IMF urges Egypt to address FX reserves leakage and multiple exchange rates

Ahram Online , Tuesday 20 Jun 2023

International Monetary Fund (IMF) Managing Director Kristalina Georgieva said that Egypt needs to work on preventing the leakage of foreign exchange (FX) reserves caused by the multiple exchange rates.

File Photo: International Monetary Fund (IMF) Managing Director Kristalina Georgieva. AP


Georgieva added, in an interview with Al Sharq Bloomberg published on Tuesday, that “when there is a support for the currency but not enough foreign exchange then this decreases the reserves and makes the situation of the country more difficult.”

She pointed out that having multiple exchange rates creates a privileged position for those who exchange their dollars on the parallel market, rather than at the official rate.

The Egyptian pound has lost over 100 percent of its trading value against the dollar since March 2022. Before the outbreak of the war in Ukraine, a dollar was trading for around EGP 15, whereas now it trades for EGP 31 at official rates.

However, in the parallel market, the dollar trades for between EGP 35-40.

The managing director’s remarks come after President Abdel-Fattah El-Sisi stated last week that the country has no intention of further devaluating the pound amid an inflationary wave that has depressed Egyptians’ purchasing power.

El-Sisi said last week “we are flexible in the exchange rate, to be clear. But when the matter touches on Egypt’s national security, and the Egyptian people are lost? No. No, no, no.”

Allowing a flexible exchange rate is among the requirements the Egyptian government promised to implement within the framework of an IMF-backed $3 billion loan deal

The Egyptian government is awaiting a review from the IMF to receive the second tranche of the loan. The review, originally scheduled for March, had reportedly been postponed to June.

However, when asked about the review, Georgieva said “we are aiming to have the first review complete,” without giving a specific timeframe.

She said that there are three areas that Egypt should work on to advance the competitiveness of the economy.

These are: getting the state out of the activities better suited for the private sector, increasing support for the most vulnerable people while reducing support for the rich and strengthening Egypt’s reserve position.

The managing director pointed out that the IMF is having a very good discussion with the Egyptian and that the government is taking the appropriate steps.

Among these steps is the recent agreement with the International Financial Corporation (IFC), the financial arm of the World Bank, to advise the Egyptian government in privatizing its state-owned companies.

“Egypt has done many things right… I have high respect for President El-Sisi and I trust that working together we can make the right decision for the country,” she concluded.

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