CAIRO - 6 March 2024: Dr. Mostafa Madbouly, Egypt's Prime Minister, convened a press briefing on Wednesday evening following the conclusion of the government's weekly session. Present at the conference were Hassan Abdalla, the Governor of the Central Bank, Dr. Mohamed Maait, Minister of Finance, and Ivanna Vladkova Hollar, Head of the IMF Mission to Egypt. They jointly announced the successful agreement between the Egyptian government and the Central Bank with the IMF, focusing on economic policies crucial for advancing through the first and second review phases within the extended fund facility program.
Prime Minister Madbouly emphasized, "Today marks a significant milestone as Egypt and the IMF formalize an agreement integral to our comprehensive structural reform policies, meticulously outlined by the Egyptian government. This program is homegrown, with unwavering commitment from the state, government, and Central Bank to establish and meet its objectives." He extended gratitude to Ivanna Vladkova Hollar and the entire IMF team for their dedication in reaching this pivotal agreement.
In his address, Dr. Madbouly underscored key aspects of the structural reform program, highlighting its clear benchmarks. These encompass bolstering Egypt's foreign currency reserves, reducing both domestic and foreign debts, fostering a substantial influx of foreign direct investment in the immediate future, and targeting robust economic growth rates. These initiatives aim to accomplish multifaceted goals, including inflation mitigation, youth employment generation, and the implementation of social welfare initiatives.
The Prime Minister reiterated, "We acknowledge the pivotal importance, especially in the program's initial phase, of rationalizing and overseeing expenditure, a cornerstone of government policy." He reaffirmed the state's dedication to empowering the private sector as the principal driver of total investment.
Dr. Madbouly emphasized that while government and public investments have historically represented the lion's share of total investments amid recent challenges, the current objective is for the private sector to assume the lead role as the primary contributor to overall investments.
In further clarification, Prime Minister Madbouly emphasized that the private sector creates more job opportunities and encourages investment in the Egyptian economy.
Therefore, it was agreed that there would be a ceiling on public investments from all state entities to provide space for the private sector to lead and increase its contributions to total investments. He explained that for the fiscal year 2024-2025, a decree was issued by the Prime Minister stipulating a total ceiling for public investments from all state entities, including ministries, budgetary bodies, economic entities, public sector companies, and all state-contributing entities, not exceeding one trillion pounds.
Dr. Madbouly stated that the Prime Minister's decision included the formation of a committee comprising all relevant ministries, chaired by a representative from the Central Auditing Organization, to monitor discipline and governance in achieving this target.
He confirmed that periodic reports would be issued by this committee, which would operate under the direct supervision of the Prime Minister, to ensure governance and the achievement of this target to a large extent, with the aim of reducing public investments by the state, while the private sector leads in this regard.
Additionally, the Prime Minister provided examples to illustrate the credibility of the state and government in their commitment to implementing the state's economic policy document, enabling the private sector, increasing foreign direct investment, continuing the program of offerings, and maximizing the utilization of state assets. He stated that recent deals, including the Ras Al Hikma deal, are unprecedented and demonstrate the credibility of the Egyptian state in its direction to empower and encourage greater private sector participation.
Dr. Madbouly, Prime Minister, emphasized that all offerings made represent unprecedented deals, affirming the credibility of the Egyptian state in its pursuit to empower the private sector and encourage its partnership with the state in maximizing its assets.
In conclusion, Prime Minister Madbouly expressed gratitude to the Governor of the Central Bank and the Egyptian government ministers for their tremendous effort, which led to the successful agreement. He reiterated thanks to all officials of the International Monetary Fund (IMF), with special mention to Kristalina Georgieva, Managing Director of the IMF, and the team led by Ivanna Vladkova Hollar, Head of the IMF Mission in Egypt.
On her part, Ivanna Hollar, Head of the IMF Mission to Egypt, stated during her speech at the press conference held after the weekly cabinet meeting that the Egyptian authorities and the IMF experts reached an agreement on the necessary economic policies to complete the first and second reviews of the extended arrangement.
She clarified, "Given the significant macroeconomic challenges, which have become more complex due to the recent conflict in Gaza affecting tourism and Suez Canal revenues, experts also considered the authorities' request to increase IMF support for Egypt from $3 billion to about $8 billion."
She continued, "This agreement is subject to the approval of the IMF Executive Board."
Hollar emphasized that the comprehensive policy package aims to maintain debt sustainability, restore price stability, and reintroduce a well-functioning exchange rate system, while continuing to push forward deep structural reforms to promote private sector-led growth and job creation.
She affirmed that the Egyptian authorities demonstrated a strong commitment to swiftly address all critical aspects of the economic reform program supported by the IMF.
"The policy discussions and program reforms focused on six axes," she explained. "The first axis involves the authorities taking decisive steps toward a flexible and credible exchange rate system. This reform, which began with the unification of the exchange rate between the official and parallel markets, helps increase foreign exchange availability, eliminate the current backlog of unmet foreign exchange demand, and rebuild a robust foreign exchange buffer."
Furthermore, she elaborated, "The second axis involves further tightening of monetary policy to reduce inflation and reverse recent dollarization trends."
"We welcome in this regard the recent decision by the Egyptian Central Bank to increase the interest rate by 600 basis points, in addition to the 200 basis points taken last month," she added.
She pointed out that the third axis involves fiscal consolidation to maintain debt sustainability.
Egyptian authorities have announced their commitment to continue providing support to ensure suitable living conditions for low and middle-income families severely affected by rising prices.
Addressing the sixth axis, the Prime Minister emphasized the implementation of state economic policy and reforms aimed at equal opportunities as a fundamental step to unleash private sector growth.
In this regard, recent reforms eliminating preferential tax treatment and exemptions for state-owned enterprises were seen as a positive step forward.
The rapid pace of foreign direct investments and divestment programs from government investments since mid-2023 have been noted as a positive development contributing to improving market confidence and investor sentiment.
International and regional partners of Egypt are expected to play a crucial role in facilitating the implementation of government policies and reforms.
Meanwhile, the IMF team expressed appreciation for the constructive dialogue, hospitality, and strong cooperation with Egyptian authorities in finalizing the reform package to support the completion of the first and second reviews under the extended IMF arrangement. A board meeting is expected to be held before the end of March.
Hassan Abdalla, Governor of the Central Bank, expressed gratitude to the IMF mission team for their fruitful cooperation and coordination, which resulted in reaching an agreement on the expert level for the first and second reviews of the extended fund facility program.
The Central Bank Governor explained that in light of the fruitful discussions between Egyptian authorities and the IMF, the two parties agreed on a comprehensive package of policies, measures, and economic and structural reforms consistent with the national reform program.
He noted that the agreement between the Central Bank of Egypt and the IMF to enhance and improve the efficiency of monetary policy and enhance the efficiency of the exchange rate market contributes to enhancing the sustainability and resilience of the Egyptian economy.
Abdalla pointed out the measures taken by the Central Bank today to ensure the stability of the overall economy and its ability to withstand external shocks. He explained that the restrictive monetary policy decisions taken today are necessary to bring real yield rates to positive levels in order to contain inflation and put it on a downward path to converge with its targeted univariate rate in the medium term.
He noted that the Central Bank will announce the targeted inflation rate in light of these developments.
Hassan Abdalla stated that in order to emphasize the importance of working towards transitioning to an inflation targeting framework, the Egyptian Central Bank clarified in today's press release of the Monetary Policy Committee the importance of exchange rate flexibility as a cornerstone for transitioning to an inflation targeting system, pointing out that the IMF program will support the bank's efforts to rebuild international reserves sustainably after securing the necessary financing to bridge the financing gap.
Abdalla reiterated, in conclusion, the commitment to continue the ongoing coordination and cooperation with the IMF, the Egyptian authorities, and the Egyptian Central Bank to achieve the objectives of the economic reform program.
Meanwhile, Dr. Mohamed Maait, the Minister of Finance, emphasized in his speech during the press conference that the agreement reached with the International Monetary Fund regarding the first and second reviews aims at stabilizing the Egyptian economy on a positive trajectory. He noted that regarding fiscal policy, it is based on continuing to achieve a primary surplus in the next fiscal year, within the range of 3.5%, reducing debt to below 90%, as well as the overall deficit level. All of this is within the framework of continuing fiscal discipline and maintaining the public finance's ability to meet its obligations, in addition to the continued existence of social protection packages to support the needy groups.
The minister expressed his gratitude to the IMF team for the effort exerted to reach the agreement, as well as gratitude to the Prime Minister for his efforts in this regard, and also thanks to the Governor of the Central Bank and the ministers for their cooperation in reaching this agreement. He also thanked his colleagues in the Ministry of Finance, especially Ahmed Kajok, noting that they had jointly managed the negotiations with the fund.
In conclusion of the press conference, the Prime Minister emphasized what Ivanna, the head of the IMF mission, mentioned, that the program has been increased from $3 billion to $8 billion. Additionally, Egypt will be able, upon signing, to apply for the Environmental Sustainability Fund, concerned with climate change issues, to obtain another loan of around $1 or $1.2 billion, making the total integrated program with the fund in the financial aspect more than $9 billion. This will enable the Egyptian state to achieve monetary stability and continue with the structural reform program.
The Prime Minister pointed out that the purpose of this meeting is to discuss the aspect related to the IMF agreement. The Governor of the Central Bank will hold a press conference this evening at the bank's headquarters to explain in detail all the steps taken by the bank today to correct the part related to monetary policy and the exchange rate.
The Prime Minister expressed his thanks once again to the International Monetary Fund, headed by Kristalina Georgieva, and the distinguished team from the IMF concerned with Egypt's file, led by Ivanna, for the effort they exerted during the negotiations, confirming that the coming period will witness more positive and good news regarding the Egyptian state and the national economy.
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