Egypt Devalues Currency, Secures $8 Billion IMF Bailout

The Egyptian government has sealed a deal with the International Monetary Fund (IMF) to increase its bailout loan from $3 billion to a substantial $8 billion, as announced by Prime Minister Moustafa Madbouly on Wednesday.

This development follows the decision by the Central Bank of Egypt to allow the country’s currency to float freely, coupled with an unexpected rise in interest rates. The move is seen as an effort to attract foreign investors, responding to the economic strain caused by the ongoing conflict in Gaza.

After the currency was permitted to float, the Egyptian pound rapidly depreciated, losing over 60 percent of its value against the dollar within a few hours. Commercial banks in Egypt were trading the U.S. currency at more than 50 Egyptian pounds for $1, a stark increase from the previous rate of about 31 Egyptian pounds for the dollar.

As part of these measures, Egypt’s central bank monetary policy committee raised the benchmark interest rate by 600 basis points to 27.25 percent and increased the overnight lending rate by the same margin to 28.25 percent. These steps aim to expedite the monetary tightening process, fostering disinflation and ensuring a decline in underlying inflation.

Negotiations between Egypt and the IMF have been ongoing for months, with the original $3 billion bailout agreed upon in 2022. The program faced interruptions as Egypt maintained a tightly managed exchange rate for its pound over the past year and encountered delays in executing plans to divest state assets and boost private sector involvement.

Prime Minister Madbouly, in announcing the new agreement, highlighted that it would open avenues for additional loans from financial institutions, including the World Bank. As part of this arrangement, Egypt is set to receive a $1.2 billion loan from a separate facility dedicated to environmental sustainability.

In an official statement, the IMF expressed satisfaction with the agreement, stating that it was reached on the policies necessary to complete the first and second reviews under the program. The disbursement of funds is contingent on approval by the IMF Executive Board.

The statement read, “Amid significant macroeconomic challenges that have become more complex to manage with the impact of the recent conflict in Gaza on tourism and Suez Canal receipts, staff also considered the authorities’ request for an augmentation of IMF support to Egypt from SDR 2.35 billion (equivalent to about US$ 3 billion) to SDR 6.11 (equivalent to about US$ 8 billion).”

Additionally, the agreement outlined a new framework to slow down infrastructure spending, addressing projects that have operated outside regular budget oversight. This comprehensive policy package aims to preserve debt sustainability, restore price stability, and foster a well-functioning exchange rate system while pushing forward deep structural reforms to encourage private sector-led growth and job creation.