After approving the IMF loan, the price of the dollar in the parallel market in Egypt begins to decline

After the Executive Board of the International Monetary Fund announced its approval of the financing package for Egypt, the exchange rates of the dollar tended to decline, while a state of violent confusion dominated traders and speculators, in a way that may pave the way for the decline of the parallel market during the coming period.

According to a statement, the Managing Director of the International Monetary Fund, Kristalina Georgieva, confirmed after a discussion and approval of a 46-month agreement With Egypt under the Extended Fund Facility, Egypt has resolutely responded to the COVID-19 crisis thanks to its previous programs supported by the Fund. She explained that despite the acceleration of economic recovery during the year 2021, imbalances began to accumulate as a result of the stability of exchange rates, the high levels of public debt, and the delay in the pace of structural reform.

In the official exchange market, and while the exchange rate of the dollar at the Central Bank of Egypt stabilized at the level of 24.66 pounds for purchase, and 24.74 pounds for sale, the exchange rate of the green American paper in the black fell to the level of 32 pounds in late trading yesterday, Saturday, compared to about 36 pounds in transactions last Thursday.

Perhaps the scene that is taking place in the parallel exchange market in Egypt, and the state of confusion that controls speculators and traders, evokes what happened after the first flotation in November 2016, when the dollar exchange rate continued to rise to levels close to 20 pounds by the end of 2016, but then it retreated to level of 15.74 pounds.

The Director of the International Monetary Fund indicated that the war in Ukraine contributed to the crystallization of existing vulnerabilities, and caused an outflow of capital flows. It also led, in light of the continued fixation of the exchange rate, to a decline in the foreign exchange reserves of the Central Bank, a decrease in the net foreign assets of banks, and an exacerbation of imbalances. Exchange prices.

“A comprehensive package of macroeconomic and structural policies is needed to reduce these imbalances, maintain macroeconomic stability, restore buffers, enhance resilience to shocks, and pave the way towards private sector-led growth,” added Kristalina Georgieva.

In this context, we welcome the authorities’ recent commitment to a permanent shift to a flexible exchange rate regime, to address distortions resulting from previous policies through prior tightening of monetary policy, and to move forward towards strengthening the financial safety net.

The economic program of the Egyptian authorities, supported by the “Extended Fund Facility” agreement for a period of 46 months, includes a package of credible policies aimed at facing these challenges in the medium term. Georgieva pointed out that the permanent shift to a flexible exchange rate system will mitigate external shocks and prevent imbalances from re-emerging, and will allow monetary policy to focus on gradually reducing inflation.

Fiscal consolidation will ensure debt sustainability, while increasing social spending will protect vulnerable groups. Structural reforms will help reduce the state’s footprint, ensure fair competition between the public and private sectors, promote private sector-led growth, and enhance governance and transparency.

The Extended Fund Facility would bridge part of the financing gap and encourage the availability of more financing in the form of investments for Egypt from its international and regional partners to bridge the remaining gap. “In light of the mounting uncertainty and risks surrounding the global economic outlook, the authorities’ commitment to continue implementing the flexible exchange rate regime, macro-prudential policies and structural reforms is a crucial step,” Orgeva said.

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