IMF approves second tranche of $12 billion Egypt loan

The International Monetary Fund (IMF) has approved a second tranche of a $12 billion loan to Egypt, praising the country's tough economic reforms that have fuelled inflation.

Yet there still remains unease about the painful austerity measures Egypt has pursued to obtain the loan, which will hit some of the country's poorest hardest.

IMF managing director Christine Lagarde said the approval of the roughly $1.25 billion tranche showed "the IMF's strong support for Egypt in these efforts", in a statement on Thursday.

The IMF and Egypt had agreed the loan last November, as the North African country devalued the pound and after it introduced a value-added tax in a bid to boost government finances and its foreign reserves.

Egypt has also slashed fuel subsidies, most recently last month.

"We believe that these efforts will yield results," Lagarde said in the statement.

But concerns remained about inflation, which hit nearly 33 percent in April before declining slightly in May.

"The authority's immediate priority is to reduce inflation, which poses a risk to macroeconomic stability and hurts the poor. The Central Bank of Egypt has taken significant steps to reduce inflation by raising policy interest rates and absorbing excess liquidity," said David Lipton, the IMF's acting chair, in a statement.

Egyptian finance minister Amr al-Garhy said he was currently coordinating with the IMF to transfer the funds to the accounts of the Central Bank of Egypt within days.

The government in June announced an increase in fuel prices of up to 55 percent, the second since November when it also floated the currency.

Analysts believe the fuel price rises will further increase inflation.

The pound has also continued to trade at a rate that is lower than was expected before the floatation.

The pound trades at about 18 to the dollar, compared with 8.9 before November.