Lagarde Says Egypt Has More to Do to Seal $12 Billion Loan

EghtesadOnline: Egypt has “almost completed” the actions required for the International Monetary Fund’s board to review its $12 billion loan accord, but some measures related to the exchange rate and subsidies are still pending, Managing Director Christine Lagarde said on Saturday.

News ID: ۷۷۰۱۴۵

09 October 2016

The most populous Arab country is relying on the deal to restore investor confidence and ease a dollar shortage that hampered the economy and led to the emergence of a black market for foreign exchange. Masood Ahmed, the IMF Middle East chief, told reporters on Friday that the board may be able to review the agreement by early November, reports Bloomberg.

“There are several prior actions which need to be completed before the board can actually meet,” Lagarde said at a press briefing in Washington. “To my knowledge, these prior actions are almost completed -- not quite -- in relation to both exchange rate and in relation to subsidies, there is still a little bit of implementation to be had before the board can meet.”

Adding to Speculation

The comments will likely add to speculation that Egyptian policy makers will cut subsidies and devalue the pound before the IMF board meets and not after securing the first installment of the loan. The pound has plunged to record lows in recent days on the black market on speculation a devaluation was imminent.

“It’s inevitable at this point that they’re going to devalue,” Jean-Paul Pigat, senior economist at Dubai-based Emirates NBD PJSC, said in a Bloomberg Television interview. “If they want to sign the agreement or if they want the executive board to approve it, they’re going to need to loosen their controls.”

The benchmark EGX 30 Index for stocks gained 0.6 percent to 8,414.27, the highest intra-day level since Aug. 18, at 11:16 a.m. in Cairo. The measure has climbed 20 percent this year.

The central bank weakened the currency by more than 10 percent in March and parliament passed a law punishing illegal currency trading by jail. Central bank Governor Tarek Amer said in July that defending the exchange rate over the past five years was a “grave mistake.”

Lagarde said she hopes “that the board can meet promptly, and then once the board has met, it will have meant that the prior actions are completed, and therefore the first tranche can be released.”