U.S. Treasury Secretary, Janet Yellen, has pledged support for the Egyptian economy and its reforms following a meeting with Egypt's top financial officials in Washington on Tuesday, amidst discussions about increasing the International Monetary Fund's loan for Cairo, which is valued at $3 billion.
A spokesperson for the IMF stated that the Egyptian officials, including the Finance Minister Mohammed Maait and the Central Bank Governor Hassan Abdullah, are also scheduled to meet with the Fund's Managing Director, Kristalina Georgieva, during their visit to Washington, though no further details were disclosed.
The meetings are taking place while the U.S. Secretary of State, Antony Blinken, is visiting the Middle East, striving to prevent the Israeli conflict in Gaza from escalating into a regional war.
According to a Treasury Department statement, Yellen discussed the challenges faced by Egypt arising from the war on Gaza during her meeting with the Finance Minister, the Central Bank Governor, and the International Cooperation Minister, Rania Al-Mashat.
The Treasury Department noted, "Secretary Yellen affirmed the United States’ strong support for Egypt and its economic reform program. She emphasized the goal of strengthening the Egyptian economy and supporting inclusive and sustainable growth."
Treasury Secretary Janet Yellen said her country would support Egypt's economy during the current phase (Associated Press)
Egyptian Bonds
TradeWeb data showed that Egyptian sovereign dollar bonds rose more than 1.3 cents today following pledges by the U.S. Treasury Secretary.
All of Egypt's dollar bonds experienced an increase, with the price of bonds due in March 2024 rising to 98 cents on the dollar. Longer-term bonds for the years 2050 and 2059 saw the most significant gains, increasing by up to 1.4 cents against the dollar.
In November, Georgieva stated that the IMF was "seriously considering" increasing Egypt's $3 billion loan program as the country suffers from the economic impact of the Israeli war on Gaza.
Egypt is already struggling with high levels of foreign debt and has been severely affected by the war in the Gaza Strip that threatens to disrupt tourism bookings and natural gas imports, as well as recent attacks on ships in the Red Sea.
The country's external debt has been growing, reaching nearly $165 billion, including about $29 billion due in 2024.
Egypt's loan program stalled in December 2022 after Cairo refrained from floating its currency freely or making progress in selling state assets.
The Fund postponed the disbursement of approximately $700 million expected in 2023 but stated in December that it was in talks to expand the $3 billion program due to economic risks stemming from the Israeli war on Gaza.
Prior to Al-Aqsa Flood operation, Georgieva encouraged Cairo to devalue the Egyptian pound "to preserve its precious reserves," according to Bloomberg, before an IMF spokesperson revealed that the institution's priority had shifted to reducing inflation.
Shifting Perspectives
Economic expert Samir Raouf told Al Jazeera Net that there has been a change in the IMF's approach owing to Egypt's increased political role amid the intensifying Israeli war on Gaza.
He added that an economic factor is at play: the ongoing economic crisis is likely to reduce Egyptian exports at a time when Europe uses them as alternatives to Russian products due to the war in Ukraine.
Meanwhile, Egypt's annual inflation rate dropped to 35.2% in December from 36.4% recorded in November, according to data from the Central Agency for Public Mobilization and Statistics.
The monthly inflation rate for the total republic rose to 1.2% in December compared to 0.9% in November.
Prices for food and beverages soared by 60.1%, clothing and footwear prices increased by around 22%, and housing, water, electricity, gas, and fuel costs went up by 7.3%. Furniture, household equipment, and maintenance items saw a 38.1% price hike.
Healthcare costs surged by 16.4%, transportation rates by 14.9%, and communications prices by 1.8%.
Raouf notes that interest rates in Egypt are below the level that helps to reduce inflation rates, citing U.S. interest rates ranging between 5.25% and 5.5%, while the inflation rate was 3.1% in November.
The Central Bank of Egypt held the interest rate steady during the past month for the third consecutive Monetary Policy Committee meeting at 19.25% for deposits and 20.25% for lending.
Exchange Rate
Raouf predicts that Egypt will devalue its currency (float the pound) before proceeding with the sale of state-owned assets as required by the program agreed upon with the IMF. He emphasizes that the goal of reducing the exchange rate should be to eliminate multiple foreign currency exchange rates, especially for the U.S. dollar.
He pointed out that there are multiple exchange rates for the dollar: the official rate at the Central Bank of Egypt stands at 30.93 Egyptian pounds, while on the parallel market, it nears 54 pounds. Currency exchange companies value the greenback at around 58 pounds, and other industries have different pricing rates.
