Egypt’s sovereign dollar bonds experienced a notable gain of more than 1 cent today following the International Monetary Fund (IMF) announcement regarding its agreement with the Egyptian government on key policy components crucial to the nation’s economic reform program.
Among the sovereign bonds, the 2027 note witnessed the most significant increase, rising by 1.2 cents to trade at 77.29 cents in the dollar, according to data from Tradeweb. This hike reflects growing optimism in the market as a final deal to augment the existing $3 billion loan appears to be on the horizon.
IMF-Egypt agreement
IMF and Egypt have agreed on the main policy elements crucial for the economic reform program. Egyptian authorities expressed a strong commitment to promptly address critical aspects of the reform program. Additionally, both parties emphasized the importance of enhancing social spending to protect vulnerable groups affected by rising prices.
Despite the positive developments, discussions between the IMF mission and Egyptian authorities are set to continue virtually in the coming days. The focus will be on finalizing the Memorandum of Economic and Financial Policies (MEFP) and determining the extent of additional support required from the IMF and other development partners to address Egypt’s increased financing gaps resulting from recent economic shocks.
Interest rate hike
Simultaneously, as the IMF engaged in talks, Egypt’s central bank took an unexpected step by increasing the country’s benchmark interest rates. The lending rate rose by 200 basis points to 22.25 percent. Meanwhile, the deposit rate increased to 21.25 percent. This move aims to tackle Egypt’s staggering inflation rate of 34 percent.
Read: CBE raises interest rates by 200 basis points: Is a currency devaluation on the horizon?
$10 billion assistance package
The IMF delegation’s presence in Egypt is part of talks that could lead to an assistance package exceeding $10 billion for the government. This proposed amount represents a significant increase from the previously approved $3 billion Extended Fund Facility (EFF) in December 2022. The initial conditions included a shift to a flexible exchange rate regime and the implementation of monetary policies to reduce the inflation rate.
Notably, the second tranche of the $3 billion IMF loan, totaling $354 million, has been paused due to Egypt’s failure to implement the agreed-upon conditions. The country needed to raise its net international reserves to $6 billion by June 2023 and float the Egyptian Pound exchange rate.
The recent surge in Egypt’s sovereign dollar bonds indicates growing confidence in the nation’s economic prospects following positive developments in talks with the IMF. As discussions continue, stakeholders closely watch for the finalization of the economic reform program and the potential impact on Egypt’s financial landscape.
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