Egypt: the pound, central bank, and the IMF

The Egyptian pound has continued to weaken as the central bank has taken tentative steps towards a more flexible exchange rate, and we think that the currency needs to weaken further to address the country’s external imbalances. Measures to tackle a backlog of imports are welcome, and the shift towards a more flexible exchange rate will also take Egypt a step closer to securing an IMF deal. Meanwhile, other policy demands of the Fund, such as maintaining a tight fiscal stance, are not insurmountable. Given Egypt’s fragile debt dynamics, this will be key to keeping public debt on a sustainable footing in the coming years.