The IMF has finally signed a deal to approve a $8 billion lifeline to Egypt, after the country devalued its currency on Wednesday morning.

The devaluation followed in the wake of a huge interest rate hike of 600 bps by the central bank.

After an exceptional meeting on Wednesday morning, the Central Bank of Egypt (CBE) announced that that it will leave the foreign exchange rate to the forces of supply and demand in the market, allowing the local currency to depreciate against foreign currencies.

The Egyptian pound has weakened to around 50.35 against the US dollar as of 2:45pm, according to data from the London Stock Exchange Group (LSEG). The IMF had demanded a flexible exchange rate as one of the conditions to secure the support programme.

Egyptian authorities and the IMF team have reached staff level agreement on the economic policies needed to complete the first and second reviews of the Extended Fund Facility (EFF) arrangement, the IMF said in a statement. 

"Amid significant macroeconomic challenges that have become more complex to manage with the impact of the recent conflict in Gaza on tourism and Suez Canal receipts, staff also considered the authorities’ request for an augmentation of IMF support to Egypt from SDR 2.35 billion (equivalent to about $3 billion) to SDR 6.11 (equivalent to about $8 billion). This agreement is subject to approval by the IMF Executive Board," the IMF said. 

Key economic reforms laid out by the IMF to preserve Egypt's macroeconomic stability include a move to a flexible exchange rate system, tightening of monetary and fiscal policies, and a slowdown in infrastructure spending to reduce inflation and preserve debt sustainability, while fostering an environment that enables private sector activity.

According to Prime Minister Mostafa Madbouly, Egypt will also receive a loan of about $1.2 billion from a separate facility that promotes environmental sustainability.

The IMF announced on February 27 that it has resolved all the major issues with Egypt regarding the former’s review of a $3 billion loan programme and an additional financing package would be finalised within weeks.

The IMF deal also comes after Egypt received $5 billion as a first tranche in the $35 billion Ras al-Hikma property development deal signed with the UAE. Egypt is expected to receive a second $5 billion tranche on Friday.

(Writing by Seban Scaria; editing by Daniel Luiz)