IMF's concludes Egypt's economic program 2nd review, praises economic performance

CAIRO – 24 June 2021: The Executive Board of the International Monetary Fund (IMF) completed Tuesday the second and final review of Egypt’s economic reform program supported by a 12-month Stand-By Arrangement (SBA).

The second review allows the authorities to draw the equivalent of SDR 1,158.04 million (about US$1.7 billion), bringing total purchases under the SBA to SDR 3,763.64 million (about US$ 5.4 billion, 184.8 percent of quota).

The arrangement was approved by the Executive Board on June 26, 2020 (Press Release No. 20/248) to support the authorities’ economic reform program during the COVID-19 crisis. The program aimed to address balance of payments needs arising from the pandemic, support the authorities’ efforts to maintain macroeconomic stability while preserving achievements made over the prior years, and advance key structural reforms.

The Executive Board also concluded the 2021 Article IV consultation [1] with Egypt.

It stated that Egypt entered the COVID-19 crisis with sizable buffers, thanks to reforms implemented since 2016. Faced with unprecedented domestic and global uncertainty, the authorities’ policies struck a balance between ensuring targeted spending to protect necessary health and social expenditures and preserving fiscal sustainability while rebuilding international reserves. Growth is expected to reach 2.8 percent in FY2020/21 and rebound strongly to 5.2 percent in FY2021/22, but the outlook remains clouded by uncertainty while Egypt remains vulnerable to shocks due to its high public debt and gross financing needs.

In that context, the authorities’ near-term fiscal and monetary policies aim to support the recovery while continuing to preserve macroeconomic stability. With the immediate crisis subsidizing, deepening and broadening structural reforms will be essential to help unleash Egypt’s enormous growth potential. The authorities’ structural reform agenda aims at more inclusive and sustainable private sector-led growth to create durable jobs and improve external resilience, according to the IMF.

It commented that this will require sustained efforts to improve resource allocation by reducing the role of the state and enhancing governance, strengthening social protection, improving the business environment, deepening financial markets, and increasing integration into global trade. The IMF will remain closely engaged with the Egyptian authorities and continue supporting their reform agenda.

“The Egyptian authorities have managed well the economic and social impact of the COVID-19 pandemic. Proactive economic policies shielded the economy from the full brunt of the crisis, alleviating the health and social impact of the shock while maintaining macroeconomic stability and investor confidence. The economic recovery is underway, but the outlook is still clouded by uncertainty related to the pandemic. High public debt and large gross financing needs leave Egypt vulnerable to shocks or changes in financial market conditions for emerging markets,” Deputy Managing Director and Acting Chair, Antoinette Sayeh, said.

Sayeh added that the budget target for FY2021/22 strikes an appropriate balance between supporting the recovery and keeping public debt on the projected path. The envisaged pickup in growth should allow a return to the pre-crisis primary surplus from FY2022/23 to put public debt back on a firmly downward trajectory. Continued progress on fiscal structural reforms is critical to ensure additional space for high priority spending on health, education, and social protection.

“The Central Bank of Egypt’s (CBE) data driven approach to monetary policy has helped anchor inflation expectations. Inflation remains below the CBE’s target range, providing scope for monetary policy to further support the recovery as warranted by inflation and economic developments. Continued progress on strengthening the monetary framework will also support monetary transmission. Two-sided exchange rate flexibility is essential to absorb external shocks and maintain competitiveness,” She added.

Sayeh noted that the banking system remains resilient, having entered the crisis well-capitalized and with ample liquidity. As crisis-related measures are unwound, continued supervisory vigilance will be needed to closely monitor lending standards.

“The authorities’ national structural reform plan aims to achieve strong private sector-led growth to create durable employment and improve external resilience. This will require sustained efforts to improve resource allocation by reducing the role of the state in the economy, enhancing governance and transparency, improving the business environment, deepening financial markets, and increasing integration into global trade,” she added.