CAIRO - 27 April 2024: The International Monetary Fund (IMF) has released its experts' report on Egypt's first and second review of its financing program, shedding light on the country's economic policies and financial commitments.
The completion of the third review of the financing program is expected by June 15, 2024, or later, with the fourth review by September 15, 2024, or later. Egypt has committed to providing the IMF with accurate and timely data necessary for program monitoring reviews, as well as any information materially affecting economic conditions and program objectives.
According to the IMF, Egypt has fulfilled 7 out of 15 conditions required to complete the two reviews.
Government IPO Program
The review noted that government IPO deals have generated net revenues of $2.4 billion, in addition to $2.2 billion in foreign inflows in the fiscal year 2023/2024 up to the report's date. It is expected that several other deals, in which significant progress has been made, will be closed during the remaining period of the fiscal year, bringing in at least another $600 million in foreign inflows.
The IMF pointed out that Egypt is close to completing the Jebel Zeit and Zafarana deals, expected to be finalized during the fiscal year. The Jebel Zeit deal's value could reach $339 million, while the Zafarana deal's value could reach $300 million.
The IMF expects the government to attract cash inflows of approximately $3.3 billion from external deals.
Moreover, Egypt aims to sell at least four assets in the energy and manufacturing sectors in fiscal year 2024/2025, generating $3.6 billion in foreign inflows.
Disbursement of Financing Program Tranches
By June of the current year, the IMF expects the disbursement of the loan tranche totaling $1.646 billion, with around LE 1.228 billion to be disbursed by the end of September of the same year.
The size of the next tranche will be approximately LE 1.228 billion by the end of December 2024.
It affirmed that the disbursement of tranches aligns with the progress made by the Egyptian government in structural reforms within the agreed-upon program framework.
Second Tranche of the Ras El Hikma Deal
Egypt is expected to receive around $14 billion from the Ras El Hikma deal by April 30th. The Ministry of Finance will receive $12 billion in local currency, which it will allocate to reduce public debt.
The New Urban Communities Authority sold $15 billion to the Central Bank of Egypt (CBE) from the value of this deal, in which the CBE will allocate $6 billion to the banking sector to facilitate the settlement of foreign exchange arrears.
The development of the Ras El Hikma area is expected to commence in 2025.
The Central Bank of Egypt
The review pointed out to the permanent transition to a flexible exchange rate policy, and the commitment during the program period not to impose or intensify exchange restrictions, currency practices, or impose or intensify import restrictions for balance of payments purposes, or enter into any bilateral payment agreements that conflict with Article VIII of the IMF Articles of Agreement.
The Central Bank of Egypt significantly tightened monetary policy, and will impose further restrictions on the expansion of the public budget of the bank, including through reducing the Ministry of Finance's overdrafts with the Central Bank and stopping Central Bank lending to other public entities.
The Central Bank does not intend to increase lending to public sector entities except for the Ministry of Finance (continuous performance criterion), with a plan to be approved by the bank's board and agreed upon with the Egyptian government and the Ministry of Finance, to reduce the current claims on these agencies to zero by the end of the fiscal year 2025/2026, according to the IMF.
Furthermore, the Central Bank of Egypt is committed to obtaining $15 billion from the revenues of the Ras El Hikma deal to build reserves to face future shocks. It will also refrain from pumping liquidity from foreign exchange purchases and converting foreign currency deposits into local currency.
It said that the CBE is targeting the net foreign reserves to grow by $13.7 billion during the fiscal year 2023/2024, reaching $30.3 billion by June 2024, and $29.6 billion by December 2024.
“Assurances have also been received that US$19 billion of official deposits from Arab countries at the CBE will remain at the CBE until after the expiration of the EFF arrangement in September 2026 and will not be used for the purchase of equities or debt,” it stated.
Economic Policy
According to the review, Egypt's financing gap after accounting for the program and the Ras El Hikma deal amounts to about $28.5 billion.
It referred to slowing down the pace of public investment implementation and enhancing the country's ability to manage the comprehensive public investment portfolio more inclusively are essential elements to avoid future imbalances. Moving forward with the state asset management policy and the divestment program, while implementing reforms aimed at equal opportunities and improving the ease of doing business, will help grow the strength of the private sector in the medium term.
Egypt aims to achieve an initial surplus of about 2.5 percent of the gross domestic product (GDP) for the current fiscal year, consistent with the Egyptian government's expectations, with total debt reaching 98 percent of GDP during the year to reflect the impact of the pound's depreciation against the dollar and interest payments.
With the transition from state-led activity to increased private sector participation in the economy, Egypt aims to increase growth to over 5 percent.
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