IMF approves $820m disbursement to Egypt

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 arrangement.

The IMF approved an expanded $8 billion support program for the North African country in March after the Gaza crisis negatively affected its economy. This slowed tourism and halved Suez Canal revenue due to attacks from Yemen on Red Sea shipping.

The deal was made under the Extended Fund Facility, a program designed to assist countries with serious medium-term balance of payments problems resulting from structural issues that require time to address. Egypt’s 46-month EFF arrangement was approved on Dec. 16, 2022.

Egypt has made notable 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.

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Since the combined first and second reviews in March, Egypt has seen improvements in macroeconomic conditions. Foreign exchange shortages have been resolved and fiscal targets, including those related to infrastructure spending, have been met.

“These improvements are beginning to have a positive effect on investor confidence and private sector sentiment,” the IMF added.

Maintaining a flexible exchange rate and a liberalized foreign exchange system is essential to prevent external imbalances, while the central bank’s data-driven approach is needed to further reduce inflation.

The fund said that continued fiscal consolidation will help manage public debt, while efforts to strengthen domestic revenue and contain fiscal risks from the energy sector will ensure resources are available.

These measures are necessary for essential spending on health and education, creating fiscal space for increased social spending to support vulnerable groups.

“While there has been progress on some critical structural reforms, greater efforts are needed to implement the State Ownership Policy,” the statement added.

Enhancing the resilience of the financial sector, improving governance practices, and increasing competition in the banking sector should be key priorities, as these are essential for driving Egypt toward private-sector-led growth that creates jobs and opportunities for all.

Egypt’s Minister of Finance Ahmed Kojak said that the IMF’s approval of the third review within the framework of the economic reform program is a vote of confidence in the government’s program, which includes financial and economic reforms and targets.

He added that it also serves as a reassuring message that reflects the Egyptian economy’s ability to enhance stability.

IMF Deputy Managing Director and Acting Chair Antoinette Sayeh said that the reforms are 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 tight monetary policy stance, and further fiscal consolidation coupled with proper implementation of the framework to monitor and control public investment should support internal and external balance.”

She said that the allocation of a portion of the financing from the Ras El-Hekma deal to reserve accumulation and debt reduction provides an additional cushion against shocks.

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In February, a private consortium led by ADQ, an Abu Dhabi-based sovereign investment fund, signed an agreement with Egypt to invest $35 billion in Ras El-Hekma, a Mediterranean coastal region 350 kilometers northwest of Cairo. This marks the largest single foreign direct investment in Egypt’s history.

Looking ahead, the IMF official said that implementing the structural reform agenda is crucial for inclusive and sustainable growth. Boosting tax revenue, improving debt management, and utilizing divestment resources for debt reduction will allow for more productive spending, including targeted social spending.

Restoring energy prices to cost recovery levels by December 2025 is essential for reliable energy provision and sector balance. Enhancing governance of state-owned banks, advancing state ownership policy, increasing fiscal transparency, and leveling the economic playing field are vital for attracting private investment.

“Risks remain significant,” Sayeh said. “Regional conflicts and uncertainty about the duration of disruption of trade in the Red Sea are important sources of external risk.”

She added: “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, would help ensure economic stability.

“Meaningfully advancing with the structural reform program would significantly improve growth prospects. Managing the resumption of capital inflows prudently 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 that 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 state assets to enhance the role of the private sector in the economy.

According to Reuters, the IMF projected Egypt’s real gross domestic product growth to be 4 percent in the fiscal year 2024/25 and said that negotiations will continue for the country to access the Resilience and Sustainability Facility, which provides affordable long-term financing to countries undertaking reforms to reduce risks.