Highlights from the IMF’s 3rd review of Egypt’s $8B Extended Fund Facility

Cairo – July 30, 2024: Macroeconomic conditions have started to improve since the approval of the combined first and second reviews of the program in March, the International Monetary Fund (IMF) explained in a Tuesday statement announcing the completion of Egypt’s 3rd review for its $8 billion Extended Fund Facility (EFF).

Praising the government’s efforts to restore macroeconomic stability, IMF Deputy Managing Director, Antoinette M. Sayeh, stated “Strengthened reforms under the EFF-supported program are yielding positive results. The unification of the exchange rate and the accompanying monetary policy tightening have curtailed speculation, brought in foreign inflows, and have moderated price growth”.

With the 3rd review completed, Egypt will receive $820 million in the coming days, meaning it will have obtained $1.64 billion from the $8 billion loan since the agreement’s approval in 2022.

The IMF highlighted that, since the previous disbursements of the EFF, inflationary pressures are easing steadily, Egypt’s foreign currency shortage has been eliminated, and certain key fiscal targets “including those related to spending by large infrastructure projects” have been met.

“These improvements are beginning to affect investor confidence and the private sector's sentiment positively,” the IMF explained.

IMF Recommendations:

The IMF advised Egypt to maintain its flexible exchange rate regime for the Egyptian pound, enabling adjustments to market conditions to prevent external imbalances.

To address inflation, the IMF suggested that the Central Bank of Egypt adopt a data-driven approach to manage inflation and reduce inflation expectations.

The IMF emphasized Egypt's need to continue fiscal consolidation efforts. This typically focuses on reducing the budget deficit and stabilizing public debt through measures such as controlling government spending and improving tax revenue collection.

The fund also stressed the importance of strengthening domestic revenue mobilization and mitigating fiscal risks from the energy sector to maintain resources for spending on health, education, and support for vulnerable groups.

Egypt was urged by the IMF to expedite implementation of the State Ownership Policy, particularly fast-tracking the divestment program aimed at reducing government ownership in state-owned enterprises via privatization or public-private partnerships.

Enhancing competition and productivity across sectors was highlighted as crucial, achieved through streamlining business regulations and ensuring a level playing field for private enterprises.

Lastly, the IMF underscored the importance of bolstering the resilience of the financial sector, improving risk management practices, and enhancing competition within the banking sector.

Moving Forward

“Looking ahead, implementation of the structural reform agenda is key to achieving more inclusive and sustainable growth. Reforms that boost tax revenue, deliver a more robust debt management strategy, and bring additional resources from divestment to debt reduction would create space for more productive spending, including additional targeted social spending,” the Deputy Managing Director explained.

Sayeh added that bringing energy prices in line with actual costs, including retail fuel prices by December 2025, is crucial for ensuring reliable energy supply and balancing the sector.

Improving how state-owned banks are managed, progressing with the state-ownership policy, increasing transparency in government finances, and promoting fair competition are key steps to attract more private investment, she highlighted.

Significant risks remain, she emphasized, and to maintain economic stability, it's crucial to uphold comprehensive macroeconomic policies, such as the flexible exchange rate regime.

Progressing meaningfully with structural reforms would greatly enhance the country’s growth prospects, while careful management of capital inflows is also essential to prevent inflation and limit the risk of future external pressures, the IMF Deputy MD concluded.