The International Monetary Fund (IMF) team and the Egyptian authorities have reached a staff-level agreement on the second review of Egypt’s economic program supported by the IMF’s $5.2 billion Stand-by Arrangement, after holding several virtual meeting from May 4 to 24.
This agreement is subject to approval by the IMF’s Executive Board, which will take place in the coming weeks. Upon approval, an additional SDR 1.16 billion (about $1.6 billion) will be made available to Egypt.
Over the past 12 months, the authorities’ strong performance and commitment helped achieve the program’s objectives of maintaining macroeconomic stability during the pandemic while protecting necessary social and health spending and implementing key structural reforms.
Net international reserve accumulation and the primary balance exceeded the program targets. Inflation continued to be subdued with March outturn (4.5%) breaching the lower inner bound of the monetary policy consultation clause.
All structural benchmarks were met including further advancing reforms related to fiscal transparency and governance, social protection, and improvement in the business environment, while continuing efforts directed towards reducing debt vulnerabilities and creating more budget space for priority spending. The publication of information related to COVID-19 crisis-related spending, procurement plan, and beneficial ownership of awarded entities is a welcome step towards further enhancing transparency.
Supported by the authorities’ strong implementation of their policy program, the economy has shown resilience.
Growth is expected to be 2.8% in FY2020/21, rising to 5.2% in FY2021/22. However, uncertainty remains against the backdrop of lingering pandemic-related risks. Policies are appropriately focused on supporting the recovery in the near term while deepening and broadening structural reforms to unleash Egypt’s enormous growth potential in the medium term.
The Central Bank of Egypt’s (CBE) monetary policy remains data dependent. We welcome the CBE’s readiness to act as necessary to support economic recovery amid muted inflation. Continued exchange rate flexibility in both directions will help absorb external shocks. Egypt’s banking system remains liquid, profitable, and well capitalized.
Egypt’s fiscal policy in FY2021/22 appropriately targets a gradual consolidation to balance needed support for the economic recovery while safeguarding fiscal sustainability. The continued shift towards higher investments in infrastructure, health, and education in the next fiscal year is also welcome.
The government’s commitment to returning to a primary surplus of 2% of GDP starting in FY2022/23 and as the economic recovery becomes entrenched will be essential to reduce public debt and support fiscal sustainability.
The recent launch of the National Structural Reform Program (NSRP) is a signal of the government’s commitment to fostering human capital development, more efficient and transparent public institutions, a more competitive and export-oriented private sector, and a greener economy.
It will be important in the coming months to further define specific policy measures to support these objectives, including to allow more space for the private sector to operate in a competitive environment, and to encourage exports through further reducing trade impediments.
“The team would like to thank the Egyptian authorities and the technical teams at the CBE and the Ministry of Finance, and other interlocutors for the constructive and candid discussions.”