The International Monetary Fund (IMF) has approved the second tranche of a $12 billion loan to Egypt, praising the country’s tough economic reforms that have fueled inflation. In a statement on Thursday, IMF Managing Director Christine Lagarde said the approval of the roughly $1.25 billion tranche showed “the IMF's strong support for Egypt in these efforts.”
The IMF and Egypt had agreed on the loan last November, as the North African country devalued the pound and after it introduced a value-added tax (VAT) in a bid to boost government finances and its foreign reserves. Egypt has also slashed fuel subsidies, most recently last month. “We believe that these efforts will yield results,” Lagarde said in the statement.
But concerns remained about inflation, which hit 32.9 percent in April before declining slightly in May.
“The authorities’ immediate priority is to reduce inflation, which poses a risk to macroeconomic stability and hurts the poor. The Central Bank of Egypt has taken significant steps to reduce inflation by raising policy interest rates and absorbing excess liquidity,” said David Lipton, the IMF’s acting chair, in a statement.
The government in June announced an increase in fuel prices of up to 55 percent, the second since November when it also floated the currency. Analysts believe the fuel price rises will further increase inflation. The pound has also continued to trade at a rate that is lower than was expected before the flotation. The pound trades at about 18 to the dollar, compared with 8.9 before November.