CAIRO (Reuters/Web Desk) – Egypt secured an expanded $8 billion deal on Wednesday with the International Monetary Fund (IMF), hours after the central bank unshackled its currency and delivered a 600 basis points rate hike in a push to stabilise the economy.
Additionally, Egypt would obtain a $1.2 billion loan for environmental sustainability, bringing its total from the IMF to more than $9 billion, the government said. This was towards the lower end of what some analysts expected.
The currency weakened to beyond 50 Egyptian pounds to the dollar – far beyond previous records – from about 30.85 pounds, a level Egypt has for months tried to defend. It closed at 49.4 to the dollar.
IT’S PAINFUL
Meanwhile, Egypt's move to devalue the pound was met with frustration online and on the streets, with Egyptians complaining about everything from the cost of diapers to the chicken price after years of struggling with low wages to afford them.
President Abdel Fattah al-Sisi let the Egyptian pound plunge in value in a bid to restore economic stability to the most populous Arab state with the help of billions of dollars of Gulf investment inflows.
However, some Egyptians wonder whether such high-profile moves will provide relief for them after years of hardships.
"This will magnify the suffering of citizens," said Eman Hussein, a doctor. "They should have held off on this step for a while because if the government doesn't make dollars available then we will find ourselves back in the same spot."
Egypt's central bank said it had hiked interest rates by 600 basis points and would let the pound trade freely.
The bank said its actions were "backed by the steadfast support of multilateral and bilateral partners" and "sufficient funding has been secured to avail foreign exchange liquidity".
Read more: Egypt pound nosedives as Cairo goes for free trading, hikes interest rates by 6pc
Egypt has in the past said it would move to a more flexible exchange rate, only to return to closely managing the currency whenever the pound weakened.
This time, it may be betting that hard currency inflows from investment projects including a $35 billion deal with the United Arab Emirates signed in late February will prevent a freefall.
The announcement on Feb 23 that Emirati sovereign fund ADQ will invest $35 billion within two months in the development of a new city on Egypt's north coast and other projects eased pressure on the Egyptian pound on the black market.
Read more: Domestic demand, household spending forbidden topics in Pakistan?
The Egyptian government says $10 billion of that money has already been transferred. "We got $35 billion – can you please reduce the price of diapers?" said a post on X.
SISI SAYS PROJECTS WILL PROVIDE JOBS
Egyptians have endured economic hardships for years while Sisi spent billions of dollars on a new capital city, bridges and other infrastructure.
The flagship project is a $58 billion New Administrative Capital rising in the desert east of Cairo, a site Sisi said would mark the birth of a new republic.
Read more: China development model to be remodelled, as Beijing targets around 5pc economic growth
Many have seen living standards slide and struggled with steep price increases for everyday goods and services. An estimated 60pc of the 106 million population is beneath or close to the poverty line. Prices for essential goods have soared.
As Egyptians endured hardships, Sisi told people to bear the economic pain and that his mega-projects would provide jobs.
"Don't we eat? We eat. Won't we drink? We drink, and everything is functioning. Things are expensive and some things are not available? So what?" said Sisi who took power after leading the overthrow of his democratically elected predecessor.
While the UAE money flowing in may produce relief for Egypt, some people are sceptical.
"Even if the devaluation will have a positive impact on the economy, it will still negatively impact citizens. Another devaluation and further increases in prices of all goods while wages are low," said Hussein
Breaded chicken, popular among the middle class, was a major indicator of market stability. The rise in prices alarmed Egyptians.
It generated jokes on X shortly after the economic measures were announced. "The dollar amounted to 50 pounds at banks and the world is in ruins. But his mother asks, will the breaded chicken price fall or rise?" someone wrote.