01:52 PM
Sunday, December 18, 2022
I wrote – Manal Al-Masry:
Bankers, Masrawy spoke to, linked Egypt’s ability, represented by the Central Bank of Egypt, to follow a flexible exchange rate system for the pound once morest foreign currencies, with the presence of strong dollar flows to control the market, and adapting the requirements of the International Monetary Fund in accordance with the situation in Egypt, following allocating a low first payment for its disbursement. to Egypt from the total loan.
In its meeting on Saturday morning, the International Monetary Fund approved a 46-month cooperation program with Egypt that includes a $3 billion loan, with an immediate payment of $347 million of the total loan to help meet balance of payments and budget support needs.
Bankers believe that the value of the first payment is very low, as it came less than the expectations of Finance Minister Mohamed Maait, who had previously suggested it would be $750 million.
Among the most important determinants included in the package of policies that the Fund referred to in its statement, which is expected to be implemented by the Egyptian authorities during the program period, is the permanent shift to a flexible exchange rate system to enhance resilience in the face of external shocks and rebuild external protective reserves, criticizing the deviation of monetary policy at an earlier time from this path.
Kristalina Georgieva, Managing Director and Chair of the Executive Board of the International Monetary Fund, said that she welcomes the Egyptian authorities’ recent commitment to a permanent shift to a flexible exchange rate regime, to address distortions resulting from previous policies through prior tightening of monetary policy, and to move forward towards strengthening the financial safety net, according to the fund statement. .
Sahar El-Damaty, former vice president of Banque Misr, told Masrawy that the central bank can follow a flexible exchange rate for the pound once morest other foreign currencies, provided there are agreements with friendly countries such as the Gulf states and international institutions to obtain dollar flows that help it control the market.
She added that the liberalization of the exchange rate requires the availability of dollar resources in order to avoid a sudden rise of the dollar once morest the pound, which leads to an increase in prices and an increase in the rate of inflation.
In its statement, the International Monetary Fund expected that the “Extended Fund Facility” agreement, that is, (the loan) that it agreed to, would encourage Egypt to make additional financing available for Egypt over the course of the program, amounting to approximately $14 billion, from its international and regional partners, according to a statement from the fund in the early hours of the morning. Saturday.
Ahmed Kajouk, Deputy Minister of Finance, had said earlier that Egypt will receive $1.6 billion from 3 international institutions before the end of next June to bridge the budget deficit, with $1 billion from the World Bank, $400 million from the Asian Infrastructure Bank and more than $200 million. from the African Development Bank.
Ayman Yassin, a banking expert, told Masrawy that liberalizing the exchange rate or floating the pound is not the solution to get out of the current crisis in order to avoid returning to the same crisis, the drop in the price of the pound and the existence of two exchange rates.
He added that the first installment of the IMF loan is very low, “rather it may exacerbate the currency crisis, the lack of control of the exchange market, and it does not suit the needs of the Egyptian market, and this may lead to entering into a spiral of floating the exchange rate more than once.”
Ayman Yassin emphasized the need for a clear strategy for Egypt to increase foreign exchange resource flows from direct investments, exports, and tourism, and to enhance remittances from Egyptians working abroad.
A member of the board of directors of a private bank told Masrawy that if the central bank aims to curb inflation and control the pace of price increase, it is not in the interest to follow a flexible exchange rate system for the pound at this stage, which leads to increased speculation in the black market, especially since the first installment of a loan The International Monetary Fund is a minuscule amount that will do nothing.
He added that the Central Bank currently plays an important role in quickly intervening and using the foreign exchange reserves that are resorted to in times of economic crises, with the aim of immediately financing documentary credits for basic commodities to move the production wheel.
And a member of the board of directors in a bank believes that “there is no need to rush to raise interest or reduce the pound. Can we ask the International Monetary Fund to calm down a little, knowing full well that the central bank must be in control of the money market and not the other way around.”
And he continued: “By the testimony of history and tests, the complete liberalization of the exchange rate often does not succeed in times of crisis in achieving stability in the money market, especially since the Egyptian economy suffers from a severe shortage in the supply of foreign exchange due to the prevailing global conditions.”
He explained that complete liberalization requires a huge financial capacity for the monetary authority, which is not available now, and therefore the complete liberalization of the money market might have more bitter than sweet repercussions, “so let everything remain as it is.”
The source added that on the ground, raising the interest rate and liberalizing the exchange rate will not help in the short and medium term in addressing the current situation, and in order for these tools to succeed locally, the external factors affecting us negatively, the first of which is the Russian-Ukrainian war, must stop.
And he continued: “I hope that the Central Bank will keep interest rates as they are until the end of the year, and start facilitating and financing the activities of strategic documentary credits in a reasonable manner from traditional state sources through partial and interim use of the cash reserves with imposing a currency management commission of not less than 5% and we will be patient until the end of the year.” Things become clear.”
He stressed that “the central bank is wise and sensible not to pursue the harbingers of the parallel market,” expecting that the central bank will announce at the next meeting a new interim target for inflation rates.
