Egypt Secures IMF Deal Following Pound’s Plunge and Rate Hike

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Egypt finalized an expanded $8 billion agreement with the International Monetary Fund on Wednesday, shortly after the central bank loosened its grip on the currency and implemented a substantial 600 basis points rate hike to stabilize the economy.

Additionally, Egypt will receive a $1.2 billion loan for environmental sustainability, pushing its total IMF support to over $9 billion, as announced by the government. This figure was slightly below some analysts’ expectations.

The Egyptian pound depreciated to over 50 pounds per dollar, surpassing previous records, from around 30.85 pounds, a level that Egypt had been defending for months. Although Egypt had previously stated intentions to adopt a more flexible exchange rate, it often reverted to closely managing the currency during periods of pound depreciation. This time, amid a prolonged economic crisis linked to chronic foreign currency shortages, Egypt may be banking on significant hard currency inflows, including a recent $35 billion investment deal with the United Arab Emirates, to prevent a currency freefall.

Egypt’s international bonds surged in early trading in anticipation of the IMF deal, with longer-dated bonds rising around 4 cents before retracting some gains. Despite initial gains, the bonds eventually receded, with the 2047 bond up 0.2 cents at 79.9 cents after peaking at 83.5, according to Tradeweb data. The premium demanded by investors to hold Egypt’s international bonds over safe-haven U.S. Treasuries tightened to as little as 529 basis points, its lowest level since June 2021, according to JPMorgan.