Egypt has reached a $2.7 billion currency swap agreement with China, moving closer to mustering the outside financing needed to win final approval of a $12 billion International Monetary Fund loan.
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. A fax was sent to the People’s Bank of China seeking comment.
“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.
The IMF’s managing director, Christine Lagarde, said in an Oct. 27 Bloomberg Television interview that Egypt was “very close” to marshaling the $6 billion in outside financing the fund required as a condition for approving the $12 billion loan. Lagarde said she hoped the loan would be considered by the IMF board in a few weeks. Egyptian Prime Minister Sherif Ismail said on Oct. 18 that 60 percent of the funds needed for the deal had been lined up.
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 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.