IMF approves $820 million disbursement to Egypt after 3rd review of extended fund facility
RIYADH: The International Monetary Fund (IMF) has approved a loan of about $820 million to Egypt after completing its third review of the country's expanded bailout package.
The IMF approved an $8 billion expanded aid program for African countries in March after the Gaza crisis negatively impacted their economies, slowing tourism and halving Suez Canal revenues due to Yemeni attacks on Red Sea shipping.
The transaction was made under the Extended Fund Facility, a program designed to support countries with serious medium-term balance of payments problems that take time to resolve due to structural problems. Egypt’s 46-month EFF measure was approved on December 16, 2022.
According to the international organization, Egypt has made notable progress in its efforts to stabilize the economy. Inflation remains high but is gradually decreasing. The IMF said in a press release that a flexible exchange rate regime is at the heart of the program.
Since the first and second integrated reviews in March, Egypt has seen improvements in macroeconomic conditions. Inflation has eased, foreign exchange shortages have been addressed, and fiscal objectives, including those related to infrastructure spending, have been achieved.
“These improvements are starting to have a positive impact on investor confidence and private sector sentiment,” the IMF added.
Maintaining a flexible exchange rate and a free foreign exchange regime is essential to prevent external imbalances, while a data-driven approach from central banks is needed to further reduce inflation.
The fund said sustained fiscal consolidation would help manage public debt, while efforts to strengthen domestic revenues and contain financial risks in the energy sector would ensure resources were available. This support would be needed for essential spending on health and education, and create fiscal space to increase social spending to support vulnerable groups.
“While progress has been made on some important structural reforms, more work is needed to implement the state ownership policy,” the press release added.
Strengthening the resilience of the financial sector, improving governance practices and increasing competition in the banking sector must be key priorities as they are essential to leading Egypt to private sector-led growth that creates jobs and opportunities for all.
Antoinette M. Sayeh, IMF Deputy Managing Director and Acting President, said the reforms were producing positive results, including unifying exchange rates, strengthening monetary policy, reducing speculation and moderating price inflation.
Sayeh said: “The policy setting is expected to help maintain macroeconomic stability. The continued transition to a flexible exchange rate regime and a liberalised foreign exchange system, continued implementation of a tight monetary policy stance, and further fiscal consolidation, together with the appropriate implementation of a framework to monitor and control public investment, will support internal and external balances.”
She added that additional cushioning against shocks was provided by allocating some of the funds raised from the Ras el-Hekma deal to reserve accumulation and debt reduction.
In February, a private consortium led by the Abu Dhabi-based national investment fund ADQ signed a deal with Egypt to invest $35 billion in Ras el-Hekma, a Mediterranean coastal area 350km northwest of Cairo. It is the largest single foreign direct investment in Egyptian history.
IMF officials said that implementing the structural reform agenda going forward is essential for inclusive and sustainable growth. Increasing tax revenues, improving debt management, and leveraging disinvestment resources to reduce debt would allow for more productive spending, including targeted social spending.
Recovering energy prices to cost recovery levels by December 2025 is essential for reliable energy supply and sectoral balance. Strengthening the governance of state-owned banks, developing state-owned policies, increasing financial transparency, and leveling the economic playing field are essential to attracting private investment.
“Risks remain significant,” Sayeh said. “Regional conflicts and uncertainty over the duration of the Red Sea trade disruption are important sources of external risk.”
She added, “Maintaining appropriate macroeconomic policies, including a flexible exchange rate regime, will help ensure economic stability. Meaningful progress on the structural reform program will significantly improve the growth outlook. Prudent management of the resumption of capital inflows will also be important to contain potential inflationary pressures and limit the risks of future external pressures.”
