CAIRO: Egypt’s recent devaluation of its local currency is “an important step in the right direction” that would boost investments and economic growth, The International Monetary Fund (IMF) said Wednesday.
The report issued Wednesday on the occasion of Article IV consultations’ conclusion, the 1st assessment of Egypt’s economy since 2011, predicts that fiscal consolidation will slash the budget deficit below 8 percent of GDP by 2018/19.
Central Bank of Egypt (CBE) has taken tough procedures since January 18, a fight against the black market, allowing the pound to weaken against the U.S. dollar by 6.3 percent at 10 consecutive auctions.
“A more flexible exchange rate, reflecting supply and demand and consistent with an adequate level of reserves, as a way to improve the availability of foreign exchange for households and businesses, strengthen competitiveness, support the current account, and attract foreign direct investment,” said IMF Egypt Mission Chief Chris Jarvis, welcoming the recent movements in the exchange rate.
The Egyptian pound stabilized at 7.53 per U.S. dollar at a regular central bank auction Wednesday.
Egypt’s central bank has also imposed a $10,000 daily ceiling for cash deposits in hard currency for both individuals and companies, with a total monthly limit of $50,000 imposed. Further, the CBE widened the range in which banks can trade dollars to 10 piasters above or below the official rate, up from 3 piasters.
“Growth is projected to reach 3.8 percent in 2014/15 and to rise steadily to 5 percent over the medium term, which would create jobs and reduce unemployment,” said the IMF.
Egypt and the IMF have had a tense relationship since the January 25 Revolution, because of the international lender’s efforts to persuade Cairo to undertake economic reforms such as subsidy cuts and impose a value added tax.
Since President Abdel Fatah al-Sisi took office eight months ago, the government has begun to apply economic and fiscal reforms, including tax amendments and cutting fuel subsidies.
Commenting in a Wednesday statement, Minister of Finance Hany Kadry, said the IMF report is “positive” and “balanced.”
The report boosts confidence in the economic plan adopted by the government and its ability to increase employment rates and achieve the fiscal sustainability and economic stability, according to the minister.
Experts as well as the Ministry of Finance have stated they hope that the release of the report ahead of the economic summit set to be held in Sharm el-Sheikh in March would enhance investors’ confidence in Egypt’s economy.