Egp currency12/30/2023 In this regard, monetary policy under the program will be focused on fighting inflation and the erosion in purchasing power that is disproportionately affecting poor and middle-class families. Safeguarding macroeconomic stability and fighting inflation are key to ensuring prosperity for all Egyptians, in particular the most vulnerable. How does the program protect Egypt's vulnerable households? The remaining $3 billion will come from multilateral support. These will be in addition to the rollover of GCC deposits at the central bank. Importantly, Egypt has secured new financing of around $5 billion in FY2022/23 (first fiscal year of the program), of which $2 billion will be generated through the sale of equity in public sector companies, including as part of the authorities’ privatization strategy, executed by the Sovereign Fund of Egypt (SFE). While conditions in private international financial markets are difficult at this juncture for a large cross-section of emerging markets, Egypt included, there is sufficient international and regional financial support for the program. In addition, an important objective of IMF-supported programs is to catalyze broader financial support from international and bilateral partners, as well as private sector investors. IMF financial support under the program will fill part of the financing gap. The external financing gap represents the difference between the projected demand for and supply of foreign currency financing, including the demand for foreign currency to rebuild the foreign reserves of the central bank. In addition, it would help preserve the financial buffers of the central bank.Įgypt faces a large external financing gap. It would help Egypt’s domestic economy adjust more smoothly to external shocks, support the ability of Egyptian businesses to sell their goods and services abroad, and encourage greater investment by reducing the likelihood of large abrupt changes in the exchange rate. Flexibility in the exchange rate would bring several benefits. Under this framework, one would observe two-way movements in the exchange rate, as it appreciates or depreciates in line with economic conditions. The objective of policies under the Fund-supported program is, therefore, for the value of the Egyptian pound to be determined freely against other currencies (i.e., establish a flexible exchange rate), which would avoid the build-up of a chronic imbalances in the demand for and supply of foreign currency in Egypt and preserve the FX reserves of the central bank. These devaluations have led to spikes in inflation and undermined economic activity as consumers and investors lose confidence in the health of the Egyptian economy. It has led to periods of building imbalances, which in turn, have led to the loss of central and commercial bank foreign currency assets, rationing of foreign currency, forcing the central bank to abruptly devalue the Egyptian pound relative to other currencies. In the past, a heavily managed exchange rate has not served Egypt well. Why is exchange rate flexibility important for Egypt?
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