Egypt, IMF reach staff-level agreement on 4th EFF review to unlock $1.2B

CAIRO – 25 December 2024: The International Monetary Fund (IMF) announced on Tuesday reaching a staff-level agreement with Egypt on the fourth review under the lender’s Extended Fund Facility arrangement.

The agreement, subject to approval by the IMF Executive Board, will unlock around $1.2 billion loan under the programme.

“The Egyptian authorities have continued to implement key policies to preserve macroeconomic stability, despite ongoing regional tensions that are causing a sharp decline in Suez Canal receipts,” the IMF quoted Ivanna Vladkova Hollar, chief of its mission that held discussions with Egypt over the last month regarding the fourth review, as saying.

RECALIBRATION, REFORMS

Vladkova Hollar noted the Egyptian authorities have requested a recalibration of their medium-term fiscal commitments amidst the tough external circumstances as well as the challenging local economic environment.

In this regard, Vladkova Hollar stated that the primary balance surplus, excluding divestment proceeds, is expected to amount to 4 percent of GDP in the fiscal year 2025/26. This figure will then rise to 5 percent of GDP in FY 2026/27.

“This short-term recalibration seeks to ensure that fiscal consolidation provides some space to increase critical social programs in support of vulnerable groups and the middle class while ensuring debt sustainability,” she said.

Vladkova Hollar added that the ongoing fiscal consolidation efforts are vital to maintain debt sustainability and decrease large interest costs and gross domestic financing requirements.

Moreover, Egypt has approved the implementation of a package of reforms to increase the tax-to-GDP revenue by 2 percent of GDP over the coming two years, she stated, noting that this commitment focuses on eliminating exemptions rather than increasing tax rates.

She emphasized that the Central Bank of Egypt (CBE) has reaffirmed its commitment to continue the adoption of a flexible exchange rate regime that protects the economy from external shocks, while maintaining tight monetary conditions to reduce inflation.

AUGMENTED DEAL

Last March, the IMF bolstered its loan to Egypt to $8 billion instead of $3 billion amid the consecutive challenges facing Egypt including the ongoing Israeli war in Gaza and subsequent dip in Suez Canal revenues.

With the signing of the loan augmentation deal, Egypt, which is emerging from an economic crisis and a foreign currency crunch endured over the recent years, has allowed its currency to trade freely.

The IMF package also unlocked additional funds from the World Bank and the European Union valued at billions of dollars.

RE-EVALUATING PROGRAM

Prime Minister Mostafa Madbouly stated in October that Egypt is planning to reevaluate its reform program’s timeline with the IMF with the country grappling with economic hurdles, including inflation and high debt.

Meanwhile, President Abdel Fattah El-Sisi said in the same month that Egypt has lost about $6-7 billion in the last 10 months amidst ongoing regional and global repercussions.

He added that these circumstances will potentially continue for another year, stating, “If the current challenge will push us in a way that the public cannot bear, we must reconsider the situation with the IMF.”