IMF Boss says deal with Egypt ‘close’ after rate hike caps talks
The International Monetary Fund is close to agreeing on a new financial package for Egypt, according to the Washington-based lender’s managing director.
“We are in this very last stretch, where we are working on the details of implementation,” Kristalina Georgieva said in a briefing in Washington late on Thursday. “We are very close; we’re not talking about a long protracted period at all.”
The talks are a “top priority” for the IMF because of Egypt’s importance to the wider region, she said.
Global markets are watching the negotiations closely, given that Egypt — the Arab world’s most populous country — is suffering from its worst economic crisis in decades and dire shortages of foreign exchange.
Egypt’s dollar-bond yields have fallen since late last year, but still average around 13.5%, according to Bloomberg indexes. Its spreads over US Treasuries are close to 1,000 basis points, a level considered distressed by most traders.
Around the same time Georgieva spoke, Egypt unexpectedly hiked its main interest rate by 200 basis points to 21.25%. Most analysts had predicted a hold.
The fund and Egypt are working on a potential deal that may bring in partners such as the World Bank and exceed $10 billion, Bloomberg reported on Thursday. That’s a sum that would go a long way toward easing Egypt’s crisis.
An IMF team ended a roughly two-week visit to Egypt on Thursday. Vladkova Hollar, who headed the mission, said they had “made excellent progress.”
“The IMF team and the Egyptian authorities have agreed on the main policy elements of the program,” Hollar said. “The authorities expressed a strong commitment to act promptly on all critical aspects of Egypt’s economic reform program.”
The two sides will continue to work over the coming days to finalize a so-called Memorandum of Economic and Financial Policies and “identify the magnitude of additional support from the IMF and other bilateral and multilateral development partners,” she said.
Egypt has a $3 billion IMF program in place already. But hardly any of it has been disbursed, partly because the fund first wanted Egypt to allow a more flexible exchange rate and make good on other economic reforms.
The government is widely expected to devalue the pound in the coming months. While the currency’s official rate has held around 30.9 per dollar since last March, it’s trading between 65 and 70 on the black market, underscoring the sheer scarcity of hard currency in the nation.
