"A permanent shift to a flexible exchange rate regime" is one of the measures included in the Extended Fund Facility (EFF) 46-month package of $3 billion approved for Egypt by the IMF's Executive Board on Friday.

The Egyptian government filed for the new IMF loan in March to address the severe impacts of the Russian-Ukrainian war on the country’s economy.

The war has led to a drop in foreign currency reserves and downward pressures on the Egyptian pound.

Since, the government floated the exchange rate twice to attracct foreign currency.

In February, the government introduced new rules obliging all importers to use letters of credit to finance their imports in stead of the earlier collections system that was in force for many years.

The new rules were met by objections from some importers who said they would slow down supply chains and increase production costs thus leading to higher inflation.

In May, President Abdel-Fattah El-Sisi intervened by directing the government to exclude the importers of production supplies and raw materials from the letter of credit system.

In October, the government announced  that the letter of credit system would be phased out by the end of December.

Hollar said once the letter of credit requirement is lifted, "what we would expect to see is daily volatility in the exchange rate that is similar to the volatility observed in truly floating exchange rate regimes."

"We know that the central bank has not intervened to inject reserves into the foreign exchange market since we reached staff level agreement. But we also know that the backlog of imports has not been cleared," Hollar told Reuters.

The US dollar traded for EGP 24.68 in Egyptian banks on Tuesday.

An immediate disbursement of about $347 million under the new IMF programme is expected to be delivered to Egypt this week, according to Hollar.

Over the course of the program, the EFF is expected to catalyse additional financing of about $14 billion from Egypt’s international and regional partners.

Egypt has received two IMF loans in the last six years.

In 2016, Egypt received an IMF loan worth $12 billion for its economic reform programme that concluded in 2019. 

In 2020, Egypt also received two IMF loans worth about $8 billion to address the challenges posed by COVID-19.