The International Monetary Fund (IMF) has completed the third review of Egypt’s $8 billion Extended Fund Facility (EFF) loan program, paving the way for the country to receive an $820 million tranche.
The 46-month EFF arrangement, approved in December 2022, is expected to conclude in September 2026. The IMF’s Executive Board approval on the third review came after assessing Egypt’s progress in meeting its obligations and commitments under the program, particularly in the areas of monetary and fiscal policy, as well as the government’s efforts to increase the private sector’s role in the economy.
Macroeconomic reforms
According to the IMF, Egypt’s macroeconomic conditions have started to improve since the approval of the combined first and second reviews in March. The country has met its commitments in tackling key macroeconomic challenges, with inflationary pressures gradually easing, foreign exchange shortages being eliminated, and fiscal targets, including those related to spending on large infrastructure projects, being met.
“These improvements are beginning to have a positive effect on investor confidence and private sector sentiment,” the IMF said in its assessment.
The Fund stressed the importance of maintaining a flexible exchange rate regime and a liberalized foreign exchange system to avoid a buildup of external imbalances and called for a data-driven approach by the Central Bank of Egypt (CBE) to lower inflation and inflation expectations.
The IMF also noted that Egypt’s ongoing fiscal consolidation efforts under the program are helping to tame the country’s high debt level and keep it on a “decisive downward path.” However, the Fund emphasized the need to strengthen domestic revenue mobilization and contain fiscal risks from the energy sector to ensure resources are available for vital spending on health, education, and support for vulnerable groups.
Structural reforms
On the structural reform front, the IMF said further efforts are required to implement the State Ownership Policy, which aims to divest the government from certain economic activities and offer investment opportunities through the Initial Public Offering (IPO) program. The Fund also called for bolstering financial sector resilience and improving governance and competition in the banking sector.
“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 signs of recovery in sentiment, private sector growth should be poised for a rebound,” said Antoinette M. Sayeh, the IMF’s deputy managing director, and acting chair of the Fund’s Executive Board.
She stated that maintaining macroeconomic stability hinges on policy settings, including sustained adoption of a flexible exchange rate and liberalized foreign exchange system, ongoing tight monetary policy, and continued fiscal consolidation. Allocating a portion of the Ras El-Hekma deal financing to build reserves and reduce debt will further protect against economic shocks, she added.
Looking forward, Sayeh noted that implementing the structural reform agenda is crucial for achieving inclusive and sustainable growth in Egypt. She also highlighted the importance of aligning energy prices with cost recovery, enhancing governance in state-owned banks, and creating a level of economic playing field to attract greater private investment.
Despite the advancements, Sayeh acknowledged that regional conflicts and uncertainties surrounding trade disruptions in the Red Sea could pose external risks. This highlights the importance for Egypt to maintain appropriate macroeconomic policies, including a flexible exchange rate regime, to safeguard economic stability.
