Egypt edges closer to IMF deal as shortages bite

The Egyptian government has inched closer to an IMF financing package over the past month after securing a US$2bn deposit from Saudi Arabia. This makes up a third of the bilateral financing that the Fund has demanded as a prerequisite of the deal. The financing will come just in time for the region’s most populous country, as the constraints of current economic policy are becoming ever more apparent. In particular, ongoing shortages of goods (most recently sugar) are crimping activity and sparking fears of social unrest. One of the key conditions of the prospective IMF programme is likely to be that the authorities loosen their grip on the pound. The currency has fallen sharply on the black market in recent weeks as speculation of an imminent devaluation has mounted. For our part, we expect the pound to fall by 25% against the US dollar, from 8.88/US$ to around 12.00/US$, by the end of next year.