deals and currency devaluations are usually feared to have knock-on effects on the cost of living for the poor in Egypt, home to more than 110 million people.

The World Bank estimated that nearly 30 percent of Egypt's population was poor in 2019 and many millions more at risk of falling below the poverty line.

The impact of the devaluation on inflation, however, remains uncertain, as the import-dependent economy already relied on black market rates.

Egypt's headline inflation reached 33.7 percent in December, and is expected to reach a peak of 45 percent in the fourth quarter of 2024, according to Oxford Economics think tank.

Prices already high
Many food products are already priced according to black market pound prices, which dropped as low as 70 pounds against the US dollar in recent months.

“Since last year, we have gradually seen prices rise based on the pound price on the black market,” Mohamed Gad, an economics researcher at the Egyptian Center for Economic and Social Rights, told Middle East Eye.

“Importers' dependence on the black market US dollar made them raise prices of consumer products,” he added.

As a result of the current flotation, Gad anticipates another hike in the price of basic commodities that are priced at the official pound rate and have already been fixed by the government, such as fuel, wheat, and subsidised bread.

According to Gad, pricing chaos already exists. “Many traders are taking advantage of the crisis and raising prices, so it is difficult to predict what level inflation will reach at this time,” he added.

Mohamed Abdallah, an owner of a small market in Cairo's Agouza, said he changes the prices of the products on his cashier machine each time he receives a new shipment, depending at what prices he buys the new goods.

He mentioned that a packet of green tea was worth 91 EGP ($1.84) two weeks ago, but now he sells it at 145 Egyptian pounds ($2.93) and “this will change again and again,” he told MEE.

Two weeks ago, Egypt agreed to a $35bn deal with the United Arab Emirates to develop the prime area of Ras el-Hekma on its northwestern coast.

Source: https://www.middleeasteye.net/news/imf- ... evaluation

XE Exchange Rate: 6th March 2024

1 GBP = 63.09 EGP
1 Euro = 53.96 EGP
1 Dollar = 49.50 EGP

[crewmeal]

I’m not quite au fait with Egyptian money problems but when I first came it was around 10LE to the £. In 2022 it slid down to 20LE to the £. Now this mess, can some explain what has happened. I know the govt spent a fortune on a new airport and city for the rich of the country, but where else has the $ billions gone?

[A-Four]

I’m not quite au fait with Egyptian money problems but when I first came it was around 10LE to the £. In 2022 it slid down to 20LE to the £. Now this mess, can some explain what has happened. I know the govt spent a fortune on a new airport and city for the rich of the country, but where else has the $ billions gone?

It is far from easy to explain Egypt's woes in a few paragraphs on here, but will try to deal with your immediate questions.

When the Iacobescu concern built Canary Wharf tower they could not get people to rent it, the company went bust, no one wanted to buy it, so Iacobescu bought the whole estate back at a massive knock down price, with in a year the tower was almost full at a greatly reduced rental price,.....the rest is history. The huge new city east of Cairo was built by the government (who cannot go bust), with massive loans from China, interest had to be paid on the loans. The whole idea of this project was to move the full civil service, and their families out of Cairo, therefore in effort to reduce rental prices in Cairo.

As for the new airport to the West of Cairo, its purpose was initially for goods only, but now we can clearly see it is for the future development of the new $35 Billion site by the U.A.E., which was kept secret until recent days.

As for where has all the $Billions have gone, loans do not come cheap, recently Egypt asked for $11Billion, instead of the initial $3 Billion, but the I.M.F said no, and instead loaned $8 Billion, this is perhaps because of the new trade agreement with BRICS. The I.M.F. have never cared about the poor, only high interest on its loans.

[crewmeal]

Thanks A-Four that helps. One point does anyone know if the UK donates foreign aid to Egypt? If so how much?

On another point it seems the low cost airlines only are using Sphinx airport for now. A couple of Turkish carriers are starting routes from mainland Turkey at the end of the month.

[A-Four]

Thanks A-Four that helps. One point does anyone know if the UK donates foreign aid to Egypt? If so how much?

On another point it seems the low cost airlines only are using Sphinx airport for now. A couple of Turkish carriers are starting routes from mainland Turkey at the end of the month.

With regards to aid to Egypt I too am uncertain, but the U.K. is a major trading nation with Egypt, often each year being it's most important. How this will change as a result of BRICS, no one really knows yet. We should not really see this nation as a third world country, but more as an emerging economy. It has made some big mistakes, it did not foresee Covid, like other countries, but was certainly less prepared than most other emerging economies around the world.

Your point regarding Sphinx airport being cheap for aeroplane arrivals is easy to answer, there are no landing chargers (or government taxes as they are better known), but will certainly change as the airport increase capacity. To explain this more easier, the likes of Easyjet started its life by offering cheap fares from the likes such as Luton to Orley airport in France (and not Charles de Gaule) both these airports are at least one hour journeys to the capital cities.

Therefore the airport taxes were low, and Easyjet could do fast turnover of passengers almost within 30 minutes, and being able to do so, enabled its plane to work faster than most of the others airlines. That is why even today you can be called to a gate, then suddenly realise there is a delay, but are held in that pen. This is because the fast turnover did not take place elsewhere.

Now that this airline has become stronger it is able to use the likes such as Gatwick, at a reduced tax rate, however getting into Heathrow will not be so, simply because the average turnover is no less than two hours, and taxes here are massive.