Egypt Unlocks $8 Billion IMF Loan to Ease FX Crisis, Floats Pound

Egypt and the International Monetary Fund (IMF) agreed to more than double the country’s rescue program to $8 billion, the culmination of recent global efforts to stabilize the cash-strapped regional linchpin squeezed by wars and inflation.

The announcement followed moves to float the currency — tanking the pound as much as 38% — and hike interest rates by a record 600 basis points as the country led by President Abdel-Fattah El-Sisi has sought to meet longstanding economic reforms demanded from the IMF and backed by the US.

The IMF deal — as well as a crucial $35 billion recent investment commitment from the United Arab Emirates — underscores Egypt’s importance as a Middle East stalwart that’s too big to fail amid Israel’s war with Hamas and a conflict raging in neighboring Sudan.

Efforts to unlock the long-expected IMF loan and economic reforms were accelerated by the massive injection of cash from the UAE, via Abu Dhabi wealth fund ADQ.

Egypt has also been particularly hammered by conflict in recent years, with Russia’s invasion of Ukraine driving up wheat and oil import prices that drained dollar reserves, and the spillovers from the Israel-Hamas war hurting tourism and Suez Canal fees, both crucial sources of hard currency.

“We are on the right track for the country to be economically stable and strong,” Central Bank of Egypt Governor Hassan Abdalla said Wednesday night in Cairo, adding that the bank didn’t intervene in the foreign exchange market earlier in the day as the pound tanked.

The currency flotation may stoke inflation that’s already running near 30% and hurt Egyptians in the short term. But authorities are banking on the reforms attracting foreign investors back to the country of 105 million people and ending its worst economic crisis in decades.

“This basically means that Egypt is in a better position to meet all its short-term debt obligations and in fact also access new debt including eurobonds,” said Bilal Bassiouni, head of Middle East and North Africa forecasting for consulting firm Pangea-Risk. “We believe Egypt will be one of the new clients for eurobonds in 2024.”

Egypt’s sovereign bonds have delivered total returns of 24% to investors this year, the second-best performer among peers in emerging markets, according to a Bloomberg index, amid expectations a deal with the IMF would be clinched and more dollars investments would flow in.