IMF Completes Egypt's First, Second Reviews of Extended Loan

IMF Press Release 

This enables the authorities to immediately draw about US$820 million (SDR 618.1 million). Egypt’s 46-month EFF arrangement was approved on December 16, 2022.

In completing the review, the Executive Board assessed that all but one of the quantitative

performance targets for end-June 2023 were met. The Board approved the authorities’ request for a waiver for non-observance of the June performance criterion on Net International Reserves on the basis of corrective actions.

Macroeconomic conditions since the approval of the program have been challenging, with

rising inflation, foreign exchange shortages and elevated debt levels and financing needs. The

difficult external environment generated by Russia’s war in Ukraine was subsequently

aggravated by the conflict in Gaza and Israel, as well as tensions in the Red Sea. These

developments increased the complexity of macroeconomic challenges and called for decisive

domestic policy action supported by a more robust external financing package, including from

the IMF.

Within this context, external shocks and delayed policy adjustment weighed on economic

activity. Growth slowed to 3.8 percent in FY2022/23 due to weak confidence and foreign

exchange shortages and is projected to slow further to 3 percent in FY2023/24 before

recovering to about 4½ percent in FY24/25. Inflation remains high but is expected to ease

over the medium term as the policy tightening takes hold.

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The recently announced US$35 billion investment deal from an Abu Dhabi-based investment

and holding company in Ras El-Hekma has alleviated near-term balance of payment

pressures and, if used judiciously, will help Egypt rebuild buffers to deal with future shocks.

Nonetheless, steadfast implementation of the economic policies under the program remains

critical to sustainably address Egypt’s macroeconomic challenges, as does robust delivery on

structural reforms to allow the private sector to become the engine of growth.

At the conclusion of the Executive Board’s discussion, Kristalina Georgieva, Managing

Director and Chair made the following statement:

“Egypt is facing significant macroeconomic challenges that have become more

complex to manage given the spillovers from the recent conflict in Gaza and Israel. The

disruptions in the Red Sea are also reducing Suez Canal receipts, which are an important

source of foreign exchange inflows and fiscal revenue."

“The authorities have significantly strengthened the reform package underlying the

Extended Fund Facility arrangement, supported by an augmentation of access. Recent

measures toward correcting macroeconomic imbalances, including unification of the exchange

rate, clearance of the foreign exchange demand backlog, and significant tightening of

monetary and fiscal policies, were difficult, but critical steps forward, and efforts should be

sustained going forward. The authorities’ commitment to use a large part of the new financing

from the Ras El-Hekma deal to improve the level of reserves, fast-track the clearance of

foreign currency backlogs and arrears, and reduce government debt upfront is prudent.

“The authorities’ policies are well calibrated to entrench macroeconomic stability while

protecting the vulnerable. The Central Bank of Egypt’s resolve to focus squarely on reducing

inflation and to tighten further, if necessary, is key to preventing further erosion of the

purchasing power of households. Implementation of the newly established framework to

monitor and control public investment will help manage excess demand. The pursuit of a

revenue-based fiscal consolidation will put debt firmly on a downward path and provide

resources for expanding the social safety net. In this regard, it remains essential to replace

untargeted fuel subsidies with targeted social spending as part of a sustained fuel price

adjustment package."

“With policies to restore macroeconomic stability in place, the stage is set for accelerating implementation of the structural reform agenda intended to deliver inclusive and sustainable growth. Withdrawing the state and military from economic activity and leveling the playing field between the public and private sectors is key to attracting foreign and domestic private investment in Egypt."

“Achieving these goals is subject to risks. Externally, uncertainty remains high.

Domestically, sustaining the shift to a liberalized foreign exchange system, maintaining tight

monetary and fiscal policies, and integrating transparently off-budget investment into

macroeconomic policy decision making will be critical. Managing the resumption of capital

inflows prudently will be important to contain inflationary pressures and limit the risk of future

external pressures."