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After floating the Egyptian pound on Nov. 3 and subsequently cutting fuel subsidies on Nov. 4, the Egyptian government cleared the final hurdles on its path toward receiving the first tranche of its $12 billion loan from the International Monetary Fund.Most importantly, however, the IMF emphasized that Egypt must also liberalize its foreign exchange market and reform its energy subsidy program.However, while the GCC countries had, for the most part, built up substantial foreign currency reserves to defend these pegs, Egypt had not.In other words, as fewer dollars were entering the Egyptian market, more were leaving.As a result of this shortage in the foreign currency market, Egyptian businesses began cutting back on imports, and major multinational corporations threatened to pull out of Egypt due to the restraints they faced when trying to move profits out of the country.The $12 billion IMF loan, as well as the $6 billion in foreign financing Egypt secured as a precondition for the final IMF approval, and an additional $2.5 billion international bond coming at the end of November, will add some much-needed cushioning to the CBE's international reserves. Despite this, the Egyptian government again failed to capitalize on the relative strength of the Egyptian pound to make additional cuts to fuel subsidies. The government acted only when forced by the IMF, and cutting back subsidies immediately after the float of the Egyptian pound ironically resulted in Egyptian consumers paying less in U.S. dollar terms than they had before the subsidy cuts.
What Tunisia and Sudan can learn from Egypt on subsidy reform
Challenges ahead for Egypt’s economy
Until Egypt has access to enough gas, it will suffer economically
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