'What more could we lose?' Egyptians react to IMF bailout and plunging currency

Citizens worry about their savings and another financial crisis despite experts' optimism that move could kick-start economic recovery

The IMF's $8 billion bailout was implemented on Wednesday, after Egypt's central bank raised interest rates and allowed the local currency to float freely without state intervention. EPA
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Egyptians have reacted with a mix of concern and optimism to the country's latest bailout from the IMF after the value of the Egyptian pound plummeted following the government's decision to float the currency for the first time.

The IMF's much-anticipated $8 billion bailout was finally implemented on Wednesday, hours after the Central Bank of Egypt increased interest rates and allowed the local currency to float freely without state intervention.

The flotation, which was in discussions for months, was a key condition from the IMF to approve the loan to Egypt. However it sent the pound falling to a record low on official markets, reaching about 52 pounds to the US dollar on Wednesday afternoon.

Analysts told The National that the bailout is good for Egypt’s economy, which has been on a steep decline for years with inflation reaching unprecedented highs, but many Egyptians have reacted with apprehension and uncertainty.

'When I heard the news yesterday, it made my skin crawl a bit, and I thought, what more could we lose at this point,” said Hanan Refaie, a 38-year-old mother of three, whose savings lost their value when the government first devalued the currency to secure another IMF loan in 2016.

Despite many citizens echoing Ms Refaie's feelings, experts say the move is necessary to cut black market currency trading and kick-start Egypt's economic recovery alongside a lucrative development deal with an Emirati consortium.

Wednesday’s flotation was partly facilitated by capital inflows from a deal the Egyptian government signed with a consortium led by Abu Dhabi Developments Holding Company (ADQ). The consortium provided $35 billion in exchange for the rights to develop a stretch of Egypt’s Mediterranean coast, an area known as Ras El Hekma.

The deal was welcomed by economists and was also a key facilitator of the IMF bailout, which the fund increased to $8 billion after initially agreeing in 2022 to supply $3 billion over 46 months.

The currency inflows from the Ras El Hekma deal will enable the government to plug its financing gap for four years, according to a Goldman Sachs report, and have provided vital breathing room for the state, which has been suffering from a liquidity crisis.

It will also provide the government with the liquidity to tackle the currency black market, where US dollars have been trading at more than double the official exchange rate, which was fixed by the government at 30 pounds per dollar until Wednesday.

“The best part of the flotation is the eradication of black market currency trading,” said Dr Ahmed Ghoneim, a Professor of Economics at Cairo University. “It has been a plague on the country since last year and it has negatively affected the general populace and raised costs of living.”

“The Emirati deal means the government has enough cash to secure sums of dollars for imports which are essential for medicines and industries all around,” he said.

The flotation appears to have initially accomplished this goal, as the black market US dollar has been trading at around the same rate as the banks since Wednesday evening, at around 50 Egyptian pounds.

“It is undoubtedly going to bring down our dealings for the foreseeable future,” a black market currency trader told The National. “The rate we provide is not going to be much higher than the bank, now that banks have dollars, they will cover a lot of the demand.

“Plus, I think many people have been worried about getting arrested for trading dollars so they will most likely go to the bank and be safe. We will retain the clients who have strong reasons to not deal with banks,” he added.

But for other Egyptians, news of the IMF bailout brought back unwelcome memories of the 2016 devaluation to secure an earlier loan of $12 billion from the fund.

Many Egyptians remember the 2016 bailout bitterly because, like Ms Refaie, their savings lost vast amounts of value.

“I remember it as a black year. I lost most of my savings after the first devaluation and at the time all the news was talking about was the deal with the fund and how good it would be for us,” she said.

“The news is on the same note as it was in 2016. Everyone said we should celebrate then, but things got more expensive anyway. So, I will believe it when I see it,” she told The National.

Food prices in Egypt briefly fell following the announcement of the Ras El Hekma deal, but have since returned to their previous high levels.

With the holy month of Ramadan approaching, when families spend more on food for iftar meals, Egyptians voiced fears that the IMF bailout and related measures will not deliver the drop in the cost of living promised by the government.

Prime Minister Moustafa Madbouly announced on Thursday that the government’s top priority is to secure foreign currency for importing food and medication, which has been in dangerously short supply for months.

A Thursday report from Goldman Sachs said the flotation and the IMF deal were likely to reduce inflation in the near term and facilitate imports “thanks to the appreciation of the currency in the parallel market, the prospective appreciation of the official rate and the easing of supply chains with the release of goods from ports and the clearing of the FX backlog”.

But the drop in value of the Egyptian pound against the US dollar has worried many Egyptians.

“I spent the entire day yesterday staring at my phone screen in disbelief. Never in my life have I seen the pound’s value get so low on official markets. It was a feeling you can’t describe,” said Farah Mohamed, 44, the owner of an interior design studio.

“Part of me was happy because my bank said it would be able to secure dollars for my imports. I import a lot of the materials I work with. But a part of me was sad to see the Egyptian pound take such a hit. My nationalistic streak kind of took over.”

Other Egyptians expressed more sardonic reactions online.

“Before throwing me into the deep sea, why not teach me how not to sink first?” wrote one user on X, highlighting a common criticism of the government’s handling of the economy which continues to suffer from rampant levels of corruption and an overbearing state presence that has diminished the private sector.

Others voiced concern over where the government would choose to spend its new capital inflows. The IMF delegation to Egypt has warned the government against spending more money on projects that do not have immediate returns.

“I fear that all that has been accomplished is that the pound is now lower in value. The government seems to be insistent on continuing the monorail project and the New Capital and all this absurdity,” wrote X user Abo Mina Eskander, referring to the government's New Administrative Capital project.

In a country where nearly 30 per cent of the population of 104 million live in poverty and many more hover around the poverty line, many citizens hope the poorest will be protected while the government tries to reinvigorate the economy.

“If the deal can get our businesses going and help them stay afloat while people figure out their finances, that's good enough for now, I just hope the government does enough to protect the poorest Egyptians,” said Ms Mohamed.

Updated: March 08, 2024, 10:14 AM