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Limited impact on Egypt's inflation after using market XE for valuation of non-essential imports: IMF - Daily News Egypt

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Limited impact on Egypt’s inflation after using market XE for valuation of non-essential imports: IMF

Fund fully supports decision by CBE to eliminate repatriation mechanism, says Lall


The IMF Mission Chief for Egypt, Subir Lall, informed Daily News Egypt that the decision by Egypt’s Ministry of Finance to use the market exchange rates (XE) for the valuation of non-essential imports is an important progress, adding, “Because of a small share of non-essential imports in the consumption basket, the impact on inflation should be one-off and limited.”

The prior practice of using under-the-market rates implied an implicit and undue subsidy, asserted Lall, noting that the decision should also improve the efficiency of resource allocation, including for foreign direct investments, thereby benefiting the economy as whole.

In November, the Central Agency for Public Mobilisation and Statistics announced that the annual inflation rate hit 17.5% in October 2018, compared to 31.8 % in October 2017. However, on a monthly basis, the rate increased by 2.8%, compared to September.

Inflation surged in Egypt since the floatation of the Egyptian pound in November 2016, reaching a record high level in July due to energy subsidy cuts that have been gradually easing since July.

Moreover, Lall noted that the IMF fully supports the decision by the Central Bank of Egypt (CBE) to eliminate the repatriation mechanism.

“This is an important move to XE rate flexibility-a cornerstone of the authorities’ strengthened policy framework since 2016,” mentioned Lall, stressing that in the early stage of the economic reform programme, the repatriation mechanism helped attract portfolio investments into treasury bills, bonds, and stocks.

The unification of the foreign exchange market, and flexibility of the XE, have eliminated the risk that foreign portfolio investors would not be able to access dollars when their investments mature, added Lall. He further indicated that the repatriation mechanism provided protection for foreign portfolio investment, during the early stages of implementing the flexible XE system.

“This policy move currently reflects the payoff from the strong policy framework which has been put in place by the CBE in the past two years as well as the resilience of the Egyptian economy,” acknowledged Lall.

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https://www.dailynewsegypt.com/2018/12/08/limited-impact-on-egypts-inflation-after-using-market-xe-for-valuation-of-non-essential-imports-imf/
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