Egypt has reached a currency swap agreement with China valued at $2.7 billion, moving closer to meet the terms required to clinch a $12 billion loan accord with the International Monetary Fund.
The agreement is being processed by the Chinese authorities, an Egyptian central bank official said Sunday, speaking on condition of anonymity. The official didn’t provide additional details on when the deal was reached, the terms or when the funds might arrive. There was no immediate comment from the People’s Bank of China.
Egypt, struggling with a crippling dollar shortage, needs to boost its foreign reserves by as much as $6 billion in bilateral support before the IMF Executive Board can meet to review its loan request. The Arab country has already secured $3 billion from Saudi Arabia and the United Arab Emirates and less than $1 billion from G7 countries.
“There’s a chance the funding will be expensive, but regardless of the agreement’s structure, we need every penny we can get,” said Hany Farahat, the Cairo-based senior economist at CI Capital, a subsidiary of Commercial International Bank, the nation’s biggest publicly traded lender.
IMF’s managing director, Christine Lagarde, told told Bloomberg Television in an interview last week that she hoped the board would Egypt’s loan request in a few weeks.
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Egyptian officials consider the loan crucial to reviving an economy weighed down by rising inflation and a hard currency shortage that has left the dollar trading in the black market at nearly double the official exchange rate. The currency crunch has crippled business activity and fueled shortages in key commodities, while the price increases have fanned discontent in a country already frustrated by a new value-added tax and a rise in electricity costs.
Egyptian officials are widely expected to either devalue or float the pound in a bid to boost liquidity, lure new investments and quash the currency black market. They are also expected to cut energy subsidies.
China has been Egypt’s top trading partner since 2013, with total trade increasing by almost 30 percent since then to $10 billion in 2015, according to data compiled by Bloomberg. Of that amount, $9.1 billion were Chinese goods flowing into the North African country.
Egypt’s benchmark EGX 30 Index for stocks rose 0.2 percent at the close in Cairo on Sunday, extending this year’s gain to 19 percent.