Investors Press IMF on Egypt’s Currency After Pound Holds Steady

Investors have pressed the International Monetary Fund for details about the Egyptian pound’s steady performance despite authorities’ commitment to a flexible exchange rate, according to people familiar with the matter.

The closed-door gatherings on the sidelines of the IMF and World Bank annual meetings in Washington last month took place ahead of Managing Director Kristalina Georgieva’s visit to Cairo next week, when a mission is set to review the advance of the country’s $8 billion program.

IMF representatives told investors that the lender will address the flexibility of the currency with authorities, said the people, who asked not to be identified because the talks were private. An IMF official said that the pound’s reaction to regional shocks has been muted, without giving details on policy prescriptions, the people said.

Bloomberg News has reached out to the IMF for comment. In an August statement, the fund said that a flexible exchange rate regime “remains a cornerstone of the authorities’ program.”

The Egyptian pound has been trading in a tight range since a devaluation in early March, when authorities allowed it to plunge by nearly 40% to around 50 per dollar in a bid to stem a two-year crisis. The currency rebounded slightly in the following weeks, and has been trading at an average above 48 per dollar since April.

Before the devaluation, Egypt kept the pound steady for around a year. The policy left the pound significantly overvalued, according to investors and economists, and was a key reason for foreign inflows drying up and soaring inflation.

Taxes, Privatization

Increasing revenues is also a central goal of the IMF program, but Israel’s year-long conflicts with Hamas and Hezbollah have put a strain on Middle Eastern economies, and sharply reduced Egypt’s revenue from shipping via the Suez Canal. That’s left investors looking for details on how authorities plan to plug the gap.

Egypt announced after the IMF meetings that the program to offer stakes in state-held companies will be reviewed. Authorities are pushing ahead for now with the sale of a stake in United Bank through an initial public offering planned for early next year. 

Egypt in March agreed on an expanded IMF loan deal as part of a bailout for an economy that had been mired since early 2022 in a grueling foreign-exchange crisis. Authorities have since pushed through sharp cuts in subsidies for fuel, bread and electricity, easing budget pressures but piling more hardship on citizens.

The government is compiling a wide-ranging survey to gauge the impact of the measures on the Middle East’s largest population and is working with the IMF on how to shield the most vulnerable, Jihad Azour, the IMF director for the Middle East, North Africa and Central Asia, said in an interview this week.

“FX flexibility and VAT reforms are still the key outstanding items on the program, yet we think it’s likely that the fourth review of the program will pass following the upcoming IMF mission to Cairo,” Morgan Stanley analysts said in a report published on Thursday.