IMF releases staff country report on EFF arrangement with Egypt

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The International Monetary Fund (IMF) released a staff country report on April 26th on its first and second reviews of Egypt's Extended Fund Facility (EFF) arrangement.

On March 29th, the IMF’s Executive Board concluded the first and second reviews EFF deal with Egypt and approved an augmentation of the original loan program by $5 billion, as per the report.

This decision enables Egyptian authorities to access about $820 million immediately.

During the review process, the board noted that most quantitative performance targets for the end of June 2023 were met, except for one criterion regarding net international reserves.

However, the board granted a waiver for non-observance of this criterion based on corrective actions taken by the authorities.

At the review discussion, Kristalina Georgieva, Managing Director and Chair of the IMF, acknowledged Egypt's significant macroeconomic challenges, emphasizing the importance of recent reforms, including the unification of the exchange rate and tightening of monetary and fiscal policies.

She highlighted the necessity of new financing to improve reserves, clear foreign currency backlogs, and reduce government debt.

Georgieva underscored the importance of continued efforts to entrench macroeconomic stability while protecting vulnerable populations, emphasizing the need for revenue-based fiscal consolidation and targeted social spending.

She also stressed the importance of structural reforms to attract private investment and manage risks associated with domestic and external uncertainty.

“Externally, uncertainty remains high. Domestically, sustaining the shift to a liberalized foreign exchange system, maintaining tight monetary and fiscal policies, and integrating transparently off-budget investment into macroeconomic policy decision making will be critical. Managing the resumption of capital inflows prudently will be important to contain inflationary pressures and limit the risk of future external pressures,” she added.

IMF Mission Chief for Egypt Ivanna Hollar said before during a press conference that the fund is expected to complete the third review under the EFF for Egypt by the end of June 2024.

Egypt's 46-month EFF arrangement, initially approved on December 16, 2022, aims to address the country's macroeconomic challenges.

Macroeconomic conditions in Egypt have been challenging since the approval of the program, marked by rising inflation, foreign exchange shortages, elevated debt levels, and financing needs.

External shocks such as the conflict in Ukraine and tensions in the Red Sea have added complexity to these challenges, necessitating decisive domestic policy actions supported by external financing, including from the IMF.

The IMF slashed its forecast for Egypt’s real gross domestic product (GDP) for the upcoming fiscal year (FY) 2024/2025 to 4.4% from a previous outlook of 4.7%.