Egypt’s move to raise interest rates is a step in the right direction and a flexible exchange rate will help protect its economy from shocks at a time of tightening global financial conditions, an International Monetary Fund official said.

Egyptian authorities pledged a “durably flexible” exchange rate in conjunction with a staff-level agreement for a $3 billion IMF extended fund facility. The central bank also raised interest rates by 200 basis points in an out-of-cycle meeting.

“The measures that the central bank took last week in hiking interest rates. ..goes in the right direction. It’s very important to control inflation,” the director of the IMF’s Middle East and Central Asia Department, Jihad Azour, told Reuters.

“The move to a flexible exchange rate will help the Egyptian economy to be protected from term-of-trade shocks as well as external shocks, especially at a time when global financial conditions have tightened and became more challenging,” he said.

Egypt has been struggling to cope with the impact of the war in Ukraine, which led to rapid outflows of portfolio investments, a hike in the commodity import bill and a drop in tourism revenues.

The IMF, in a statement on Thursday confirming a staff-level agreement on a $3 billion, 46-month Extended Fund Facility, said a flexible exchange rate regime should be “a cornerstone policy” for rebuilding and safeguarding Egypt’s external resilience.

It said the deal was expected to catalyst a large, multi-year financing package, including about $5 billion in the fiscal year ending June 2023, reflecting “broad international and regional support for Egypt”.

Asked if there were assurances on assistance from wealthy Gulf states, Azour said: “Yes and some of the Gulf authorities already issued statements in support of the programme”. He said the $5 billion for FY2022-23 would be in addition to the extension of Gulf states’ deposits in Egypt’s central bank.

Any steps by Egypt that increase the level of predictability and bring confidence back is welcomed and allows Egypt to cover its financing needs, he said.

“We see that through these programmes there are enough financing assurances in order to cover their (Egypt’s) external financing needs,” he added.