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Wednesday, January 2, 2013

IMF supported the new currency regime imposed in Egypt

Egypt's Prime Minister Hisham Qandeel, Head of IMF
Christine Lagarde and Egypt's President Mohamed

At the end of 2012 Egypt’s Prime Minister Hisham Qandeel has announced during his speech at the meeting of the Cabinet that the negotiations with IMF over the $ 4.8 billion loan will resume in January 2012.

The loan claims to be very important for the suffering Egyptian economy and should help to improve the economical conditions and to stabilize the situation in the country, bringing more stability and attracting the foreign investors to come back on the Egyptian market.

The talks over the loan have been started in summer 2012, and the Head of IMF and also special technical team of IMF have arrived in Cairo for the talks with Egypt’s government and economy team in attempt to learn the new economic program and give its recommendations. 

Among the recommendations given by IMF were also some austerity measures to be imposed in the country to cut the budget deficit.

The decision regarding the loan was expected to be made in November 2012, but it was delayed due to the political instability and turmoil in Egypt after Egypt’s President Mohamed Morsy has announced his controversial Constitutional Declaration. The wave of demonstrations and protests has started in the country ahead of the historical Constitutional Referendum. Thus the talks over the requested $4.8 billion loan between Egypt and IMF have been postponed, and the state’s Prime Minister has announced they will be continued this January.

The IMF team has also welcomed the recently made decisions of Egypt’s government regarding the taxes and currency regime.

I would like to share here Ahram Online’s article covering this issue. The article is based on Ahram Online’s and Reuters’ materials.

The article is originally published here.

IMF welcomes Egypt's new currency regime

The International Monetary Fund welcomes measures taken by the Central Bank of Egypt to maintain tighter control over foreign currency supply in order to safeguard nation's international reserves

Reuters and Ahram Online, Tuesday 1 Jan 2013

The International Monetary Fund said on Monday it welcomed steps that Egypt has taken to stop a drain on its international reserves which had recently caused Egyptian pound hit record lows.
"We welcome the measures taken by the Central Bank of Egypt (CBE) to ensure that the country will continue to maintain a level of international reserves that can support its international trade and payments," an IMF spokeswoman said.

"IMF staff is in close contact with the authorities and we remain strongly committed to supporting Egypt."

Egypt, which has spent more than $20 billion over the past two years to defend the pound, imposed a new currency regime on Saturday that includes regular foreign currency auctions. The pound hit record lows in auctions on both Sunday and Monday in what appeared to be an effort to achieve an orderly devaluation.

IMF's Head Christine Lagarde during her August visit to Cairo
The IMF's stamp of approval is important to the government because Egypt is hoping to secure a $4.8 billion loan from the lender.

Egypt won preliminary approval for the loan in November, but delayed seeking final approval until January in what appeared like an attempt to buy time to explain a heavily criticised package of economic austerity measures to the public.

The new currency regime entails that the CBE provide local banks with foreign currency through periodical auctions. By doing so, CBE aims both to control the supply of the US dollar and manage a gradual devaluation of the Egyptian pound.

In addition, CBE also announced several meassures to thwart the dollarisation wave caused by uncertainty about the pound's future projected value. Those included putting a limit on corporate cash withdrawals at $30,000 per day and placing a two per cent administrative fee on individuals who purchase foreign currencies.

The Egyptian pound is currently traded at around LE6.42 to the dollar.