Central Bank of Egypt cancels documentary credits system

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On Thursday, the Central Bank of Egypt cancelled the system of documentary credits in import operations to meet the demands of the International Monetary Fund.

The documentary credits system began in February 2022 as an attempt to keep foreign currency inside the country at a time of severe economic crisis.

In December, the IMF issued a statement announcing that its Executive Board had agreed to grant Egypt a loan of $3 billion over the next four years, with an immediate disbursement of $347 million. The IMF expected that the loan would contribute to providing Egypt with additional financing of approximately $14 billion from international partners, in addition to further funding of one billion dollars from the IMF itself to support the objectives of climate-related policies.

Egypt will be able to obtain financing of five billion dollars in the current fiscal year 2022/23 by selling government shares in major companies, in addition to extending the deposits of the Gulf Cooperation Council countries with the Central Bank. The country will also receive three billion dollars from international partners.

Banking experts considered that the recent Egyptian approval to switch to a more flexible exchange system is a precursor to an unprecedented wave of inflation and price hikes that the country will witness in the coming months and that only Egypt’s access to large dollar inflows will stop it.