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Egypt, already the IMF's second-biggest borrower after Argentina, expects to get access to around $1.2 billion in additional financing from the lender. Image Credit: AFP

Cairo: Egypt and the International Monetary Fund agreed to more than double the country's rescue program to $8 billion, the culmination of international efforts to stabilize a cash-strapped regional linchpin squeezed by wars and inflation.

The deal followed swift moves earlier Wednesday to float the currency - sending the pound as much as 38% lower - and hike interest rates by a record 600 basis points as Egypt, led by President Abdel Fattah Al Sisi, has sought to meet longstanding demands from the IMF that have also been backed by the US.

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A stalwart too big to fail

The deal underscores Egypt's role as a Middle East stalwart that's too big to fail, particularly amid Israel's war with Hamas on its border and another conflict raging in neighbouring Sudan. It also follows a surprise $35 billion investment commitment from the United Arab Emirates.

The IMF expects announcements soon on additional aid from "key partners," the fund's mission chief to the North African nation, Ivanna Vladkova Hollar, said in a briefing when asked about loans from its sister institution, the World Bank. She said at a separate earlier event that Egypt also reached a staff-level agreement with the IMF on its two delayed program reviews.

Egypt, already the IMF's second-biggest borrower after Argentina, expects to get access to around $1.2 billion in additional financing from the lender, Prime Minister Mostafa Madbouly said at the same event.

Economic reforms

Key economic reforms of Egypt's program include "a move to a flexible exchange rate system, tightening of monetary and fiscal policies, and a slowdown in infrastructure spending," the IMF said in a statement Wednesday. This can help "reduce inflation, and preserve debt sustainability, while fostering an environment that enables private sector activity," the lender said.

Egypt set a ceiling for total public investments that should not exceed 1 trillion pounds ($20 billion) in the next fiscal year 2024-2025, according to Madbouly, "this includes all state's entities," he said.

Little has so far been disbursed from the initial $3 billion loan Egypt secured from the IMF more than a year ago. The lender waited to see if authorities would allow greater flexibility in the exchange rate and make good on other promises, before completing the reviews and handing over the funds.

Pound plunges

The pound plunged and crossed 50.09 per dollar at 5:47 p.m. local time, having traded at about 30.9 for the past year. It started dropping minutes after the central bank raised its key rate to a record 27.25% at an unscheduled meeting.

"Egypt's international and regional partners will play a critical role in facilitating the implementation of the authorities' policies and reforms," the IMF said in the statement, adding that the recent investment deal in Ras El-Hekma "alleviates the near-term financing pressures."