The International Monetary Fund (IMF) admits that the value of the Egyptian pound has depreciated more than was expected following the floatation of the currency.
Chris Jarvis, IMF mission chief for Egypt, said the fund had not anticipated the sharp fall in the value of the local currency following an IMF-recommended float of the Egyptian pound in November 2016.
The Egyptian pound is currently trading at approximately EG18 to the dollar, which is more than a 50 per cent depreciation from the artificial peg of EG8.8 before the float.
Cairo abandoned the peg in an effort to attract inflow of capital and curb the black market. The decision, which drove inflation to reach 24.3 per cent in December 2016, was also part of a set of conditions set by the IMF in order for Egypt to qualify for a $12bn loan. Egypt received the first tranche of the loan at the end of 2016.
Cairo committed to a number of key economic reforms, some of which have already been achieved, including a new sales tax of 14 per cent in 2016.
Other reforms include cutting state subsidies and curbing the public sector wage bill. The authorities have committed to 100 per cent cost recovery of fuel products by 2018/19, compared with 56 per cent at present. Meanwhile, the IMF has welcomed measures included in the Civil Service Law to eliminate indexation of public sector bonuses. Offsetting this, the IMF has approved some fiscal measures designed to ease the burden on the poorest households, said a Capital Economics report on the IMF deal.
Egypt currently runs a budget deficit in excess of 10 per cent of GDP, while public debt is approaching 100 per cent of GDP.