(Bloomberg) -- Egypt may approach the International Monetary Fund within days to seal a $12 billion loan deal, central bank Governor Tarek Amer said, hours after taking the unprecedented step of floating the pound to attract investments and ease a dollar shortage hobbling the economy.
Amer, speaking in a televised news conference on Thursday, said the central bank's measures aim at restoring investor confidence by ending a black market for dollars. He touted the central bank's ability to marshal more than $16 billion in financing from various sources to plug Egypt's budget deficit in the fiscal year ending June 30.
“This is a historic phase,” Amer said. “For the first time we're facing the issue bravely; we're acknowledging that the foreign currency should be traded in the market.”
Stocks jumped the most in eight years and the pound slumped after the central bank's decisions, which included raising its two benchmark overnight interest rates by three percentage points. The measures bring Egypt closer to clinching the biggest IMF loan agreement in the Middle East.
“We must finish the issue of the IMF because it is a vote of confidence for us,” Amer said. “Within the coming few days, we'll be able to approach the fund, and there aren't any hanging issues between us and the fund.”
The central bank expects its foreign-currency reserves to grow by $6 billion by the end of the year, he said. Reserves were $19.6 billion in September.
Egypt has struggled to revive its economy since the 2011 uprising that ended Hosni Mubarak's three-decade autocratic rule and the ouster of his Islamist successor two years later. While the measures are expected to be followed by reducing energy subsidies -- steps that will all but unlock the IMF bailout -- President Abdel-Fattah El-Sisi now has to manage the immediate fallout on a population facing the highest level of inflation in at least seven years.
Foreign-currency reserves have stabilized this year, though remain more than 40 percent below their Mubarak-era levels. The shortage led to the emergence of a black market for the dollar, with the parallel rate as much as double the official rate.
“It is still too early to quantify the response from the household sector and foreign investors to today's decisions but we believe that the situation will be a lot clearer as next week progresses,” said Reham ElDesoki, senior economist at Dubai-based investment bank Arqaam Capital.
“We expect volatility in FX rates in the coming days as the parallel market fights to survive” and “the household sector and investors come to terms with the new reality,” she said in an e-mailed report.
--With assistance from Tarek El-Tablawy
To contact the reporter on this story: Ahmed Feteha in Cairo at afeteha@bloomberg.net.
To contact the editors responsible for this story: Alaa Shahine at asalha@bloomberg.net, Sarah McGregor
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