The International Monetary Fund announced Thursday that a $12 billion loan programme for Egypt should soon be ready for board approval and insisted that it would not urge for cuts to food subsidies.
“Progress has been made on a number of objectives and actions under that programme…and we expect the programme to come to the board within the next few weeks,” IMF spokesman Gerry Rice told a news briefing in Washington.
Egypt is battling a severe shortage of foreign currency that has crippled its economy and threatens to fuel spiraling inflation as it negotiates the final pre-conditions of the IMF deal, which include movement toward a flexible exchange rate.
Speculation that this will mean a swift devaluation of the pound drove Egypt’s currency to a new black-market low of 16.8 to the dollar on Thursday, against the inflated official rate of 8.8 to the dollar.
IMF Managing Director Christine Lagarde said in Riyadh on Thursday that “local circumstances” will determine the best way for Egypt to deal with its exchange-rate crisis, but she welcomed the Egyptian government’s willingness to do so.
“In terms of exchange rates, there is currently a crisis, because if you look at the official price, and you look at the gray market price there is a 100 percent difference, and that needs to be addressed,” Lagarde said in an interview with Bloomberg Television. “Historically, we have seen rapid transitions being most efficient, but it’s really a matter of circumstances.”
Rice said that IMF board consideration of the Egypt program also depends on the government putting in place up to $6 billion in bilateral financing that will help sustain Egypt in the first year of the programme and supplement about $4 billion in first-year funding from the IMF, Rice said.
“Egypt has made good progress to secure this financing, including contributions from China, Saudi Arabia and G7 countries,” he said, without providing specific details of the contributions.
But Rice said additional progress is needed toward key reforms required in an IMF staff-level agreement with Egypt reached in July, including steps to implement a recently passed budget and value-added tax, a government plan to reduce energy subsidies and efforts to “move gradually” toward a more flexible exchange rate.
But he said the programme would not include cuts to food subsidies. Instead, it would allow for some budget savings to be diverted to programs that aid the poor, calling this a “cornerstone” of the deal.