As macroeconomic stability begins to take root in Egypt, the International Monetary Fund (IMF) is urging the country to enter a new phase: one marked by bold structural reforms to reduce the state’s economic footprint and empower private enterprise. The call comes on the heels of a successful IMF mission to Cairo from May 6 to 18, led by Ivanna Vladkova Hollar, as part of the Fifth Review under Egypt’s Extended Fund Facility (EFF) arrangement.
Stronger fundamentals
In its latest statement on May 27, the IMF noted Egypt’s continued progress in stabilizing the economy. “Growth is expected to continue strengthening, and we upgraded our forecast for FY24/25 to 3.8%, in light of the stronger-than-expected outturn in the first half of the year,” said Hollar. This contrasts with the previous fiscal year, when growth slowed to 2%, down from 3.8% the year before, according to the Fourth Review. Encouragingly, the growth rebound in Q1 FY24/25 brought the rate back to 3.5%year-on-year.
Another indicator of the shifting economic landscape is the private sector’s rising share in total investment, which surged from 38.5% in the first half of FY23/24 to nearly 60% during the same period this fiscal year. The IMF welcomed this trend as a sign of increasing investor confidence.
However, inflation remains a concern. “Inflation rose slightly to 13.9% in April but remains on a downward trend,” Hollar noted. The current account continues to face pressure, with “rising imports, reduced hydrocarbon output, and Suez Canal disruptions offsetting strong tourism, remittances, and non-oil exports.”
From fourth to fifth review: An improving outlook
The Fund acknowledged Egypt’s efforts to impose fiscal discipline. “Greater fiscal prudence—including through better oversight and control over large public sector infrastructure projects—is helping to contain demand pressures,” said Hollar, adding that public investment remained below the spending ceiling for July–December 2024.
In comparison, the Fourth Review highlighted that Egypt’s primary fiscal balance had improved by 1 percentage point to 2.5% of GDP, even as the current account deficit widened to 5.4%. The IMF approved a recalibration of Egypt’s medium-term fiscal targets, with the primary surplus now expected to reach 4% of GDP in FY2025/26—half a percentage point below previous commitments—before returning to 5% in FY2026/27.
Reshaping the role of the state
Beyond stabilization, the IMF underscored the urgency of deeper reforms. “We welcome the authorities’ recent efforts to modernize and streamline tax and customs procedures to increase efficiency and build confidence,” said Hollar. “These reforms are starting to yield positive results. Alongside these efforts, domestic revenue mobilization will need to continue… to support the government’s capacity to spend sufficiently on priority development and social needs.”
She also emphasized the need for a medium-term debt management strategy “to improve transparency and gradually reduce the large debt service cost in the budget.”
But the IMF’s strongest message was reserved for the next chapter in Egypt’s reform journey. “With macroeconomic stabilization now taking root, it is essential for Egypt to push forward with deeper structural reforms to unlock its full growth potential, generate quality employment for its expanding population, and reduce economic vulnerabilities while strengthening resilience to external shocks,” Hollar stated.
She added, “Achieving these goals will require a significant reduction in the state’s role in the economy and the creation of a level playing field for all market participants. Implementing the State Ownership Policy and advancing the asset divestment program in sectors where the state has pledged to scale back will be crucial to enabling the private sector to play a more prominent role… In parallel, ongoing efforts to enhance the overall business climate must continue.”
Fiscal discipline, debt transparency remain priorities
With total public investment spending held below the established ceiling for July–December 2024, fiscal prudence is becoming more entrenched. Hollar affirmed that “Greater fiscal prudence—including through better oversight and control over large public sector infrastructure projects—is helping to contain demand pressures.”
The IMF also acknowledged steps toward a more transparent and sustainable fiscal path. “We welcome the authorities’ efforts to develop a medium-term debt management strategy that aims to improve transparency and gradually reduce the large debt service cost in the budget,” she added.
A window of opportunity
As the fifth tranche of IMF funding approaches—mirroring the $1.2 billion drawn after the Fourth Review—Egypt finds itself at a pivotal moment. Having laid the groundwork for stability, the country must now embrace a broader reform agenda if it is to build a dynamic, resilient economy capable of generating inclusive growth.
