Cairo - -Muabsher: Today’s announcement that Egypt has managed to reach a staff-level agreement with the IMF bodes well for the country’s medium-term growth prospects, said a recent report compiled by Capital Economics.
In the near-term, a deal with the Fund is likely to lead to a devaluation of the pound and higher interest rates, noted the report.
“We don’t have many details at this stage”, noted the report. According to the Fund, the deal is likely to be around $12bn over three years, which is in line with what the Egyptian government had previously suggested
“As we’ve noted before, the package should help to plug Egypt’s gross external financing requirement (particularly if it is accompanied by lending from other international institutions and a planned Eurobond issuance),” said the report.
Capital Economics said also it expects the Egyptian pound to drop to 9.5/$ by end-2016 from 8.88/$ now, although the risk now is that it falls further, noting the central bank is likely to respond by hiking interest rates
Egyptian financial markets are likely to react positively to the news, pointed out the report.
“As for the economy, we don’t expect IMF lending to lead to an immediate turnaround. In the near term, high inflation and tighter monetary and fiscal policy will prevent domestic demand from strengthening significantly,” added the report.
