IMF completes second review of Egypt's economic reform program

The IMF's team led by Subir Lall, who visited Cairo from October 25 to November 9, said the staff-level agreement on the second review reaffirms the Egyptian authorities’ commitment to their reform program supported by the IMF.

Egypt’s economy continues to perform strongly, and reforms that have already been implemented are beginning to pay off in terms of macroeconomic stabilization and the return of confidence, the statement said, citing Lall's words.

While the reform process has required sacrifices in the short term, seizing the current moment of opportunity to transform Egypt into a dynamic, modern, and fast-growing economy will improve the living standards and increase prosperity for all Egyptians, it added.

“Egypt’s growth picked up during fiscal year 2016/17, with GDP rising by 4.2 percent compared to the projected 3.5 percent. Meanwhile, the current account deficit narrowed in dollar terms, supported by the increase in non-oil exports and tourism receipts while non-oil imports declined. Reflecting increased investor confidence, portfolio investments into Egypt reached $16 billion this year and foreign direct investment rose by 13 percent.”

Meanwhile, the press release noted that the headline inflation appears to have peaked in July and has been declining since then, supported by the Central Bank of Egypt’s (CBE) prudent monetary policy stance.

The budget performance was broadly in line with program projections with a primary deficit of 1.8 percent of GDP, it indicated. “However, the overall deficit exceeded projections by 0.4 percent of GDP and reached 10.9 percent of GDP, mainly on account of higher than expected interest payments.”

Reflecting the overall strong policy framework and credibility of the authorities’ program, foreign exchange reserves increased significantly to record levels, it noted.

“The CBE remains committed to achieve its goal of reigning in inflation which is expected to decline to about 13 percent in the quarter ending December of 2018. Its monetary policy framework is underpinned by a flexible exchange rate regime which has eliminated chronic foreign exchange shortages and the parallel market,” it pointed out.

“The government’s aim to achieve a primary surplus in the current fiscal year will help achieve Egypt’s program objective of putting government debt on a firmly downward trajectory over the medium term.”

According to the IMF team, this will reduce interest expenditures and create budgetary space for public infrastructure and well-targeted social spending.

The mission also strongly supports the authorities’ plans to strengthen public financial management and fiscal transparency, including through enhanced monitoring of state-owned enterprises and publication of financial statements.

“The government is spearheading a comprehensive and ambitious agenda of structural reforms to unlock Egypt's growth potential. The reform plan aims to create well-paying jobs to meet the rapidly growing population by paving the way for increased private sector-led investment, productivity growth, and enhanced competition.”

“Reducing unemployment, specifically among Egypt’s youth, and integrating more women into the labor force are key to Egypt’s economic liftoff and are the strongest and most sustainable form of social protection.”

The team added that they strongly welcome the authorities’ commitment to continue its efforts to expand childcare services to promote women participation in the labor market.

“Meanwhile, we also support the authorities’ efforts to strengthen social measures through the expansion of the “Takafol and Karama” programs which now reach 2 million families, and enhancing data collection to improve targeting and ensure that the subsidies reach the most vulnerable.”

The statement went on to say that Egypt’s banking sector continues to remain liquid, profitable, and well capitalized.

“The CBE continues to strengthen the regulatory and supervisory framework for the banking sector including through implementing Basel rules. We also support the authorities’ aim to promote financial inclusion,” it said.