RIYADH: The International Monetary Fund has approved the disbursement of approximately $820 million to Egypt following the completion of the third review of the country’s extended agreement.
The IMF approved an expanded $8 billion support program for the North African country in March after the Gaza crisis took a toll on its economy, slowing tourism and halving revenue from the Suez Canal due to Yemen's attacks on Red Sea shipping.
The agreement was made under the Extended Fund Facility, a program designed to assist countries with severe medium-term balance of payments problems resulting from structural issues that require time to address. Egypt's 46-month EFF agreement was approved on December 16, 2022.
Egypt has made significant progress in its efforts to stabilize the economy. While inflation remains high, it is gradually declining and a flexible exchange rate regime remains central to the program, the IMF said in a statement.
Since the first and second reviews combined in March, Egypt has seen improvements in macroeconomic conditions. Foreign exchange shortages have been addressed and fiscal targets, including those related to infrastructure spending, have been met.
“These improvements are starting to have a positive effect on investor confidence and private sector sentiment,” the IMF added.
Maintaining a flexible exchange rate and a liberalized exchange rate system is essential to prevent external imbalances, while the central bank's data-driven approach is necessary to further reduce inflation.
The fund said continued fiscal consolidation will help manage public debt, while efforts to strengthen domestic revenues and contain fiscal risks in the energy sector will ensure the availability of resources.
These measures are necessary for essential spending on health and education, creating fiscal space for increased social spending to support vulnerable groups.
“While progress has been made on some key structural reforms, more efforts are needed to implement the state ownership policy,” the statement read.
Strengthening the resilience of the financial sector, improving governance practices and increasing competition in the banking sector should be key priorities, as they are essential to steering Egypt towards private sector-led growth that creates jobs and opportunities for all.
Egyptian Finance Minister Ahmed Kojak said that the IMF's approval of the third review under the economic reform program represents a vote of confidence in the government's program, which includes financial and economic reforms and goals.
He added that this also represents a reassuring message that reflects the Egyptian economy's ability to improve stability.
IMF Deputy Managing Director and Acting Chair Antoinette Sayeh said reforms were yielding positive results, with exchange rate unification and monetary policy tightening, reducing speculation and moderating price growth.
Sayeh added: “Policy settings are expected to help maintain macroeconomic stability. A sustained shift to a flexible exchange rate regime and a liberalized foreign exchange system, continued implementation of a restrictive monetary policy stance, and further fiscal consolidation, along with the proper implementation of the framework to monitor and control public investment, should support internal and external balance.”
He said that allocating part of the financing from the Ras El-Hekma agreement to reserve accumulation and debt reduction provides an additional cushion against shocks.
In February, a private consortium led by ADQ, an Abu Dhabi-based sovereign wealth fund, signed a deal with Egypt to invest $35 billion in Ras El-Hekma, a Mediterranean coastal region 350 kilometers northwest of Cairo. This marks the largest foreign direct investment in Egypt's history.
Looking ahead, the IMF official said that implementing the structural reform agenda is key to inclusive and sustainable growth. Raising tax revenues, improving debt management, and using divestment resources for debt reduction will enable more productive spending, including targeted social spending.
Returning energy prices to cost-recovery levels by December 2025 is essential for reliable energy supply and sector balance. Strengthening the governance of state-owned banks, advancing state-owned property policy, increasing fiscal transparency, and leveling the economic playing field are essential to attract private investment.
“Risks remain significant,” Sayeh said. “Regional conflicts and uncertainty over the duration of the disruption to trade in the Red Sea are important sources of external risk.”
He added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, would help ensure economic stability.
“Meanwhile, progressing significantly with the structural reform agenda would significantly improve the growth outlook. Prudently managing the recovery of capital inflows will also be important to contain potential inflationary pressures and limit the risk of future external pressures,” Sayeh said.
In a video press conference, an IMF official said Egypt will undergo a fourth review from mid-September to December 2024 and, if successful, will receive $1.3 billion. The official added that Egypt's inflation is expected to fall below 15 percent by the end of June.
The IMF also stressed that the Egyptian authorities are committed to divesting from state-owned assets to strengthen the role of the private sector in the economy.
According to Reuters, the IMF has estimated that Egypt's real gross domestic product growth will be 4% in the 2024-25 fiscal year and said it will continue negotiations for the country to access the Resilience and Sustainability Facility, which provides affordable, long-term financing to countries undertaking reforms to reduce risks.
