Egypt has removed one key concern that’s held up a review of a $3 billion rescue program with the International Monetary Fund, according to people familiar with the matter, even as impending presidential elections make it difficult to satisfy the crucial demand of a weaker currency.

The IMF believes authorities are more serious about carrying out an ambitious sale of state assets following a handful of high-profile deals, said the people, speaking on condition of anonymity as the deliberations haven’t been made public.

As talks with the IMF intensify, the fund is now focusing on how Egypt manages its currency as well as trying to get more clarity on public spending that includes major projects, according to the people briefed on the discussions. With the vote now set for Dec. 10-12, Egyptian authorities are unlikely to heap more pressure on cash-strapped consumers by devaluing the pound in the run-up, leaving the timing of any eventual accord up in the air.

The piecemeal progress means a narrowing window of opportunity for a breakthrough this year on the already-delayed review. At stake is an agreement critical to restoring investor confidence in the $470 billion economy that remains caught up in a debilitating foreign-currency crunch almost a year after the IMF and Egypt reached their deal.

Egypt is the IMF’s second-biggest borrower after Argentina, and the deal with the North African nation is also a test of the lender’s ability to broker and see through delicate programs in major emerging markets.

The pace of the IMF program is shaping up as a bellwether of Egypt’s ability to emerge from its worst crisis in years. A successful review would unlock about $700 million in postponed loan tranches, allow access to a $1.3 billion resilience fund and potentially spur major Gulf investments.

Egypt Divides Investors Over Prospects After Third Devaluation

The government and the IMF are discussing options and both sides are keen to keep up dialogue to send a positive signal to the market, the people said. While Egyptian officials told Bloomberg they’re confident progress can be made on the review this year, they didn’t specify if or when the pound would be allowed to depreciate.

What Bloomberg Economics Says…

“With inflation already at a record high, Egypt is unlikely to devalue the currency before the presidential election in December. But the country doesn’t have the means to sustain the status quo for much longer. After the vote, authorities will either let the pound weaken, or impose draconian import restrictions.”

— Ziad Daoud, chief emerging markets economist.

The currency has already been devalued three times and lost half its value since early 2022, sending annual inflation to a record 37.4%. But despite a commitment to move to a “durably flexible exchange rate regime,” the pound has traded at a stable level at local banks at about 30.9 per dollar for the past six months.

Authorities are looking to build up significant foreign-exchange buffers before devaluing, which would allow them to clear a backlog of currency requests and eliminate the black market, where the pound is available for about 40 per dollar.

President Abdel-Fattah El-Sisi, who’s widely expected to seek a third term and extend his rule until 2030, in June appeared to reject another imminent devaluation, warning of the toll rising prices would take on Egypt’s 105 million population.

The IMF said in response to questions that it’s closely engaged with Egypt “including on policy advice and technical assistance” and would announce updates related to the 46-month program “in due course.”

Among the suggestions floated during recent talks are that Egypt and the IMF reach a staff-level agreement on the review — the first step in the process — thereby signaling there’s been movement, according to the people. Currency reform would then take place after the vote, paving the way for the IMF board’s approval of the review and then the disbursal of the loan tranches, they said.

This time, however, the IMF is seeking something much closer to true flexibility that reflects supply and demand, in line with the text of an agreement reached last October, rather than another managed depreciation of the pound, the people said.

Progress has lately been more evident in the divestment of state-held shares in local companies.

The government announced in July it was selling $1.9 billion of assets to local firms and Abu Dhabi wealth fund ADQ, although it has yet to receive all the funds. Earlier in September, it sold 30% of Egypt’s largest cigarettes company to a United Arab Emirates investor for $625 million.

Those transactions — and others from the list of more than two dozen assets the state is looking to offload — will boost dollar liquidity, but won’t be enough to meet all currency demand. Authorities are exploring multiple options to raise dollars, including a range of unspecified new securities that could be attractive to investors, according to the people.

Given the lack of official statements on the status of March’s delayed review or the one due for September, market watchers are keenly awaiting any signs of movement.

“Egypt met almost 80% of the requests and what’s left is foreign-exchange flexibility,” Fakhry Elfiky, chairman of the planning and budget committee at the Egyptian parliament, told CNBC Arabia on Tuesday.

With a weaker currency unlikely before elections, it’s possible the delays “could push the IMF to combine the first, second and third reviews in the first quarter of 2024,” according to Jean-Michel Saliba, Middle East and North Africa economist at Bank of America Corp.

All the same, there’s a chance an IMF mission could visit Cairo in mid-October as part of Article IV consultations “and to reassure markets about the continued dialog with authorities,” he said.

Another looming deadline for Egypt comes from Moody’s Investors Service and its November review of the nation’s debt rating, which is already at B3 or six steps below investment grade.

Egypt’s dollar-bond yields average almost 17%, according to Bloomberg indexes. That’s one of the highest levels for any sovereign borrower and underscores investors’ nervousness about the country’s debts.

Authorities will be making serious efforts to avoid a downgrade into the equivalent of CCC territory — a step that “could bring forced selling into hard-currency bond markets,” Saliba said.