Amid expectations of new pound float, US pledges to support Egypt's economy

U.S. Treasury Secretary Janet Yellen pledged support for Egypt's economy and reforms after meeting with senior financial officials in Washington on Tuesday to discuss increasing a $3 billion International Monetary Fund loan to Cairo.

An IMF spokesman said Egyptian officials, including Finance Minister Mohamed Maait and Central Bank Governor Hassan Abdullah, also planned to meet with IMF Managing Director Kristalina during a visit to Washington. Georgieva, but gave no details.

The meetings come as U.S. Secretary of State Antony Blinken is visiting the Middle East and trying to prevent Israel's war in Gaza from expanding into a regional conflict.

A Treasury Department statement said Yellen discussed the challenges Egypt faces as a result of the war. Gaza During a meeting with the Minister of Finance, the Governor of the Central Bank and the Minister of International Cooperation Rania Mashat.

“Secretary Yellen confirmed the United States' strong support for Egypt and its economic reform plans. She emphasized her goal of strengthening the Egyptian economy and supporting comprehensive and sustainable growth,” the U.S. Treasury Department said.

egyptian bonds

Egypt's dollar-denominated sovereign bonds rose by more than 1.3 cents today following the U.S. Treasury secretary's pledge, TradeWeb data showed.

Egypt's dollar bonds all rose, with the March 2024 maturity interest rate rising to 98 cents per dollar, with the longest maturity rates in 2050 and 2059 seeing the largest increases, with a maximum increase of 1.4 cents against the dollar.

Georgieva said in November that the International Monetary Fund was “seriously considering” increasing a $3 billion loan package for Egypt, which is suffering the economic fallout from Israel's war in Gaza.

Egypt is already saddled with high foreign debt and has been severely affected by the war in the Gaza Strip, which threatens to disrupt tourist bookings and gas imports, as well as recent ship attacks in the Red Sea.

The country's foreign debt has increased and has reached approximately US$165 billion, of which approximately US$29 billion will mature in 2024.

Egypt's loan program stalled in December 2022 as Cairo refused to freely float the currency or make progress on selling state assets.

The IMF has delayed about $700 million in funding due to be released in 2023, but said in December that it was in talks to expand the $3 billion program in light of the economic risks posed by Israel's war in Gaza.

Before the operation, she called Georgieva al aqsa floods Within hours, Cairo decided to devalue the Egyptian pound “to protect its precious reserves,” according to Bloomberg, before a spokesman for the International Monetary Fund revealed that the international agency's top priority had become lowering inflation.

Changing trends

Economist Samir Rauf told Al Jazeera that the trend at the IMF has changed as Israel's war in the Gaza Strip intensifies and Egypt's political role grows.

He added that there is an economic factor, namely that the continuation of the economic crisis will reduce Egypt's exports, while Europe is using them as a substitute for Russian products after the war in Ukraine.

Relatedly, Egypt's annual inflation rate fell to 35.2% in December from 36.4% in November, according to the Egyptian Public Mobilization and Statistics Authority.

Monthly inflation across the republic rose to 1.2% in December, compared with 0.9% in November.

The prices of food and beverages increased by 60.1%, the prices of clothing and footwear increased by about 22%, the prices of housing, water, electricity, gas and fuel increased by 7.3%, and the prices of furniture, fixtures, household equipment and maintenance increased by 38.1%.

Health care prices increased by 16.4%, transportation prices by 14.9%, and telecommunications prices by 1.8%.

In this regard, Rauf said, benefit In Egypt, interest rates are below levels that would help lower inflation, citing interest rates in the United States between 5.25% and 5.5%, while inflation reached 3.1% in November.

It is worth noting that the Egyptian Central Bank held its third consecutive monetary policy committee meeting last month and set the deposit interest rate at 19.25% and the loan interest rate at 20.25%.

exchange rate

Raouf expected Egypt to lower the exchange rate of the Egyptian pound (float the pound) and then proceed with the sale of state-owned assets as required by the plan agreed with Egypt. International Monetary FundHe added that the goal of lowering currency exchange rates in this context should be to eliminate multiple exchange rates of foreign currencies, especially the U.S. dollar.

He pointed out that the dollar has various prices; its official price at the Central Bank of Egypt is 30.93 pounds, while on the parallel market it is closer to 54 pounds, while banking companies assess the green banknote at around 58 pounds, and other industries also assess the price. different.