IMF softened $8 billion loan program conditions during 3rd review in July

Cairo – August 27, 204: During the completion of its 3rd review of Egypt’s $8 billion loan program, the International Monetary Fund (IMF) adjusted and softened certain conditions attached to the program, providing the country more time to implement key reforms.

Released on Monday, the IMF’s country review report highlights that, while Egypt successfully met several structural benchmarks (SBs) during the July review, including maintaining a flexible exchange rate regime and enacting the Unified Public Finance Law, certain conditions have been modified.

The deadline for publishing the Central Auditing Organization's (CAO) annual audit reports was extended to November 2024 and “modified to be more specific” as the Egyptian authorities amend the law governing the CAO. The IMF noted that Egypt plans to introduce this requirement into the law rather than implement it through a decree.

The recapitalization plan for the Central Bank of Egypt (CBE) has been pushed to August 2024.

The fund noted that authorities had already prepared an initial estimate of the recapitalization needs of the CBE, however, they require more time to refine their estimates and develop an effective strategy.

The quarterly implementation of the retail fuel price indexation mechanism has been temporarily replaced with a commitment to restore fuel prices to cost recovery levels by December 2025.

The SB to reduce CBE claims on public sector agencies (excluding the Ministry of Finance) has not been reset, with authorities committing to a gradual reduction instead.

According to the report, Egypt pledged to reduce the claims by LE 150 billion by July 2024 and further reduce CBE claims by LE 100 billion every fiscal year until the claims are reduced to zero.

The conditions regarding the Egyptian General Petroleum Corporation's (LEC) arrears were not changed because authorities have outlined a strategy to repay arrears, it added, including measures to boost LEC revenues through increases in energy prices.

However, the IMF may consider strengthening its position conditionality on improving LEC's financial situation if the current plan “falls short.”

The IMF will review further conditions during the next review, with the following conditions expected to be met by the end of September according to the report.

Key requirements include the completion and sharing of detailed results from stress tests on the banking sector by the CBE by September 30th, 2024, in consultation with IMF staff; conducting a sector classification exercise for all 59 economic authorities and documenting the rationale behind each decision; monthly publication on the government's e-tenders site of all material procurement contracts and awards made by the 50 largest state-owned enterprises; and undertaking a comprehensive assessment of the economic benefits of the current free zones.

The IMF's decision to soften conditions reflects its recognition of Egypt's economic challenges and its commitment to supporting the country's reforms.

The 3rd review was completed on July 29th, enabling Egypt to take out its 3rd tranche worth $820 million. The 4th review is scheduled for September 15th or later, while the 5th review is slated for March 15th, 2025.

On Monday, some media outlets claimed that the 4th review has been delayed until October, citing unnamed sources.