The International Monetary Fund (IMF) expected that inflation levels will fall sharply in Egypt by the end of this year, having risen at an accelerated pace due to reforms recommended by the international institution and applied by the country since November.
“The Central Bank of Egypt (CBE) remains committed to achieve its goal of reigning in inflation which is expected to decline to about 13 percent in the quarter ending December of 2018,” the IMF said in a statement on Friday, explaining that this rate constitutes about one third of the value of inflation, which has amounted to 32.1 percent from January to September.
The IMF's recommendation to liberalize the exchange rate prompted the CBE to lift local currency subsidy in November 2016, leading to the drop of the value of the Egyptian pound to more than half and the rise in inflation.
However, its monetary policy framework was underpinned by a flexible exchange rate regime which has eliminated chronic foreign exchange shortages and the parallel market.
Notably, Egypt has concluded a deal with the IMF in November 2016 to receive $12 billion in order to support reform processes.
The Fund team visited Cairo from October 25 to November 9, 2017 for discussions under Article IV of 2017 and for the second review of the performance of the International Fund for Agricultural Development (IFAD)-supported economic reform program.
At the end of the mission the IMF team issued a statement, indicating that Egypt has reached a staff-level agreement with the IMF for an installment of about $2 billion more from a three-year, $12 billion loan program.
“The payment, still subject to IMF executive board approval, will bring total disbursements under the program to about six billion dollars. Egypt is pushing through ambitious economic reforms under the loan deal,” the statement said.
As part of a second review, the IMF said broad reforms, which included a floatation of the pound currency, were beginning to pay off in terms of "macro-economic stabilization and return of confidence."
"While the reform process has required sacrifices in the short term, seizing the current moment of opportunity to transform Egypt into a dynamic, modern, and fast-growing economy will improve the living standards and increase prosperity," it added in its statement.
The IMF noted growth for the 2016/17 fiscal period had picked up to 4.2 percent compared to a forecast 3.5 percent, the current account deficit in dollar terms had narrowed and portfolio investments and foreign direct investment had increased.