## EXECUTIVE SUMMARY (1egyea2020001) ## Source details **Canonical URL:** [EXECUTIVE SUMMARY (1egyea2020001)](https://www.imf.org/-/media/files/publications/cr/2020/english/1egyea2020001.pdf) ## Other formats - [Markdown version](/-/media/files/publications/cr/2020/english/1egyea2020001.pdf.md) - [Structured JSON version](/-/media/files/publications/cr/2020/english/1egyea2020001.pdf.json) --- ### Context and request - Egypt achieved macroeconomic stabilization under the three-year EFF before COVID-19; growth is expected to slow in FY2019/20 and FY2020/21 as tourism was halted and domestic activity curtailed. - Authorities requested a 12-month Stand-By Arrangement (SBA) of 184.8 percent of quota (SDR 3.76 billion or about $5.2 billion) following a Rapid Financing Instrument (RFI) purchase on May 11, 2020, as part of a two-step plan to address financing needs. - The RFI and the SBA aim to alleviate financing needs and catalyze additional funding while preserving gains from the EFF. - Date on document header: June 17, 2020. ### Program financing, exceptional access, and modality - SBA access: SDR 3,763.64 million (about $5.2 billion or 184.8 percent of quota). - Proposed purchase upon approval: SDR 1,447.56 million (about $2 billion). - Remaining SDR 2,316.08 million (about $3.2 billion) equally distributed between the two reviews. - Exceptional access required because cumulative access limit of 435 percent of quota was already exceeded under the RFI; proposed SBA would also exceed the annual access limit of 145 percent of quota. - Financing assurances secured from World Bank, African Development Bank, Arab Monetary Fund, France, and Japan. - Fund purchases to address balance-of-payments needs and for budget support; CBE and Ministry of Finance to sign MoU on servicing Fund obligations. - Semi-annual program reviews; first review scheduled for December 2020. ### Macroeconomic outlook and key projections - Growth projections: - Growth in FY2019/20 and FY2020/21 had been lowered to 2 and 2.8 percent respectively (at time of the RFI); growth in FY2020/21 was further revised down to 2 percent. - Domestic activity projected to contract in Q2 and Q3 of 2020 with small recovery in Q4 and stronger rebound in 2021; recovery to pre-crisis tourism levels only by second half of 2022. - Inflation: - Core inflation was 1.9 percent (y/y) prior to the crisis. - Inflation projected to rise from 5.8 percent (y/y) in FY2019/20 to about 8 percent on average in FY2020/21. - CBE announced inflation target range: 9 ±3 percent for 2020Q4; inner and outer bands defined in the MPCC with consultation triggers. - Public finances and debt: - Baseline envisages primary surpluses of 1.4 and 0.5 percent of GDP in FY2019/20 and FY2020/21, respectively. - Public debt projected to rise to 93 percent in FY2020/21 before resuming a downward path with a planned return to primary surpluses of 2 percent of GDP from FY2021/22. - Baseline aims to restore pre-crisis primary surplus of 2 percent of GDP in FY2021/22 and reduce gross financing needs (GFN) toward below 30 percent of GDP by FY2024/25. - External sector and reserves: - Prior to the pandemic: Real GDP 5.6 percent (y/y) in the first half of FY2019/20. - At end-February, gross international reserves $45 billion (125 percent of the ARA metric). - During March–May, gross official reserves fell by $9.5 billion to $35.2 billion; CBE FX deposit drawdown during March–May: $7 billion (end-May CBE FX deposits about $5 billion). - Net reserve accumulation of $3 billion expected by March 2021 (proposed performance criterion). - Under baseline, reserves would remain at or above 110 percent of the ARA metric throughout the program. ### Recent developments and market access - Capital outflows: more than $15 billion of portfolio outflows in March and April 2020. - Sovereign spreads: EMBI spread peaked above 900 bps (from around 500) in late March. - Egypt issued $2 billion in Eurobonds in November 2019 (including a 40-year tranche) and returned to markets on May 21, raising $5 billion in 4-, 12-, and 30-year tranches; the May 21 issue was more than four times oversubscribed. - Authorities secured agreements with three official GCC bilateral creditors to rollover $13.4 billion of deposits at the CBE coming due in the next 12 months. ### Program policy package — fiscal, monetary, exchange rate, and financial stability - Fiscal: - Easing fiscal policy in FY2019/20 and FY2020/21 to support health spending and targeted support, while resuming downward public debt trajectory from FY2021/22. - Program target: primary surplus of 0.5 percent of GDP for FY2020/21 (to balance crisis-related spending while avoiding excessive public debt increase). - Draft FY2020/21 budget submitted to Parliament projected a primary surplus of 2 percent of GDP; authorities committed to including a floor of 0.5 percent of GDP in FY2020/21 per program (prior action). - Fiscal outturn for FY2019/20 expected to be 1.4 percent of GDP (fiscal easing of about 0.5 percentage point of GDP). - Baseline envisaged fiscal envelope would temporarily raise government debt to about 93 percent of GDP (from 84 percent). - Monetary and exchange rate: - Calibrate monetary policy to maintain inflation in central bank’s target range of 9 ±3 percent. - Monetary policy to remain data driven; CBE reduced policy rate by 300 basis points in mid-March to 9.25 percent. - Maintain exchange rate flexibility with intervention limited to disorderly market conditions. - Financial stability and banking: - Safeguard financial stability while supporting heavily affected borrowers; 6-month repayment moratorium on existing credit facilities and encouragement for prudent loan restructurings. - Banking and CBE Act to establish CBE price stability mandate, strengthen operational independence, and improve early intervention and bank resolution framework. - CBE will not introduce new subsidized lending schemes nor renew existing schemes once allocated resources committed; overdrafts limited to 10 percent of average revenues of public budget in previous three years (indicative target) and to be remunerated at market rates. - CBE may consider temporary drawdowns of prudential buffers; exceptional measures to be wound down as conditions allow. ### Crisis-related fiscal measures and cost (as of May 2020) — Total 0.756 (Percent of GDP) - Reduction in electricity and natural gas tariffs for industries: 0.178 - Additional funding for contractors implementing government investment programs: 0.174 - Additional funding for medical equipment, supplies, and higher wage appropriations for public health staff: 0.141 - Financing to purchase additional quantities of basic commodities: 0.087 - 3-month cash payment to workers impacted by the crisis: 0.052 - Options for delayed payment of corporate income taxes in installments: 0.035 - Additional funding for public work programs: 0.035 - Higher subsidy pay-outs for exporters: 0.025 - Financial support for the aviation sector: 0.012 - 6-month holiday on property taxes and deferral of government fees for the tourism sector: 0.007 - Financing for touristic establishments: 0.006 - 3-month deferral of property tax payments: 0.004 - Increase in the share of production in duty free zones that can be sold in the domestic market: 0.000 ### Proposed revenue measures (selected items and impact) - Development Fees: 0.238 (Percent of GDP) - Green fee on consumption of gasoline and diesel products: 0.087 - New Development Fee Law: 0.054 - 5 percent development fee on imported mobile phones and accessories: 0.044 - 10 percent development fee on iron and steel products: 0.032 - Development fee on tobacco: 0.016 - Additional measures in draft MTRS and proposals: - 2.5 percent on internet bill paid by companies and establishments: 0.006 - Increase in excises on tobacco and cigarette products: 0.111 - Collection of additional surpluses from public banks: 0.089 - Taxation of digital services, e-commerce, and online trade: 0.048 - Revision in bank secrecy law to comply with global forum for taxation: 0.032 - Amendment of income tax law to allow for more progressivity: 0.032 - Total of selected proposed revenue measures: 0.549 (Percent of GDP) - Authorities prepared additional revenue options: proposed one-percent tax on salaries and 0.5 percent on pension payments over 12 months potentially raising around EGP10 billion (around 0.18 percent of GDP). ### Social protection, health, and public financial management - Takaful and Karama program to reach around 3½ million families. - Allocations for health spending projected to be higher by 26 percent in FY2020/21 (y/y); allocations for social protection increased by nearly 10 percent (y/y). - Minimum spending floor for health and social protection categories proposed as an indicative target. - Public Expenditure Review covering social protection, health, and education to provide recommendations by April 2021 (proposed structural benchmark). - Draft PFM law revision to be submitted to Parliament by end-December 2020 (proposed structural benchmark) to strengthen fiscal responsibility, medium-term budget framework, budget calendar, and accounting rules for all public entities. ### Debt dynamics, risks, and DSA findings - Debt and GFN: - Gross public debt projected at 84 percent of GDP (pre-crisis) rising to about 93 percent in FY2020/21 then declining (projections in tables: gross debt 92.7; 83.8; 88.0; 93.3; 88.3; 84.5; 80.8 for 2017/18–2023/24). - Gross financing needs (GFN) stand above 30 percent of GDP and projected to exceed 30 percent of GDP through 2023. - DSA overall assessment: Egypt’s debt remains sustainable, but not with a high probability. - Main DSA risks: - More prolonged/severe pandemic, tighter global financial conditions, less ambitious fiscal consolidation, contingent liabilities from SOEs. - Stress test outcomes (selected scenarios and impacts on debt-to-GDP): - Historical and primary balance shock → debt-to-GDP 98 percent by FY2024/25. - Delay in primary balance consolidation by about 1 percent of GDP → debt-to-GDP 79 percent by FY2024/25 (vs. 77 percent baseline). - Growth shock (GDP growth 1.2 percentage points lower and inflation 0.3 percentage point lower in FY2019/20–FY2020/21) → debt increases to 81 percent of GDP. - Real interest rate shock (increase ~350 basis points) → debt increases to 80 percent of GDP. - Real exchange rate shock (100 percent depreciation) → increases debt by 7 percentage points in next year, reaching 82 percent of GDP over medium term. - Combined macro-fiscal shock → increases debt to 103 percent of GDP in the following year (vs. 93 percent baseline); over medium term remains ~12 percentage points higher than baseline. - Contingent liability shock (10 percent of GDP) → debt-to-GDP 105 percent in FY2020/21 (vs. 93 percent baseline). - Most severe combined shock → debt-to-GDP 112 percent next year; medium-term debt ~98 percent instead of 77 percent in baseline. ### External debt and external sustainability - External debt headline: - External debt expected to peak at about 38 percent of GDP in 2021 and decline thereafter. - External debt (selected series): 15.0; 18.3; 41.3; 37.4; 34.1; 34.4; 38.0; 34.9; 31.6; 28.9; 26.7 (2015–2025). - External debt stock (in billions of US$): - Total External Debt: 2013/14: 46.1; 2019/20: 112.7. - Medium and long-term debt 2013/14: 42.4; 2019/20: 101.4. - Bonds 2013/14: 6.1; 2019/20: 20.9. - Loans 2013/14: 36.3; 2019/20: 80.5. - Multilateral 2013/14: 12.2; 2019/20: 34.7 (of which IMF: 2013/14: 1.4; 2019/20: 13.1). - Short-term external debt 2013/14: 3.7; 2019/20: 11.3. - Gross external financing need (in percent of GDP): 5.4; 7.6; 9.4; 8.2; 8.5; 8.0; 10.0; 9.1; 8.6; 8.9; 8.4 (2015–2025). - Policy implications: extend maturities on external debt, finalize and implement rollover agreements (noting $13.4 billion agreed rollovers with GCC creditors), continue flexible exchange rate and structural reform agenda. ### Program conditionality, monitoring, and prior actions - Prior action for SBA approval: passage of FY2020/21 budget by Parliament consistent with program understandings (budget contains provision floor of 0.5 percent of GDP for primary surplus). - Selected prior actions and structural benchmarks (dates as provided): - Develop NIB reform plan approved by Prime Minister — End-January 2021. - Publish updated SOE and Economic Authorities reports for FY2018/19 — End-September 2020. - Cabinet approval of updated MTRS — End-December 2020. - Submission to Parliament of revised PFM law — End-December 2020. - Update MTDS focusing on lengthening maturities — End-December 2020. - Submit amendments to competition law (mergers and acquisitions chapter) — End-December 2020. - Pass draft customs law — No later than March 2021. - Complete public expenditure review for social protection — End-April 2021. - Quantitative targets with test dates: end-September 2020 and end-March 2021, with indicative targets for intermediate quarter; performance criteria on net international reserves, primary balance, and non-accumulation of external debt payment arrears. ### Safeguards, reporting, and data - Safeguards: fiscal safeguards review to be undertaken given exceptional access; ongoing update to CBE safeguards assessment (audit opinion on 2019 financial statements is unmodified). - Reporting requirements: detailed Ministry of Finance and CBE reporting schedules and submission lags specified (weekly, monthly, quarterly timelines listed in TMU excerpts). - Program exchange rates and definitional figures (as of May 31, 2020): program exchange rate of pound against US$ is 15.8270; foreign reserve assets $35,238 million; foreign reserve-related liabilities $14,519 million. - Program disbursement cumulative projections: $10,100 million as of September 2020 and $12,930 as of March 2021. ### Staff appraisal, program credibility, and risks - Staff assesses that Egypt meets exceptional access criteria: exceptional BOP pressures, debt sustainability assessment (debt sustainable but not with high probability), prospects for regaining market access, and policy program prospect of success and implementation capacity. - Staff supports restoring primary surplus to 2 percent of GDP by FY2021/22 and improving debt sustainability; emphasizes need to lengthen maturities and reduce GFN. - Main risks: - Delayed recovery or renewed pandemic outbreak aggravating fiscal pressures and debt. - Additional output losses increasing unemployment, poverty, inequality, and financial stability risks. - Tighter global financial conditions putting pressure on capital flows and borrowing costs. - Staff recommendation: unwind exceptional COVID-19-related measures as soon as conditions allow to avoid imbalances; continue institution building and structural reforms to support private-sector-led growth and preserve market access. *International Monetary Fund — EXECUTIVE SUMMARY and selected excerpts from 1egyea2020001, June 17–26, 2020.* ### EXECUTIVE SUMMARY ### EXECUTIVE SUMMARY ### Context - Egypt achieved macroeconomic stabilization during the three-year arrangement under the Extended Fund Facility (EFF) prior to the COVID-19 pandemic. - Growth is expected to slow in both FY2019/20 and FY2020/21 as tourism has been halted and domestic activity curtailed. - External accounts came under pressure due to capital outflows and the shock to tourism and remittances. - Authorities responded with a broad package to scale up the health system’s capacity and policies to support the people and the economy. - Date on document header: June 17, 2020. ### Request for a Stand-By Arrangement (SBA) - Authorities requested a 12-month Stand-By Arrangement (SBA) of 184.8 percent of quota (SDR 3.76 billion or about $5.2 billion) to alleviate the urgent balance of payments need. - The request follows a purchase approved under the Rapid Financing Instrument (RFI) on May 11, 2020, as part of a two-step plan to address financing needs over the next year. - The RFI and the SBA aim to alleviate financing needs and help catalyze additional funding, supported by a balanced policy framework that helps preserve gains achieved under the EFF. - The proposed SBA will have semi-annual reviews. ### Key policies under the SBA - Easing fiscal policy in FY 2019/20 and FY2020/21 to support crisis spending on health and targeted support for the most impacted sectors and people, and resuming the downward trajectory of public debt from FY2021/22. - Calibrating monetary policy to maintain inflation in the central bank’s target range of 9 ±3 percent. - Maintaining exchange rate flexibility with intervention limited to disorderly market conditions. - Safeguarding financial stability while supporting heavily affected borrowers in the wake of the pandemic, and reforming the National Investment Bank (NIB). - Strengthening the public finance framework to reduce the gross financing need, mobilize additional revenues, and modernize public financial management. - Continuing structural reforms to support private sector development and improve governance. ### Exceptional access - Financing under the SBA requires exceptional access as Egypt already exceeded the normal cumulative access limit of 435 percent of quota under the RFI. - The proposed level of access under the SBA would also exceed the normal annual access limit of 145 percent of quota. - Staff assesses that Egypt meets the criteria for exceptional access. - Egypt’s capacity to repay the Fund is adequate. - The authorities’ favorable track record and commitment to strong policies should support a solid rebound and continued market access as conditions normalize. ### Risks - A more delayed recovery or a renewed outbreak of the pandemic would further aggravate pressure on public finances, resulting in greater financing needs, higher public debt, and increased risks to debt sustainability. - Additional output losses may lead to even higher unemployment, rising poverty and inequality, and financial stability risks, potentially undermining social support for reform efforts. - A further tightening of global financial conditions could put renewed pressure on capital flows and the government’s borrowing costs. ### Recent developments (selected) - Prior to the pandemic: Real GDP was 5.6 percent (y/y) in the first half of FY2019/20. - Public debt was on a downward trajectory, underpinned by a projected fiscal primary surplus of 2 percent of GDP. - At end-February, gross international reserves stood at $45 billion (125 percent of the ARA metric). - Core inflation was 1.9 percent (y/y). - Egypt issued $2 billion in Eurobonds in November 2019 including a 40-year tranche. - As the pandemic spread, Egypt experienced capital flow reversals including more than $15 billion of portfolio outflows in March and April. - Sovereign spreads: EMBI spread peaked above 900 bps (from around 500) in late March. - On May 21, Egypt returned to the international bond market, raising $5 billion in 4-, 12-, and 30-year tranches; the issue was more than four times oversubscribed. ### Outlook and key projections (selected) - Growth projections: - Growth in FY2019/20 and FY2020/21 had been lowered to 2 and 2.8 percent respectively (at time of the RFI). - Growth in FY2020/21 was further revised down to 2 percent. - Domestic activity is projected to contract in Q2 and Q3 of 2020, with a small recovery beginning in Q4 and a potentially stronger rebound in 2021. - Tourism is expected to return to pre-crisis levels only by the second half of 2022. - Inflation is projected to rise from 5.8 percent (y/y) in FY2019/20 to about 8 percent on average in FY2020/21. - Public finances: - Current baseline envisages primary surpluses of 1.4 and 0.5 percent of GDP in FY2019/20 and FY2020/21, respectively. - Public debt is projected to rise to 93 percent in FY2020/21 before resuming a downward path accompanied by a planned return to primary surpluses of 2 percent of GDP. - Banking system: remained liquid, profitable, and well capitalized heading into the crisis, but risks to loan portfolios, capital costs, and profitability have increased. - External balances: expected to deteriorate compared to the RFI baseline due to weaker global outlook and lower foreign inflows. ### Program policies — Balancing fiscal priorities in a crisis - Fiscal support will be directed to the most-affected individuals and sectors; the Takaful and Karama program will reach around 3½ million families. - Since the outbreak, resources directed to food and medical/sanitation supplies for remote villages and other vulnerable groups. - Fiscal outturn for FY2019/20 is expected to be 1.4 percent of GDP, corresponding to a fiscal easing of about 0.5 percentage point of GDP. - Fiscal costs of measures in response to COVID-19 (as of May 2020) — Total 0.756 (Percent of GDP): - Reduction in electricity and natural gas tariffs for industries 0.178 - Additional funding for contractors implementing government investment programs 0.174 - Additional funding for medical equipment, supplies, and higher wage appropriations for public health staff 0.141 - Financing to purchase additional quantities of basic commodities 0.087 - 3-month cash payment to workers impacted by the crisis 0.052 - Options for delayed payment of corporate income taxes in installments 0.035 - Additional funding for public work programs 0.035 - Higher subsidy pay-outs for exporters 0.025 - Financial support for the aviation sector 0.012 - 6-month holiday on property taxes and deferral of government fees for the tourism sector 0.007 - Financing for touristic establishments 0.006 - 3-month deferral of property tax payments 0.004 - Increase in the share of production in duty free zones that can be sold in the domestic market 0.000 - Program target: a primary surplus of 0.5 percent of GDP for FY2020/21 to balance crisis-related spending while avoiding an excessive increase in public debt. - The draft FY2020/21 budget submitted to Parliament (expected to pass in June — prior action) was prepared mostly on pre-COVID-19 projections and projected a primary surplus of 2 percent of GDP; authorities committed to including a provision establishing a floor for the primary surplus of 0.5 percent of GDP in FY2020/21 per the program target (proposed performance criterion). - A supplementary budget could be needed in December; authorities prepared to delay low priority current and capital spending in favor of essential spending on health and targeted social protection (MEFP ¶ 11). - Revenue measures in the FY2020/21 budget (Percent of GDP) — selected items: - Development Fees 0.238 - Green fee on the consumption of gasoline and diesel products 0.087 - New Development Fee Law 0.054 - 5 percent development fee on imported mobile phones and accessories 0.044 - 10 percent development fee on iron and steel products 0.032 - Development fee on tobacco 0.016 - Budget revenue measures yield about ½ percent of GDP in the budget. - Authorities prepared additional revenue measures: proposed one-percent tax on salaries across public and private sectors and 0.5 percent on pension payments over 12 months which could raise around EGP10 billion (around 0.18 percent of GDP) to support the health sector as well as firms and workers hit by the crisis. - Expenditure: allocations for health spending projected to be higher by 26 percent in FY2020/21 (y/y); allocations for social protection increased by nearly 10 percent (y/y). Minimum spending floor for these categories is proposed as an indicative target. - Baseline aims to restore the pre-crisis primary surplus of 2 percent of GDP in FY2021/22 and resume reduction in public debt; envisaged fiscal envelope for FY2020/21 would temporarily raise government debt to about 93 percent of GDP (from 84 percent of GDP). ### Program orientation and structural priorities - SBA will aim to maintain macroeconomic stability amid the crisis while advancing structural reforms to strengthen medium-term growth and job creation prospects. - Program will address selected critical structural reforms including debt management, transparency of state-owned enterprises (SOEs), and the business climate. *International Monetary Fund — EXECUTIVE SUMMARY, June 17, 2020.* ### 2.5 percent on internet bill paid by companies and establishments 0.006 ### 1egyea2020001 - 2.5 percent on internet bill paid by companies and establishments 0.006 ### Proposed revenue measures and fiscal impact - 2.5 percent on internet bill paid by companies and establishments: 0.006 - Increase in excises on tobacco and cigarette products: 0.111 - Collection of additional surpluses from public banks: 0.089 - Taxation of digital services, e-commerce, and online trade: 0.048 - Revision in bank secrecy law to comply with global forum for taxation: 0.032 - Amendment of income tax law to allow for more progressivity: 0.032 - Total: 0.549 ### Fiscal stance, primary surplus targets, and debt objectives - Authorities aim to unwind temporary crisis-related expenditures and return to fiscal consolidation to resume the downward path of public debt in FY2021/22 (¶17). - If the projected recovery remains weaker for longer, authorities noted efforts will be made to attain a primary surplus of at least 1.4 percent of GDP in FY2021/22 and 2 percent of GDP thereafter (MEFP ¶8). - Efforts underway to lengthen debt maturities and target a reduction in gross financing needs (GFN) to below 30 percent of GDP by FY2024/25 (proposed structural benchmark). - A quantitative ceiling has been established on the share of net new short-term domestic issuance to total domestic treasury issuances (proposed indicative target, MEFP ¶13). - Proposed structural benchmark: update the medium-term debt strategy (MTDS) by end-December 2020 (MEFP ¶13). ### Monetary policy, inflation targeting, and reserves - CBE announced inflation target range: 9 ±3 percent on average for 2020Q4 (MEFP ¶16). - Monetary policy to remain data driven; MPC will consider pass-through from the recent rate cut, inflation expectations, domestic activity, and financial conditions. - Monetary policy consultation clause (MPCC): - Inner band: 9 ±3 percent; if inflation falls outside, authorities engage with staff on reasons and remedies (MEFP ¶17). - Outer band: 9 +4/-5 percent; deviation triggers consultation with the Executive Board (MEFP ¶17). - Exchange rate policy: authorities committed to exchange rate flexibility, limiting intervention to disorderly market conditions (MEFP ¶22). - Reserves movements and targets: - During March–May, gross official reserves fell by $9.5 billion to $35.2 billion. - Drawdown from CBE FX deposits during March–May: $7 billion. At end-May 2020, these deposits totaled about $5 billion. - Since mid-May, the exchange rate has depreciated by around 3 percent. - Net reserve accumulation of $3 billion is expected by March 2021 (proposed performance criterion). - Under baseline, reserves would remain at or above 110 percent of the ARA metric throughout the program. ### Banking sector policy and financial stability measures - Promulgation and implementation of the Banking and CBE Act (recently approved by Parliament) will: - Establish the CBE’s price stability mandate, strengthen operational independence, and improve legal framework for early intervention and bank resolution (¶15). - CBE’s subsidized lending schemes that pre-date COVID-19 are quasi-fiscal; CBE will not introduce new schemes nor renew existing schemes once allocated resources are fully committed. - For any uncommitted portion of facilities at end-May 2021, interest costs related to lending activities from this portion will be incurred by the government (MEFP ¶20). - CBE will limit direct short-term lending to the government (overdrafts not to exceed 10 percent of the average revenues of the public budget in the previous three years) and ensure such financing is provided at market rates (proposed indicative target, MEFP ¶19). - COVID-19 relief measures for borrowers: - 6-month repayment moratorium on existing credit facilities. - Banks urged to restructure loans prudently for heavily affected clients. - CBE provided a one-year waiver for additional risk-weights on portfolio concentrations and may consider allowing temporary drawdowns of prudential buffers (e.g., capital conservation buffer) if needed (MEFP ¶23). - Exceptional financial sector measures will be wound down as soon as conditions allow (MEFP ¶23). ### Structural reforms and public financial management - Social safety net: - Authorities plan to expand social support to include at-risk women, the elderly, and school children (feeding program). - Public expenditure review covering social protection, health, and education programs to provide recommendations by April 2021 (proposed structural benchmark, MEFP ¶15). - Revenue mobilization: - Draft medium-term revenue strategy (MTRS) had identified reforms and tax policies to increase revenue by 2 percent of GDP over four years; MTRS to be revised and sent for Cabinet approval by end-December 2020 (proposed structural benchmark). - Certain revenue measures from the draft MTRS have been accelerated and embedded in the FY2020/21 budget (¶10, MEFP ¶12). - Public financial management law revisions: - Parliamentary submission aimed for end-December 2020 (proposed structural benchmark). - Revisions to include fiscal responsibility provision, medium-term budget framework, budget calendar elements, minimum contents of budget documentation, provisions on reallocation/contingency reserves/supplementary appropriations, and accounting rules for all public entities including economic authorities (MEFP ¶14). - SOE and Economic Authorities transparency: - Updated SOE report and separate Economic Authorities (EAs) report with detailed financial information for FY2018/19 to be published by end-September 2020 (proposed structural benchmark, MEFP ¶25). - Customs law and trade facilitation: - Draft customs law expected to be passed no later than March 2021 (proposed structural benchmark) to streamline customs procedures, mandatory registration of manufacturers of imported goods, shipment inspections, and valuation procedures (MEFP ¶25). - Competition policy: - Draft amendments to Egyptian Competition Law to be submitted to Parliament by end-December 2020 (proposed structural benchmark) to ensure competitive neutrality, empower the Egyptian Competition Authority (ECA), regulate mergers and acquisitions, protect SMEs, and allow ECA opinions on regulatory impacts (MEFP ¶27). - National Investment Bank (NIB) reform: - International auditor hired to evaluate NIB’s financial position; assessment to inform reform plan including revised mandate, business model, and financial structure (proposed structural benchmark, MEFP ¶29). - Potential public sector costs associated with NIB reform will be accommodated via an adjustor on the primary balance targets (TMU ¶11). ### Program modalities, financing, and safeguards - Access under the 12-month SBA proposed at SDR 3,763.64 million (about $5.2 billion or 184.8 percent of quota). - Proposed purchase upon approval: SDR 1,447.56 million (about $2 billion). - Remaining SDR 2,316.08 million (about $3.2 billion) equally distributed between the two reviews. - Financing context: - Exceptional access requested as Egypt has exceeded normal annual and cumulative access limits. - Residual financing needs in FY2019/20 and FY2020/21 narrow to $4.5 billion and $9.0 billion, respectively, with proposed purchases. - Financing assurances secured from World Bank, African Development Bank, Arab Monetary Fund, France, and Japan. - External commercial borrowings, including possible market access, expected to fill remaining financing gap. - Fund use and safeguards: - Fund purchases would address balance of payments needs and be used for budget support. - CBE and Ministry of Finance to sign a memorandum of understanding on responsibilities for timely servicing obligations to the Fund. - Authorities committed to a fiscal safeguards review as required under Fund policy (LOI ¶5). - Ongoing update to the CBE safeguards assessment: audit opinion on 2019 financial statements is unmodified (clean); assessment to follow up on Banking and CBE Act implementation and compliance with Egyptian Accounting Standards starting with 2020 financial statements. ### Monitoring, targets, and program review - Program to be monitored through semi-annual reviews. - Prior action for SBA approval: passage of the FY2020/21 budget by Parliament consistent with program understandings. - Quantitative targets with test dates: end-September 2020 and end-March 2021, with indicative targets for the intermediate quarter. - First review scheduled for December 2020. - Performance criteria proposed on net international reserves, the primary balance, and non-accumulation of external debt payment arrears by the general government. - Indicative targets proposed on government overdrafts with the CBE, tax revenues, floor for social spending, share of net new short-term issuances of treasury securities to total domestic treasury issuances, and accumulation of gross debt of the budget sector. ### Staff appraisal and risks - COVID-19 presents an unprecedented shock affecting macroeconomic stability and balance of payments needs (STAFF APPRAISAL ¶27). - Authorities’ reforms under the EFF left Egypt relatively well positioned, but the sudden stop increases vulnerabilities around growth and debt sustainability. - Immediate tasks: tackle the health crisis, address social needs, rebuild buffers, and guide macroeconomy back to strength. - Exceptional COVID-19-related measures should be unwound as soon as circumstances allow to avoid buildup in imbalances (STAFF APPRAISAL ¶27). *ARAB REPUBLIC OF EGYPT — INTERNATIONAL MONETARY FUND (excerpts as provided in the source content)* ### 28. The authorities’ economic program supported by the proposed SBA offers a credible plan ### 28. The authorities’ economic program supported by the proposed SBA offers a credible plan ### Program credibility and flexibility - The authorities’ program aims to: - prioritize higher health and social spending; - reduce risks to debt sustainability; - rebuild FX reserves; - further strengthen the monetary policy framework; and - maintain financial stability. - Policies are complemented by focused structural reforms to support private sector development. - The reform program includes flexibility to respond to additional crisis-related spending needs while safeguarding fiscal and external balances. - Staff welcomes the authorities’ willingness to consider additional policies if the crisis deepens or lasts longer than currently envisaged (LOI ¶4, MEFP ¶9). - The authorities commit to maintaining transparency and accountability of crisis spending by tracking and reporting it, including in a consolidated manner on the Ministry of Finance website (LOI ¶3). ### Fiscal stance, public debt, and financing - Staff supports restoring the primary surplus to 2 percent of GDP by FY2021/22 and improving public debt sustainability. - Key findings and risks: - High levels of public debt and gross financing needs make debt sustainable but not with high probability (Annex I). - The COVID-19 shock has increased risks to debt sustainability. - Under the current baseline, resuming and maintaining a primary surplus of 2 percent of GDP—supported by the updated MTRS and MTDS—is essential to put public debt on a downward trajectory. - Policy measures supported: - Ongoing efforts to reduce gross financing needs. - Further lengthening of maturities of government securities to reduce rollover risks and improve the debt path. ### Monetary policy and exchange rate framework - The monetary framework is being modernized with a gradual shift to inflation targeting supported by exchange rate flexibility. - The recently approved Banking and CBE Act (to be signed into law later this year) will: - mandate financial stability and price stability as the objectives of the CBE; - strengthen governance, financial structure, operational and institutional autonomy. - Staff supports the CBE’s data-driven policy approach to anchor inflation expectations, which has delivered low and stable inflation to date. - Staff welcomes the exchange rate flexibility evidenced since mid-May; continued flexibility is seen as an important shock absorber for Egypt. ### Reserve rebuilding - Staff supports the authorities’ goal to rebuild official reserves as economic conditions normalize. - Assessment and guidance: - Egypt’s reserve adequacy remains above the relevant benchmarks, but rebuilding reserve buffers is appropriate and prudent given heightened global uncertainty. - Accumulating reserves in a weak global environment with limited FX inflows could be challenging. - The CBE should make every effort to rebuild reserve buffers, particularly as constraints dissipate and economic activity resumes in 2021. ### Financial stability and sectoral measures - Staff welcomes the authorities’ strong commitment to financial stability and close monitoring of financial sector conditions to identify and address stress quickly. - Staff supports plans to wind down crisis measures as soon as conditions allow to avoid buildup of financial sector vulnerabilities. - NIB reform: - The forthcoming reform strategy for the NIB should provide timebound actions while minimizing public sector costs. - The strategy should be informed by an independent evaluation of the NIB’s financial position and address mandate, business model, financial structure, and an implementation timetable with clear milestones. - The NIB is currently not supervised by the CBE. If NIB continues to accept public funds (e.g., issuance of savings certificates), transforming it into a licensed entity through a thorough licensing process to ensure compliance with prudential requirements would provide important safeguards. ### Structural reforms and social protection - Progress on structural reforms is essential to unlock higher growth potential. - Priority reform areas: - Enhance SOE transparency; - Improve competition; - Facilitate trade; - Strengthen social safety nets. - Expected outcomes: - Incentivize private sector participation; - Strengthen governance and reduce corruption vulnerabilities; - Promote human capital and business investments; - Raise overall productivity and support medium-term private-sector-led growth and job creation. ### SBA term and staff endorsement - Staff supports the authorities’ request for a 12-month SBA. - Financing assurances for the next 12 months have been secured. - The attached LOI and MEFP present a strong set of policies and the authorities’ commitment to pursue the objectives of the program. ### Exceptional access assessment (summary of Box 3) - Criterion 1: Exceptional balance of payments pressures - Egypt faces exceptional balance of payments pressures from COVID-19 disruptions to tourism, remittances and capital flows, with an estimated financing gap of $21.4 billion in FY2019/20 and FY2020/21. - Egypt has outstanding purchases of 422 percent of quota under the EFF and 100 percent of quota under the RFI; the cumulative access limit (435 percent of quota) has already been exceeded. The combined RFI and SBA purchases will cause the annual access limit (145 percent of quota) to be exceeded. - Criterion 2: Debt sustainability assessment - Vulnerabilities include public debt of 84 percent of GDP at the end of FY 2018/19 and gross financing needs (more than 30 percent of GDP), compounded by the COVID-19 shock. - Under the current baseline, the primary surplus is expected to return to 2 percent of GDP from FY2021/22 and public debt is projected to resume a downward trajectory. - Factors mitigating risks: high share of local currency debt held by domestic financial institutions; retention of market access; affirmation of credit ratings and a stable outlook by major ratings agencies since the COVID-19 crisis; sizeable buffers coming into the crisis. - Staff’s assessment: Egypt’s debt is sustainable, but not with high probability. - Safeguards: non-Fund external debt obligations include the stock of Eurobonds (about $25 billion including the $5 billion issuance in May 2020), with the first maturity in 2022. Authorities secured agreements with three official GCC bilateral creditors to rollover $13.4 billion of deposits at the CBE coming due in the next 12 months. Bilateral financing expected during the program would further strengthen safeguards. - Criterion 3: Prospects for regaining private market access - Egypt had favorable market access prior to the pandemic and re-established market access with a $5 billion Eurobond issuance in May. *Source: 1egyea2020001 - 28. The authorities’ economic program supported by the proposed SBA offers a credible plan (PDF).* ### Box 3. Exceptional Access Criteria (concluded) ### Box 3. Exceptional Access Criteria (concluded) ### Criterion 4 — Policy program prospect of success and implementation capacity - The authorities demonstrate strong program ownership and a track record of implementation under the 2016–19 EFF that was critical in stabilizing the economy, establishing credibility, and restoring confidence. - The authorities’ steadfast commitment to policies needed to support macroeconomic stability and more inclusive growth, including further progress on structural reforms, has been reinforced at the highest political level. - With Fund support under the proposed SBA, the authorities intend to pursue all necessary policies to alleviate the BOP pressures and maintain economic and financial stability. - Institution building to support strong policy frameworks is ongoing, including through capacity development support from the IMF. - The government appears to have broad support to implement its policies. - Managing the crisis in a way that minimizes the socio-economic impact will be important to maintain social support for the reforms. ### Investor confidence and market access - The country has a strong track record of maintaining investor confidence during times of temporary stress—market access was regained promptly following the 2016 crisis with total issuances of about $21 billion during 2017–19. - Close engagement with the Fund—including in the context of this SBA—should help ensure the maintenance of a strong policy framework to support a solid rebound after the crisis, which should further reinforce investor confidence and ensure continued market access at a level adequate for Egypt to meet its Fund obligations. ### Selected macroeconomic outlook and key projections (from tables) - Real GDP (market prices): 5.3; 5.6; 2.0; 2.0; 6.5; 5.3; 5.3. (2017/18–2023/24) - Consumer prices (end of period): 14.4; 9.4; 6.2; 9.0; 8.5; 8.0; 7.5. (2017/18–2023/24) - Consumer prices (period average): 20.9; 13.9; 5.8; 8.2; 8.7; 8.1; 7.8. (2017/18–2023/24) - Overall balance (percent of GDP, budget sector): -9.7; -8.1; -8.3; -8.7; -6.1; -5.0; -5.0. (2017/18–2023/24) - Primary balance (percent of GDP, budget sector): 0.2; 1.9; 1.4; 0.5; 2.0; 2.0; 2.0. (2017/18–2023/24) - Gross debt (percent of GDP): 92.7; 83.8; 88.0; 93.3; 88.3; 84.5; 80.8. (2017/18–2023/24) - External debt (percent of GDP): 37.4; 34.1; 34.4; 38.0; 34.9; 31.6; 28.9. (2017/18–2023/24) - Current account (in billions of US$): -6.0; -10.9; -14.8; -16.2; -12.0; -9.6; -10.0; -10.9. (2017/18–2024/25) - Current account (percent of GDP): -2.4; -3.6; -4.2; -4.5; -3.2; -2.4; -2.3; -2.4. (2017/18–2024/25) - Gross international reserves (in billions of US$): 43.5; 43.9; 36.8; 40.1; 40.7; 41.5; 45.1; 51.0. (2017/18–2024/25) - Gross international reserves (in months of next year's imports of G&S): 6.7; 7.6; 8.0; 7.4; 6.4; 5.8; 5.8; 5.9. (2017/18–2024/25) - Financing gap (in billions of US$): 0.0; 0.0; -9.2; -12.2; 0.0; 0.0; 0.0; 0.0. (2017/18–2024/25) - Rapid Financing Instrument purchase (in billions of US$): 0.0; 0.0; -2.8; 0.0; 0.0; 0.0; 0.0; 0.0. (2017/18–2024/25) - Stand-By Arrangement purchases (in billions of US$): 0.0; 0.0; -2.0; -3.2; 0.0; 0.0; 0.0; 0.0. (2017/18–2024/25) ### External financing, IMF engagement, and program financing - Foreign direct investment (net, in billions of US$): 7.4; 7.9; 8.0; 5.5; 8.3; 11.4; 15.5; 17.1. (2017/18–2024/25) - Portfolio investment (net, in billions of US$): 12.1; 4.1; -7.5; 3.5; 7.0; 8.0; 7.4; 8.4. (2017/18–2024/25) - Table 12 — Proposed Schedule of Reviews and Purchases Under the Stand-By Arrangement: - June 26, 2020: 1,447.5 Millions of SDR; 671.1 Percent of Quota; Board approval of the SBA. - December 1, 2020: 1,158.0 Millions of SDR; 456.8 Percent of Quota; First review and end-September 2020 quantitative targets. - June 1, 2021: 1,158.0 Millions of SDR; 456.8 Percent of Quota; Second review and end-March 2021 quantitative targets. - Total: 3,763.6 Millions of SDR; 1,84.8 Percent of Quota. ### Key policy implications and implementation priorities - Maintain strong policy framework supported by the SBA to alleviate balance of payments pressures and preserve market access. - Continue institution building and capacity development with IMF support to strengthen policy implementation. - Pursue measures to manage socio-economic impacts of the crisis to sustain social and political support for reforms. - Monitor reserve levels, external financing flows (including FDI and portfolio investment), and the financing gap closely to ensure adequacy of external liquidity and timely access to program disbursements. *Source: Box 3 and Tables 1–14, based on available data as of June 15, 2020.* ### 0.5 percent of GDP ### 0.5 percent of GDP ### Prior actions and policy measures - Strengthen fiscal sustainability — Prior action: Develop a reform plan for NIB, approved by the Prime Minister in line with MEFP ¶29. - Strengthen public finances and contain risks to the financial sector — End-January 2021: Publish an updated SOE report to include detailed financial information for FY2018/19 on all SOEs and a separate one for Economic Authorities that includes detailed financial information for FY2018/19. - Fiscal transparency and governance — End-September 2020: Cabinet approval of the updated MTRS. - Increase tax revenue — End-December 2020: Submission to Parliament of the revised PFM law to strengthen the entire budget process, including by i) fiscal responsibility provisions to guide macro-fiscal policy; ii) a medium-term budget framework; iii) main elements of the budget calendar; iv) minimum contents of the budget documentation; v) robust provisions on reallocation of resources, contingency reserve and supplementary appropriations; and vi) accounting rules for all public entities including economic authorities. - Strengthen PFM, improve governance/and reduce corruption risks — End-December 2020: Update the debt management strategy with the focus on lengthening maturities. - Reduce debt vulnerabilities — End-December 2020: Submit to Parliament amendments to the competition law to add a new chapter on mergers and acquisitions in line with MEFP ¶27. - Private Sector — End-December 2020: Pass the draft customs law that streamlines customs procedures in line with MEFP ¶25. - Business climate — End-March 2021: Complete Public Expenditure Review to enhance social protection. - Social protection — End-April 2021. ### Key findings from the Debt Sustainability Analysis (DSA) - Overall assessment: Egypt’s debt remains sustainable, but not with a high probability. - Baseline projection: Debt is projected to increase in FY2019/20 and FY2020/21 before resuming a downward trajectory to 77 percent of GDP by FY2024/25. - Main risks identified: - A more prolonged and severe impact of the COVID-19 pandemic. - A sustained increase in interest rates due to tightening of global financial conditions. - A less ambitious fiscal consolidation path. - Contingent liabilities arising from state-owned enterprises. - Risk mitigants: - High share of local currency debt. - Quick return to international capital markets following the COVID-19 shock. - Authorities are extending debt maturities and intend to extend them further. - Policy implication: Over the medium term, sustained fiscal consolidation in combination with structural reforms to boost growth is needed to put Egypt’s debt on a steadily declining path. - External debt: External debt is moderate, with sufficient longer-term non-Fund external debt obligations that provide safeguards to the Fund. ### Baseline macro-fiscal projections and assumptions - Growth: - Assumes a temporary two-quarter shock to growth that spills from FY2019/20 into FY2020/21. - Real GDP growth expected to decline from an average of 5½ percent of GDP in FY2017/18 and FY2018/19 to 2 percent in FY2019/20 and to 2 percent in FY2020/21. - Growth projected to recover to 5½ percent over the medium term. - Inflation: - Average inflation expected to increase from about 6 percent in FY2019/20 to 8 percent in FY2020/21 and decline to 7 percent in the medium term. - Interest rates: Effective interest rates on general government debt are projected to decline, in line with inflation. - Debt path: - General government debt projected to increase from 84 percent of GDP in FY2018/19 to about 93 percent of GDP in FY2020/21, then decline to 77 percent of GDP in FY2024/25. - Gross financing needs (GFNs): GFNs stand above 30 percent of GDP compared to the 15 percent of GDP benchmark for EMs. - Market metrics: In April, spreads increased from about 465 basis points pre-COVID-19 to well above 600 basis points, then later came down. ### Realism of baseline assumptions and forecast uncertainty - Historical forecast errors (2008–2016): - Median forecast error for growth: -0.1 percent. - Median forecast error for inflation: 1.2 percent. - Median forecast error for the primary balance: -1.1 percent. - The forecasts exhibit an optimistic bias partly due to exceptional volatility in the sample period (global financial crisis and two political transitions in 2011 and 2013). - Current forecasts are subject to exceptional uncertainty due to the evolving impact of the COVID-19 crisis. ### Additional risks - Tighter global financial conditions that increase interest rates. - Lower-than-projected primary surpluses from revenue shortfalls or spending pressures. - Materialization of contingent liabilities, including calls on government guaranteed debt. ### Alternative scenarios and stress test results - Historical and primary balance shock: - With growth and the primary balance at their 10-year averages, debt-to-GDP ratio would increase to 98 percent of GDP by FY2024/25. - Gross financing needs would increase to about 40 percent of GDP in 2024/25. - Delay in primary balance consolidation: - A temporary delay of the envisaged primary balance consolidation by about 1 percent of GDP implies a debt-to-GDP ratio of 79 percent in FY2024/25 compared with 77 percent of GDP in the baseline. - Specific stress shocks (impact on medium-term debt-to-GDP unless otherwise noted): - Growth shock: GDP growth 1.2 percentage points lower and inflation 0.3 percentage point lower than baseline in FY2019/20 and FY2020/21 → debt increases to 81 percent of GDP. - Real interest rate shock: Increase in the interest rate by about 350 basis points over the projection period → debt increases to 80 percent of GDP. - Real exchange rate shock: A 100 percent depreciation of the Egyptian pound → increases debt in the next year by 7 percentage points of GDP, reaching 82 percent of GDP over the medium term. - Combined macro-fiscal shock: Temporary growth shortfall of 1.2 percentage points for two years, a looser fiscal stance by about 1 percentage point over two years, and a 140 percent nominal exchange rate depreciation → increases debt to 103 percent of GDP in the following year compared to 93 percent under the baseline; over the medium term debt would remain about 12 percentage points of GDP higher than under the baseline. - Contingent liability shock: A contingent liability of 10 percent of GDP materializes, deteriorating the primary balance, raising interest rates and temporarily affecting other macro variables → increases debt-to-GDP ratio to 105 percent of GDP in FY2020/21 compared to 93 percent in the baseline. - Most severe combined shock: Combination of the macro-fiscal shock with materialization of contingent liability → debt-to-GDP increases in the next year to 112 percent of GDP; over the medium term debt would decline to around 98 percent of GDP instead of 77 percent of GDP in the baseline and gross financing needs would be 35 percent of GDP. *IMF staff report content (Annex I. Public and External Debt Sustainability Analyses).* ### 8. External debt is expected to peak at about 38 percent of GDP in 2021 and decline ### 8. External debt is expected to peak at about 38 percent of GDP in 2021 and decline thereafter. ### Projections and headline finding - External debt is expected to peak at about 38 percent of GDP in 2021 and decline thereafter. - Standard shock scenarios suggest external debt would remain near or below its current level in the medium term. - Gross external financing need (in billions of US dollars) projections: 18.1, 25.2, 24.0, 20.5, 25.7, 28.6, 35.6, 34.1, 34.6, 38.3, 38.7 (covering 2015–2025 as shown in the External Debt Sustainability Table). ### Maturity profile and rollover arrangements - A significant portion of external debt is scheduled to mature in the next years, in part reflecting the maturity of large deposits of three Gulf Cooperation Council (GCC) members at the CBE. - Authorities have reached agreements with the three creditors to roll over $13.4 billion of their deposits scheduled to mature during FY2019/20 and FY2020/21 and are finalizing terms. - Continued rollovers of deposits at the CBE in the medium term would help contain risks, particularly as large payments to the Fund come due towards the end of the projection horizon. - The maturity profile on external private debt is described as "quite favorable in the near term." ### Public sector debt dynamics (selected figures from Public Sector DSA) - Nominal gross public debt (in percent of GDP) by year: 82.6 (2018), 92.7 (2019), 83.8 (2020), 88.3 (2021), 84.5 (2022), 80.8 (2023), 76.9 (2024) [as displayed in Figure 1]. - Change in gross public sector debt (cumulative, in percent of GDP): 4.0 (2009-2017 actual), -10.5 (2018), -8.9 (2019), 4.2 (2020), 5.3 (2021), -5.0 (2022), -3.8 (2023), -3.7 (2024), -3.8 (2025), -6.9 (projection cumulative). - Primary deficit (in percent of GDP) series: 4.1 (2018), 0.4 (2019), -1.2 (2020), -1.3 (2021), -0.4 (2022), -2.0 (2023), -2.1 (2024), -2.1 (2025), cumulative -10.0. - Primary (noninterest) revenue and grants (in percent of GDP): 22.0 (2018), 20.4 (2019), 19.9 (2020), 19.4 (2021), 19.9 (2022), 20.1 (2023), 20.5 (2024), 20.9 (2025), cumulative 122.1. - Primary (noninterest) expenditure (in percent of GDP): 26.1 (2018), 20.8 (2019), 18.7 (2020), 18.2 (2021), 19.5 (2022), 18.1 (2023), 18.4 (2024), 18.8 (2025), cumulative 112.0. - Effective interest rate (in percent) series: 9.5 (2018), 11.6 (2019), 11.4 (2020), 11.8 (2021), 11.0 (2022), 9.2 (2023), 8.6 (2024), 8.5 (2025). ### External debt sustainability table (selected indicators and dynamics) - External debt (in percent of GDP) series: 15.0 (2015), 18.3 (2016), 41.3 (2017), 37.4 (2018), 34.1 (2019), 34.4 (2020), 38.0 (2021), 34.9 (2022), 31.6 (2023), 28.9 (2024), 26.7 (2025). - Change in external debt (in percent of GDP): -0.1 (2015), 3.3 (2016), 23.0 (2017), -3.9 (2018), -3.3 (2019), 0.2 (2020), 3.7 (2021), -3.1 (2022), -3.3 (2023), -2.8 (2024), -2.1 (2025). - Identified external debt-creating flows (in percent of GDP): 0.5 (2015), 3.9 (2016), 7.9 (2017), 0.6 (2018), -5.4 (2019), 1.3 (2020), 2.4 (2021), -1.2 (2022), -2.1 (2023), -2.8 (2024), -2.8 (2025). - Current account deficit, excluding interest payments (in percent of GDP): 3.5 (2015), 5.7 (2016), 5.1 (2017), 1.5 (2018), 2.5 (2019), 2.9 (2020), 3.2 (2021), 1.7 (2022), 1.0 (2023), 1.1 (2024), 1.2 (2025). - External debt-to-exports ratio (in percent): 113.1 (2015), 174.7 (2016), 285.1 (2017), 197.8 (2018), 194.9 (2019), 261.7 (2020), 390.7 (2021), 276.7 (2022), 221.0 (2023), 179.4 (2024), 161.1 (2025). - Gross external financing need (in percent of GDP): 5.4 (2015), 7.6 (2016), 9.4 (2017), 8.2 (2018), 8.5 (2019), 8.0 (2020), 10.0 (2021), 9.1 (2022), 8.6 (2023), 8.9 (2024), 8.4 (2025). ### Stress tests and risk assessment outcomes - Bound and stress scenarios indicate: - Interest rate shock, current account shock, growth shock, combined shocks, and one-time real depreciation scenarios were analyzed (Figures 6 and stress-test panels). - Example average projections cited in box captions: baseline growth 4.4 (historical 4.9, scenario 3.6, historical 3.9 in specific panels). - Risk assessment benchmarks mentioned: - Gross financing needs benchmark of 15 percent of GDP used for heat-map coloring. - Bond spread shocks of 200 and 600 basis points considered. - External financing requirement thresholds of 5 and 15 percent of GDP. - Change in share of short-term debt thresholds of 0.5 and 1 percent. - Public debt held by non-residents thresholds of 15 and 45 percent. - Share of foreign-currency denominated debt thresholds of 20 and 60 percent. ### Policy implications and recommendations (from the text) - Extend maturities on external debt to contain rollover risk. - Finalize and implement rollover agreements (noting the $13.4 billion in agreed rollovers with three GCC creditors for FY2019/20 and FY2020/21). - Continue rollovers of deposits at the CBE in the medium term to help contain risks related to scheduled large payments to the Fund toward the end of the projection horizon. - Continued commitment to the flexible exchange rate regime and the structural reform agenda are essential for further improvements in competitiveness. *Source: IMF staff (Egypt: Public Sector Debt Sustainability Analysis and External Debt Sustainability Framework).* ### 1. Prior to the crisis, most indications were consistent with a finding that the overall ### 1. Prior to the crisis, most indications were consistent with a finding that the overall external position was in line with fundamentals and desirable policies. ### Current account developments - The current account deficit had narrowed significantly—from a trough of about 6 percent of GDP in FY 2016/17 to about 3½ percent of GDP in FY 2018/19. - Improvement drivers: - Strong recovery in tourism receipts. - Major increase in oil and gas exports (largely related to the development of a major gas field). - Import compression related to the November 2016 devaluation. ### Exchange rate developments (pre-crisis) - The nominal exchange rate had been generally appreciating since February 2018. - With reforms introduced during the EFF, the exchange rate was market-determined and independent of the CBE’s intervention. - Because inflation remained elevated until recently, the real appreciation was strong, and the REER had returned to levels close to those prevailing before the November 2016 devaluation. - Improved fundamentals and rising indicators of structural competitiveness were consistent with an appreciated equilibrium real exchange rate. ### Reserves (pre-crisis) - The CBE, allowing the market to set the exchange rate, had accumulated reserves. - Prior to the crisis, international reserves were very adequate, at over 130 percent of the floating ARA metric, and well above levels prevailing prior to the EFF (around 66 percent of the fixed ARA metric). ### External balance approach and EBA estimates for 2019 - The latest EBA estimates for the current account approach indicate that the current account was broadly consistent with fundamentals and desirable policy settings in 2019. - The external sustainability approach suggests that the current account was stronger than required to stabilize net foreign assets; however, this approach is less applicable given the government's need to reduce indebtedness, including with respect to external creditors. - Egypt: EBA estimates for 2019 (percent of GDP unless otherwise indicated) - Overvaluation based on CA gap (%) 6.0 - Cyclically adjusted CA -3.6 - Cyclically adjusted norm -2.8 - CA GAP -0.9 - REER gap (ES approach; %) -9.0 - Memo: Semi-elasticity of CA/GDP to REER 0.14 - 1/ As of February 2020. ### Exchange rate movements during the crisis (2020) - The (nominal) exchange rate was unchanged from mid-March until mid-May, including during a period of heavy capital outflows. - Since mid-May, the Egyptian pound began moving again, depreciating by around 3 percent between mid-May and mid-June. - The latest data for real effective exchange rate show appreciation through May 2020 by almost 12.9 percent (y/y). ### Reserves and capital outflows during the crisis - Reserves declined by $9.5 billion between end-February and end-May, reflecting CBE intervention in the FX market to address large capital outflows. - A portion of the capital outflows were addressed by a reduction in the CBE’s net foreign assets (outside of reserves). - Features of the current crisis complicating conventional external position evaluation: - The temporary nature of the current shock: pre-crisis assessment judged the overall external position as in line with fundamentals; the pandemic’s impact on the equilibrium real exchange rate is highly uncertain, and the shock is assessed as temporary, providing no clear basis to revise the pre-shock assessment. - Limited role for the exchange rate to affect current conditions: further depreciation would not boost exports or promote domestic expenditure switching in the current environment because: - The projected drop in tourism receipts is due to global efforts to curb the pandemic, so exchange rate movements are unlikely to improve tourism-related exports. - Petroleum-related exports reflect international market developments; movements in the EGP are unlikely to have a significant impact. ### Policy guidance and risks - Exchange rate policy: - The exchange rate will need to continue to be flexible, with movements determined by supply and demand in the FX market. - CBE involvement should be confined strictly to episodes of disorderly market conditions. - Structural reforms: - Continued implementation of further structural reforms is necessary to assure further improvements in structural competitiveness. - Downside risks to the assessment: - A renewed and extended period of heavy CBE interventions. - A loss of reform momentum. ### Letter of Intent — key program and financing elements (June 17, 2020) - Pandemic and economic impact summary: - As of June 4, 2020 there were 28,615 confirmed cases and 1,088 deaths, up from 779 as of April 1, 2020, and only 2 cases as of March 1, 2020. - Domestic activity slowed; tourism halted since mid-March 2020; remittances likely to be affected; slowdown in manufacturing and real estate expected. - Turbulent global market conditions resulted in a significant reversal of capital flows. - IMF financing request and recent approvals: - Emergency financing of $2.8 billion under the Rapid Financing Instrument approved on May 11. - Current request for a 12-month Stand-By Arrangement (SBA) in the amount of SDR 3,763.64 million or 184.8 percent of quota. - Other financing and market access: - Other multilateral partners (African Development Bank, Arab Monetary Fund, World Bank) and bilateral partners (France and Japan) committed additional financing. - Recent $5 billion Eurobond issuance on the international capital market. - Program objectives: - Maintain macroeconomic stability, including debt sustainability. - Ensure credible monetary and exchange rate policy. - Sustain structural reforms to support fiscal transparency, governance, and private sector-led growth. - Provide fiscal and external financing related to the COVID-19 crisis. - Fiscal and transparency commitments: - Crisis-related measures will be temporary and targeted, rolled back when conditions allow. - Track and report all crisis-related spending; publish consolidated crisis-related spending on the Ministry of Finance web site. - Publish government procurement plans and awarded contracts for emergency responses to COVID-19, including names of awarded companies and information on beneficial ownership in accordance with applicable law. - Accountability State Authority will audit crisis-mitigating inflows and spending, including ex-post validation of delivery and publish results after the end of the fiscal year. - Fiscal targets and adjustments: - Aim to return to a primary balance of 2 percent of GDP and resume the downward trajectory of the debt path starting from FY2021/22. - Intend to make necessary budget adjustments for FY2020/21 by reducing relatively lower priority spending to accommodate urgent needs and unexpected revenue declines. - Monetary and exchange rate stance: - Measures introduced by the CBE to address immediate effects of the crisis will be rolled back as the economy recovers. - Commitment to exchange rate flexibility and allowing market-based movement, with intervention limited only for disorderly market conditions. - Safeguards and reviews: - A safeguards assessment of the CBE is currently underway and expected to be well-advanced at the time of Board consideration of the SBA request. - Commitment to undergo a fiscal safeguards review given exceptional access and budgetary financing use. - CBE and Ministry of Finance to sign a memorandum of understanding clarifying responsibilities for timely servicing of obligations to the Fund. - Program monitoring: - First review expected on or after December 1, 2020 and the second review on or after June 1, 2021. - Authorization for the IMF to publish the letter, the MEFP including Tables 1 and 2, the TMU and the related staff report. ### Memorandum of Economic and Financial Policies — selected recent developments, measures, and outlook - Health and containment actions and support measures: - Expanded testing, sanitation operations, hospitals for treatment and quarantine, repatriation efforts, stockpiling of PPE. - Mitigation measures: testing centers, partial curfew, halting air travel, closing places of worship, schools and universities, encouraging remote work. - Government support package of EGP 100 billion (about 1.8 percent of GDP), including: - Expansion of targeted cash transfer social programs to the poor and irregular workers. - Targeted support for the most severely impacted sectors. - Additional allocation to the healthcare sector. - CBE actions: reduced policy interest rates by 300 basis points in mid-March; instructed banks to defer repayment obligations for all customers by six months; debt relief initiative for individuals at risk of default; stock-purchase program to support the domestic equity market. - Macroeconomic performance before COVID-19: - Real GDP increased by 5.6 percent (year-on-year) in the first half of FY2019/20 and by 5 percent (year-on-year) for the third quarter (January–March) of the year. - Unemployment declined to 8 percent down from above 9 percent a year earlier. - Annual headline consumer price inflation slowed from 14 percent in May 2019 to 5.9 percent in April 2020. - Primary fiscal balance of 2 percent in FY2018/19. - Budget recorded around EGP 51 billion primary balance during July–April of FY2019/20; on track to reach the budget target of around 2 percent of GDP prior to the COVID-19 shock. - Pandemic impact and IMF growth projections: - IMF revised Egypt's growth from 5.5 percent to 2 percent in FY2019/20, and from 5.2 to 2 percent in FY2020/21. - Assumption: macroeconomic stability maintained, strong rebound of 6.5 percent expected in FY2021/22 as domestic activity normalizes. - Note: a full recovery in tourism to pre-crisis levels could take longer. - Inflation outlook: - Annual headline inflation increasing from just under 6 percent on average in FY2019/20 to about 8.2 percent in FY2020/21, affected mainly by unfavorable base effects and macroeconomic developments of the COVID-19 outbreak. *International Monetary Fund — ARAB REPUBLIC OF EGYPT (excerpts from document 1egyea2020001).* ### 7. The external position is expected to be affected in FY2019/2020 although the sharp ### 1egyea2020001 - 7. The external position is expected to be affected in FY2019/2020 although the sharp ### External position and capital flows - The current account deficit is projected to widen from 3.6 percent of GDP in FY2019/20 to 4.2 percent of GDP in FY2020/21 and 4.5 in FY2021/22 and improve thereafter. - Egypt experienced large capital outflows, particularly in March and April 2020, up to around $15.6 billion; capital flows have stabilized since then. ### Fiscal position and public debt outlook - Fiscal position is likely to come under pressure due to weaker revenues and increasing spending needs. - Primary surplus projections: - Around 1.4 percent of GDP in FY2019/20. - At least 0.5 percent of GDP in FY2020/21. - Aim to return to a primary balance of 2 percent of GDP starting from FY 2021/22. - Public debt: - Debt is expected to rise to around 93 percent of GDP in FY2020/21 before resuming a declining path thereafter. ### Economic program objectives - Objectives: safeguard macroeconomic stability, provide necessary support to affected people and the economy, and prevent accumulation of acute imbalances over the medium term. - Policy focus: enhancing health and social programs, ensuring fiscal and debt sustainability, adopting a strong and credible monetary and exchange rate policy framework, safeguarding financial sector resilience, and continuing structural reforms. - Readiness to consider additional policies if the crisis is deeper or more prolonged than anticipated. ### Budget FY2020/21 — crisis response and fiscal flexibility - Counter-cyclical easing of fiscal policy to support vulnerable individuals and liquidity-constrained businesses, including irregular workers and MSMEs, and hard-hit sectors such as tourism and manufacturing. - Scaled up conditional cash transfer programs (Takaful and Karama) to reach over 3 million families. - Draft budget (prepared mostly pre COVID-19) targeted a primary surplus of about 2 percent of GDP; high uncertainty implies tax revenue likely to under-perform and spending pressures to be higher. - Draft budget provision to ensure the primary surplus does not fall below 0.5 percent of GDP (support crisis-related spending). - Expectation that draft budget to be approved by parliament by June 20, 2020 (prior action). - Preparedness to delay low priority current and capital spending, consider a supplementary budget if needed. - Commitment to a ceiling on accumulation of gross debt of the budget sector (indicative target) and to a minimum amount of social spending for FY 2020/21 (indicative target). ### Fiscal structural reforms and medium-term revenue strategy (MTRS) - Rollback crisis-related measures starting FY2021/22, delay non-essential spending, and mobilize additional revenue through a strengthened MTRS. - Structural benchmark: update and finalize MTRS including specifying potential revenue measures by end-December 2020, building on institutional reforms in tax and customs administrations (with IMF and other IFIs including the OECD support). - Frontloaded measures already implemented: - February 2020: increased excises on cigarettes and tobacco products and brought new products such as heated cigarettes into the tax net. - New development fee law approved by parliament increasing rates on several items including raw tobacco and introducing new fees including a green fee on consumption of gasoline and diesel products. - Personal income tax regime adjusted effective starting FY 2020/21: increase exemption threshold for low and middle income earners by up to 60 percent, introduce a higher tax bracket of 25 percent for higher income earners, and abolish tax credits. - Exploring options: applying VAT to digital services and e-commerce, eliminating profit-based tax incentives, implementing a temporary one percent solidarity tax on personal income and 0.5 percent on earned pension. ### Debt management and gross financing needs (GFN) - GFN are high: about 36 percent of GDP including principal repayments and the overall deficit. - Commitment to at least 70 percent of net new domestic issuance in FY2020/21 in long-term maturities to lengthen maturities and reduce GFN. - Indicative targets: - Share of net new short-term domestic debt issuance in total net domestic issuances limited to 40 percent by end-September 2020. - Limited to 30 percent by end-March 2021. - MTDS actions: - Update existing MTDS by end-December 2020 to elaborate targets to underpin a significant reduction in the GFN to below 30 percent of GDP in five years; revise annually. - Seek technical assistance from the World Bank and the IMF as needed. - Work to make domestic-currency debt eligible to be settled through Euroclear; expect completion by the first quarter of 2021. ### Public financial management (PFM) and public expenditure reviews (PER) - New draft PFM law to be submitted to parliament by end-December 2020 to strengthen the budget process; will include: - fiscal responsibility provision, medium-term budget framework, budget calendar elements, minimum contents of budget documentation, provisions on reallocation, contingency reserve and supplementary appropriations, and accounting rules for all public entities including economic authorities. - Update fiscal risks statement for next budget cycle in FY2021/22 or earlier if a supplementary budget is necessary. - Social protection PER with World Bank support: - Priority to conclude PER for social protection by end-April 2021 (structural benchmark). - Begin PERs for health and education subsequently. ### Social protection reforms - Introduce new social protection legislation to: - Merge social pension and cash transfer programs. - Enhance targeting by redefining conditionality. - Add grievance redressal mechanisms, include more vulnerable groups, and link social care with social protection. - Expand coverage to vulnerable groups: decent housing for vulnerable groups, social protection for at-risk women, assistance to support micro, small and medium businesses, social protection to elderly, and school feeding programs. - Commitment to prioritize reforms in health and education to meet SDGs for health and education. ### Monetary policy framework and inflation targeting - Monetary objective: achieve low and stable inflation over the medium term in line with targeted disinflation path in the context of a flexible foreign exchange market with measured intervention limited to counter disorderly market conditions. - CBE announced a target for Q4 2020 that is an average of 9 percent with a ±3 percent band. - Inflation developments in 2020: - Inflation has remained below the target mid-point during 2020, with core inflation below 3 percent. - Policy interest rate actions: - March 2020: CBE lowered policy interest rate by 300 basis points to 9.25 percent. - Inflation target band table (as presented): - Outer upper limit: 13 (September 2020), 13 (March 2021) - Inner upper limit: 12 (September 2020), 12 (March 2021) - Inflation target: 9 (September 2020), 9 (March 2021) - Inner lower limit: 6 (September 2020), 6 (March 2021) - Outer lower limit: 4 (September 2020), 4 (March 2021) - Monetary Policy Consultation Clause (MPCC): - Triggers consultations with IMF staff when inflation falls outside 9 ±3 percent range (i.e., falls outside 6 to 12 percent). - Triggers consultation with the Executive Board if inflation falls outside 9 +4/-5 percent range (i.e., falls outside 4 to 13 percent). ### Central bank governance, overdrafts, and subsidized lending - New draft Banking and CBE law expected to be promulgated by the President by September 2020; CBE mandate: financial sector stability and price stability. - By end-March 2021: revamp financial reporting practices to comply with the Egyptian Accounting Standards starting with the FY2019/2020 financial statements. - Overdrafts (short-term direct lending to the government): - Stock of overdrafts will not exceed 10 percent of the average revenues of the public budget in the previous three years (indicative target). - Full repayment to be made within twelve months. - By end-June 2020 the CBE and the MoF will sign a memorandum of understanding on overdraft conditions, including remuneration at prevailing market interest rates. - Subsidized lending: - CBE will not introduce new subsidized lending schemes and existing schemes will not be renewed once currently allocated resources are fully committed. - If uncommitted portion of facilities remains by end-May 2021, Government and CBE will sign MoU that interest subsidies related to uncommitted portion will be incurred by the Government. - Lending to banks by the CBE limited to monetary policy (short-term liquidity management), emergency liquidity assistance, and other support to safeguard banking system stability per CBE Law. ### Exchange rate policy and reserves - Exchange rate has generally moved to reflect market forces: - 2019: pound strengthened by 12 percent against the US dollar. - Early 2020: strengthened by another 2 percent as portfolio inflows resumed. - Official reserves: - Fell from $44.7 billion at end-February to $36.3 billion at end-April (in response to large capital outflows in March and April). - Commitment to a flexible exchange rate, focused FX interventions to address disorderly market conditions, and strict enforcement of regulatory ceilings for commercial banks’ net open FX positions. - Reserve adequacy target: keep gross reserves above 110 percent of the IMF’s ARA metric for flexible exchange rate regimes, including through accumulation of net international reserves (performance criterion). - Continue engagement with official bilateral creditors to roll over their deposits at the CBE for a period after the program. ### Financial sector policies and bank resilience - Banking system entered the COVID-19 crisis well capitalized, with ample liquidity, and sizeable buffers. - Risks: crisis could affect asset quality and pressure liquidity. - Measures: - Encourage banks to work with borrowers affected by the crisis to restructure loans as needed; current moratorium on repayment obligations set to expire in September 2020. - CBE may allow temporary drawdown of prudential buffers (e.g., capital conservation buffer and stock of high quality liquid assets), subject to temporary restrictions on capital distributions (dividends, share buybacks, discretionary bonuses). - Loan classification rules and provisioning requirements will be strictly enforced; banks must closely assess borrower creditworthiness, especially for those receiving temporary concessions. - Supervisors to discuss capital restoration plans with banks at early stages if losses materially impact capital. - Exceptional financial sector measures (including CBE’s stock purchase program) will be rolled back when conditions allow. ### Structural reforms to strengthen private sector role - Continue modernization of Egypt’s growth model with private sector as main engine of growth. - Implement structural reforms to improve business and investment environment, strengthen competition and governance, and remove customs and trade barriers while addressing the immediate crisis. *ARAB REPUBLIC OF EGYPT — INTERNATIONAL MONETARY FUND* ### 25. We will continue to enhance transparency of the operations of state-owned enterprises ### 25. We will continue to enhance transparency of the operations of state-owned enterprises ### Transparency and reporting on SOEs - Publish an updated SOE report to include detailed financial information for FY2018/19 on all SOEs by end-September 2020 (structural benchmark). - Publish a separate report on Economic Authorities that also includes detailed financial information for FY2018/19 by end-September 2020 (structural benchmark). ### Customs law and business climate - Improve the business climate by passing the draft customs law currently with the Parliament by March 2021 (structural benchmark). - The draft customs law aims to reduce non-tariff barriers with respect to shipment inspections, documentation requirements, valuation of goods, and mandatory registration of imported goods manufacturers. ### SOE sector strategy and governance - Develop an SOE reform strategy aimed at: - increasing transparency of SOE operations; - modernizing the legal, governance, and operational frameworks for the sector; - defining the policy of government ownership of commercial enterprises; - explicitly defining rules for the provision of government aid to SOEs, financial and otherwise. ### Competition policy and Egyptian Competition Authority (ECA) amendments - Submit additional amendments concerning the ECA’s power to scrutinize mergers and acquisitions to Parliament by end-December 2020 (structural benchmark). - Current draft law includes: - provisions that ensure the institutional independence of ECA, making its decision making more efficient by reducing the number of government and business representation in the board of directors, enabling ECA’s members to carry out market investigation efficiently, and empowering ECA to enact administrative fines and/or measures subject to judicial review; and - provisions to enlarge the scope of exemption afforded to businesses. - Additional amendments will include: - provisions that empower ECA to regulate mergers and acquisitions that meet certain thresholds. These transactions shall be subject to prior notification and standstill obligations enabling ECA to review concentrations before their consummation and assess their competitive impact and if necessary, impose the adequate measures to protect the competitive structure of the market; - provisions to ensure protection for SMEs against certain forms of takeover, and that acquisition of minority shareholdings does not adversely affect the competitive structure of the market. These provisions shall apply equally to all market participants including SOEs and ensure smooth disposal of failing assets or the restructure of existing ones; - measures to ensure a transparent and neutral review that respect the parties’ due process rights; and - provisions that will enable businesses to request ECA to issue opinions on the competitive impact of certain public regulations. They shall include the measures and remedies that ECA may recommend in this regard. - ECA will issue guidelines on public procurement processes to ensure competitive neutrality of procurement operations, encourage the establishment of fair, non-discriminatory procedures and neutral tendering processes, and establish a transparent, fair and open tendering procedures. ### Industrial land allocation - Plan to assess the impact of the recently revised guidelines for industrial land allocation (adopted in 2019). - Seek World Bank assistance for the assessment. - Based on the assessment, consider revisions to the guidelines to ensure efficient and market-based allocation. ### National Investment Bank (NIB) reform - Reforming the NIB is a priority; NIB’s mandate is to finance projects included in the state’s national economic and social development plan. - Hired an international auditor late last year to evaluate NIB’s financial position. - Commit to sharing the auditor’s report on the NIB, including its financial position, with IMF staff by July 7, 2020. - Based on the auditor’s findings, make decisions regarding the NIB reform plan including the institution’s revised mandate, business model and its financial structure. - The NIB reform plan, which will include an initial implementation calendar with timebound actions and finalization of its financial structure, will be finalized by end-January 2021 (structural benchmark). ### Financing, program monitoring, and reviews - Continue to mobilize resources from international partners and markets to support COVID-19 response, stabilization, and economic recovery program. - Program monitoring instruments: prior action, performance criteria, indicative targets, and structural benchmarks as listed in Tables 1 and 2. - Semi-annual program reviews based on end-September 2020 and end-March 2021 test dates. - The Technical Memorandum of Understanding (TMU) describes definitions and data provision requirements. ### Prior actions and structural benchmarks (selected, as listed) - Approval by Parliament of FY2020/21 budget, consistent with the program understandings with a provision for primary balance of no less than 0.5 percent of GDP — Prior action. - Develop a reform plan for NIB, approved by the Prime Minister in line with MEFP ¶29 — End-January 2021. - Publish an updated SOE report to include detailed financial information for FY2018/19 on all SOEs and a separate one for Economic Authorities that includes detailed financial information for FY2018/19 — End-September 2020. - Cabinet approval of the updated MTRS — End-December 2020. - Submission to Parliament of the revised PFM law to strengthen the entire budget process — End-December 2020. - Update the debt management strategy with the focus on lengthening maturities — End-December 2020. - Submit to Parliament amendments to the competition law to add a new chapter on mergers and acquisitions in line with MEFP ¶27 — End-December 2020. - Pass the draft customs law that streamlines customs procedures in line with MEFP ¶25 — End-March 2021. - Complete Public Expenditure Review to enhance social protection — End-April 2021. ### Technical Memorandum of Understanding — selected quantitative and definitional figures - Program exchange rates are those prevailing on May 31, 2020. As of May 31, 2020 Currency Unit per US$: - SDR 0.7289 - Euro 0.8980 - British Pound 0.8114 - Japanese Yen 107.1400 - Saudi Riyal 3.7321 - Chinese Yuan 7.1463 - Monetary gold valued at $1,731.6 per troy ounce (rate as of May 31). - The program exchange rate of the pound against the US dollar is 15.8270 (the actual exchange rate on May 31, 2020) for FY2020/21. - Foreign reserve assets (as defined) amounted to $35,238 million as of end-May 2020. - Foreign reserve-related liabilities (as defined) amounted to $14,519 million as of May 31, 2020. - Cumulative projections for program disbursements are $10,100 million as of September 2020 and $12,930 as of March 2021. - The cumulative projections for program disbursements are $10,100 million as of September 2020 and $12,930 as of March 2021. - As of May 31, 2020, the government overdraft at the CBE amounted to EGP 0.0 billion. The ceiling on the overdraft facility is EGP93 billion for FY2020/21. - The total annual budgeted spending for FY2020/21 amounts to EGP 115 billion (social spending floor). - For FY 2018/19 the primary balance of the budget sector was EGP-103.1 billion. *Source: IMF staff report (Technical Memorandum of Understanding and MEFP excerpts) for the Arab Republic of Egypt.* ### 21. Standard continuous performance criteria include: (1) prohibition on the imposition or ### 1egyea2020001 - 21. Standard continuous performance criteria include: (1) prohibition on the imposition or ### Standard continuous performance criteria - (1) prohibition on the imposition or intensification of restrictions on making of payments and transfers for current international transactions; - (2) prohibition on the introduction or modification of multiple currency practices; - (3) prohibition on the conclusion of bilateral payments agreements that is inconsistent with Article VIII; and - (4) prohibition on the imposition or intensification of import restrictions for balance of payments reasons. ### Monitoring and reporting framework - Performance under the program will be monitored using data supplied to the IMF by the Ministry of Finance and the CBE as outlined in Tables 3A and 3B, consistent with the program definitions above. - The authorities will transmit promptly to the IMF staff any data revisions. ### Ministry of Finance reporting requirements (Table 1A) - Overall deficit of the budget sector: Frequency M; Submission Lag 30 calendar days - Overall deficit of the general government, NIB and SIFs: Frequency Q; Submission Lag 45 calendar days - Summary of budget sector accounts, including revenues, expenditures and net acquisition of financial assets on a cash basis, consistent with IMF GFS 2001 Manual. Expenditures to include data on health and social spending.: Frequency M; Submission Lag 30 calendar days - Summary accounts of NIB and SIFs, consistent with presentation of general government accounts: Frequency Q; Submission Lag 60 calendar days - Program disbursements and project loans to the general government: Frequency W and M; Submission Lag 30 calendar days - Domestic debt stock and debt service costs of the general government and budget sector, including interest payments and amortization: Frequency Q; Submission Lag 30 calendar days (60 days for the general government) - Debt of the budget sector by maturity of issuance, at actual and program exchange rates: Frequency M; Submission Lag 30 calendar days - Debt guarantees issued by General Government and the CBE: Frequency Q; Submission Lag 45 calendar days - Gross and net stock of bonds issued by the government to Social Insurance Fund: Frequency Q; Submission Lag 30 calendar days - Gross and net domestic borrowing of the budget sector, including gross and net T-bill and T-bond issuance in local and foreign currency, separately for domestic and foreign investors, and issuance of other government debt instruments: Frequency W and M; Submission Lag 30 calendar days (60 days for the general government) - Auctions of T-bills and T-bonds via primary dealers, including the number and value of submitted and accepted bids, minimum, maximum and weighted average interest rates and maturity dates: Frequency W; Submission Lag 7 working days - Use of overdraft facility at the CBE (end of period stock): Frequency W; Submission Lag 15 calendar days - Stock of outstanding domestic arrears by creditor: Frequency M; Submission Lag 30 calendar days - Financial information of NIB: i) detailed balance sheet, including interest on assets and liabilities across maturities; ii) income statement; iii) cash flow projections for the next 12 months; iv) list of non-performing loans (overdue for more than 90 days), including loan amounts: Frequency Q; Submission Lag 60 calendar days - Note: Q= quarterly; M = Monthly; W = Weekly ### Central Bank of Egypt reporting requirements (Table 1B) - Program net international reserves and its components (foreign reserve assets and foreign reserve-related liabilities) of the CBE at program and current exchange rates: Frequency M; Submission Lag 7 working days - Program disbursements and its breakdown by components (as defined in paragraph 7 above): Frequency M; Submission Lag 7 working days - Breakdown of gross foreign assets and liabilities (including foreign currency liabilities to residents) of the CBE by currency at actual and program exchange rates: Frequency M; Submission Lag 15 calendar days - Breakdown of foreign reserve-related liabilities (including foreign currency liabilities to residents) of the CBE by original maturity at actual and program exchange rates: Frequency M; Submission Lag 15 calendar days - Stock of outstanding external debt payment arrears of the general government (if any) by creditor: Frequency M; Submission Lag 30 calendar days - Amortization schedule for external debt payments, interest and amortization: Frequency Q; Submission Lag 30 calendar days - Monthly cash flow table based on the agreed template, both past outcomes and projections for 12 months: Frequency M; Submission Lag 15 calendar days - Balance of payments, international investment position and external debt data in electronic format: Frequency Q; Submission Lag 90 calendar days - CBE foreign exchange deposits held at commercial banks headquartered in Egypt: Frequency W; Submission Lag 5 working days - Commercial banks (foreign exchange and Egyptian pound) deposits by sector (household, corporate, public): Frequency M; Submission Lag 30 calendar days - Bank-by-bank foreign exchange net open position: Frequency M; Submission Lag 30 calendar days - Commercial bank-by-bank data: i) balance sheets by currency (foreign exchange and Egyptian pound); ii) income statements; iii) breakdown of loan classification, deposits, due from/to, securities holdings, repos, fixed and repossessed assets, and net open positions; and iv) FSI indicators (capital, asset quality, earnings and liquidity).: Frequency Q; Submission Lag 75 calendar days - Other depository corporations (commercial banks) balance sheet information in SRF (preliminary): Frequency M; Submission Lag 30 calendar days - Central bank balance sheet in SRF (preliminary): Frequency M; Submission Lag 15 calendar days - Central bank’s weekly analytical balance sheet (preliminary data to be submitted once a week for the previous week): Frequency W; Submission Lag 7 working days after the end of the week - Daily official exchange rates EGP/ $ (data to be submitted once a week for the previous week): Frequency W; Submission Lag 5 working days after the end of the week - Central bank daily purchases and sales of foreign exchange by counterparts – commercial banks, EGPC, GASC, government: Frequency W; Submission Lag 2 working days after the end of the week - Daily average buy and sell exchange rates EGP/$ as quoted by foreign exchange bureaus and banks (data to be submitted once a week for the previous week): Frequency W; Submission Lag 5 working days after the end of the week - Daily interbank turnover in the FX spot market: Frequency M; Submission Lag 15 working days - Note: Q = Quarterly; M = Monthly; W = Weekly ### Staff statement updates (June 26, 2020) - Authorities passed the FY2020/21 budget consistent with program targets, meeting the prior action for the SBA request. - The new budget contains an article to ensure the authorities will meet a primary balance floor of 0.5 percent of GDP in the upcoming fiscal year, in line with the understandings and quantitative targets under the SBA. - Budget allocations increased for the government’s ongoing response to the COVID-19 pandemic: allocations for health-related spending were increased by 26 percent and those for social spending by around 10 percent. - Update to the safeguards assessment of the Central Bank of Egypt (CBE) is nearly complete; the remote safeguards mission is substantially complete and found that the CBE continues to have a strong control framework. - The draft bill for the Banking and CBE Act, approved by Parliament and expected to be enacted in September, remains substantively consistent with staff advice. - The CBE is working toward full implementation of Egyptian Accounting Standards in the 2020 financial statements. ### Assessment of risks to the Fund and Fund liquidity (Executive Summary) - This Supplement assesses risks to the Fund and the Fund’s liquidity position, as required under the Fund’s exceptional access policy, in light of Egypt’s request for a 12-month Stand-By Arrangement (SBA) for 184.8 percent of quota (SDR 3.764 billion or about US$5.2 billion). - The proposed level of access under the 12-month SBA would exceed both the annual access limit of 145 percent of quota and the cumulative limit of 435 percent of quota. Key issues and findings: - The proposed SBA will have a modest impact on the Fund’s liquidity, and―together with Egypt’s prior purchases under the EFF and RFI―a moderate impact on the Fund’s credit exposure. The Fund’s Forward Commitment Capacity would fall by 2¼ percent and Egypt would remain the Fund’s second-largest borrower. - Egypt’s capacity to repay the Fund remains adequate, albeit with some risks. The risks relate in part to a bunching of repurchases. - Repurchases under the SBA will largely coincide with those under the recently approved RFI. Combined also with repurchases under the earlier extended arrangement under the Extended Fund Facility (“EFF arrangement”), this leads to a considerable bunching of debt service payments during FY2023/24–FY2024/25. In these two years, total debt service to the Fund will amount to some SDR 8.3 billion (about USD 11.5 billion), or almost 24 percent of gross international reserves. - The authorities’ favorable track record and commitment to strong policies, and continued access to international capital markets (even as recently as May 2020), are important risk-mitigating factors. - Approved By: Andrew Tweedie and Petya Koeva Brooks - Prepared by the Finance and Strategy, Policy, and Review Departments. - Dates appearing in the material: Statement by the Staff Representative on Arab Republic of Egypt, June 26, 2020; Executive Summary dated June 18, 2020. *Source: IMF staff report excerpts provided in the content unit.* ### 184.8 percent of quota (SDR 3.764 billion or about US$5.2 billion) to help alleviate an urgent ### 184.8 percent of quota (SDR 3.764 billion or about US$5.2 billion) to help alleviate an urgent balance-of-payments need ### Background - Egypt requested Fund support in response to the global economic and financial consequences of COVID-19; the shock has severely affected the Egyptian economy, with growth expected to slow in both FY2019/20 and FY2020/21 as tourism and domestic activity have been curtailed. - The proposed SBA, together with the recent purchase under the Rapid Financing Instrument (RFI), is intended to help close the external financing gap in 2019/20 and 2020/21 and to help catalyze additional sources of external official and market financing. - The proposed level of access under the 12-month SBA would exceed both the annual access limit of 145 percent of quota and the cumulative limit of 435 percent of quota. - Egypt is currently the Fund’s second largest credit exposure, following its recent purchase under the RFI and its completion of a three-year EFF arrangement in 2019. - Key past Fund transactions: - Egypt purchased an amount of SDR 2,037.1 million (100 percent of quota) under the RFI on May 11, 2020. - Egypt’s most recent Fund arrangement was an EFF arrangement for an amount of SDR 8,597 million (422 percent of quota), approved on November 11, 2016; all reviews were concluded and the arrangement fully drawn, with the Executive Board completing the fifth and final review on July 24, 2019. - In the 1990s, Egypt had three arrangements with the Fund, including: a two-year precautionary SBA approved on October 11, 1996 for SDR 271 million (40 percent of quota); and a three-year EFF approved on September 20, 1993 for SDR 400 million (59 percent of quota). Egypt purchased SDR 147 million out of SDR 234 million (51 percent of quota) available under an SBA approved on May 17, 1991. ### External debt and public finances - Egypt’s total external debt rose sharply since 2016, peaking at around 37 percent of GDP at end-2017/18. - The largest component of external debt is medium- and long-term borrowings by the public sector. - Public debt and gross financing needs remain high: - Gross public debt projected to reach 93 percent of GDP in 2020/21. - Gross financing needs are projected to exceed 30 percent of GDP through 2023 (benchmark in MAC DSA framework: 15 percent of GDP for emerging markets). - Factors mitigating debt sustainability risks: - (i) Authorities’ commitment to resuming fiscal consolidation as the crisis abates. - (ii) Efforts to extend maturities on the large stock of treasury bills, supported by program conditionality (indicative target on the share of short-term debt and structural benchmark on the medium-term debt strategy). - (iii) Room for domestic financing from Egypt’s large (and partly public sector-controlled) domestic banking system, which limits rollover risks. - (iv) Continued access to international capital markets, with Egypt raising US$5 billion in May 2020 in 4-, 12-, and 30-year tranches. - (v) Agreements with three official GCC bilateral creditors to extend maturities on their deposits at the CBE amounting to US$13.4 billion. ### External debt structure (selected figures from Table 2) - Total External Debt (in billions of U.S. Dollars) - 2013/14: 46.1 - 2014/15: 48.1 - 2015/16: 55.8 - 2016/17: 79.0 - 2017/18: 92.6 - 2018/19: 108.7 - 2019/20: 112.7 - Medium and long-term debt (in billions of U.S. Dollars) - 2013/14: 42.4 - 2019/20: 101.4 - Bonds (in billions of U.S. Dollars) - 2013/14: 6.1 - 2019/20: 20.9 - Loans (in billions of U.S. Dollars) - 2013/14: 36.3 - 2019/20: 80.5 - Multilateral (in billions of U.S. Dollars) - 2013/14: 12.2 - 2019/20: 34.7 - of which IMF (in billions of U.S. Dollars) - 2013/14: 1.4 - 2019/20: 13.1 - Repo and suppliers' credit (in billions of U.S. Dollars) - 2013/14: 0.5 - 2019/20: 15.2 - Short-term external debt (in billions of U.S. Dollars) - 2013/14: 3.7 - 2019/20: 11.3 - Total External Debt (in percent of GDP) - 2013/14: 15.1 - 2019/20: 31.7 - Medium and long-term debt (in percent of GDP) - 2013/14: 13.9 - 2019/20: 28.5 - IMF (Use of Fund Credit) (in percent of GDP) - 2013/14: 0.5 - 2019/20: 3.7 ### Access under the SBA — Risks and impact on Fund finances - The proposed SBA entails exceptional access; cumulative access limit of 435 percent of quota was already exceeded with Egypt’s recent purchase under the RFI. - Credit outstanding to the Fund will: - Rise from 522 percent to 593 percent of quota upon approval of the proposed SBA. - Be scheduled to peak at 699 percent in June 2021 after completion of the second and final review. - The peak of 699 percent remains somewhat below the median of other recent exceptional access cases (median credit outstanding at peak is 801 percent of quota; average is 1,028 percent of quota). - The proposed level of access under the 12-month SBA would exceed the annual access limit of 145 percent of quota. ### Capacity to repay indicators and projected GRA exposure (Table 3 selected figures) - GRA credit to Egypt (SDR millions) - 2019/20: 12,081.2 - 2020/21: 14,233.1 - 2021/22: 13,710.8 - 2022/23: 12,755.6 - 2023/24: 9,410.4 - 2024/25: 5,077.3 - 2025/26: 2,776.0 - 2026/27: 1,507.4 - 2027/28: 597.0 - 2028/29: 119.4 - 2029/30: 0.0 - 2030/31: 0.0 - GRA credit to Egypt (in percent of quota) - 2019/20: 593.1 - 2020/21: 698.7 - 2021/22: 673.1 - 2022/23: 626.2 - 2023/24: 462.0 - 2024/25: 249.2 - 2025/26: 136.3 - 2026/27: 74.0 - 2027/28: 29.3 - 2028/29: 5.9 - 2029/30: 0.0 - 2030/31: 0.0 - Charges due on GRA credit (SDR millions) - 2019/20: 263.0 - 2020/21: 326.7 - 2021/22: 407.1 - 2022/23: 439.5 - 2023/24: 372.4 - 2024/25: 218.6 - 2025/26: 68.7 - 2026/27: 26.7 - 2027/28: 13.7 - 2028/29: 5.0 - 2029/30: 1.1 - 2030/31: 0.8 - Debt service due on GRA credit (SDR millions) - 2019/20: 263.0 - 2020/21: 490.9 - 2021/22: 929.5 - 2022/23: 1,394.6 - 2023/24: 3,717.6 - 2024/25: 4,551.8 - 2025/26: 2,370.0 - 2026/27: 1,295.3 - 2027/28: 924.1 - 2028/29: 482.6 - 2029/30: 120.5 - 2030/31: 0.8 - Selected debt and debt service ratios (in percent of GDP) - Total external debt - 2019/20: 33.6 - 2020/21: 35.5 - 2021/22: 33.9 - 2022/23: 30.5 - 2023/24: 28.0 - 2024/25: 26.0 - 2025/26: 24.1 - GRA credit to Egypt (in percent of GDP) - 2019/20: 4.6 - 2020/21: 5.5 - 2021/22: 5.0 - 2022/23: 4.4 - 2023/24: 3.0 - 2024/25: 1.5 - 2025/26: 0.7 - Total external debt service (in percent of GDP) - 2019/20: 3.9 - 2020/21: 4.3 - 2021/22: 5.3 - 2022/23: 6.5 - 2023/24: 5.5 - 2024/25: 4.9 - 2025/26: 4.2 - Selected ratios (in percent of Gross International Reserves) - Total external debt - 2019/20: 325.2 - 2020/21: 316.0 - 2021/22: 312.8 - 2022/23: 295.0 - 2023/24: 265.8 - GRA credit to Egypt - 2019/20: 44.9 - 2020/21: 48.6 - 2021/22: 46.2 - 2022/23: 42.2 - 2023/24: 28.7 - Selected ratios (in percent of Exports of Goods and Services) - Total external debt service - 2019/20: 30.0 - 2020/21: 44.0 - 2021/22: 41.6 - 2022/23: 43.3 - 2023/24: 34.2 - Debt service due on GRA credit - 2019/20: 0.8 - 2020/21: 1.9 - 2021/22: 2.7 - 2022/23: 3.2 - 2023/24: 7.4 - 2024/25: 8.2 ### Risks noted - While other peak Fund exposure metrics would generally remain below or close to recent exceptional access cases, the SBA would contribute to a bunching of repayment obligations to the Fund in FY2023/24 and FY2024/25. - Total debt service obligations to the Fund—from the previous EFF arrangement, the RFI purchase, and the proposed SBA—rise sharply in FY2023/24 and FY2024/25 to SDR 3.7 billion and SDR 4.6 billion, respectively, totaling some SDR 8.3 billion (about US$11.5 billion). - As a share of exports of goods and services, obligations to the Fund rise from 3.2 percent in FY2022/23 to 7.4 percent and 8.2 percent in FY2023/24 and FY2024/25, respectively. *ARAB REPUBLIC OF EGYPT — INTERNATIONAL MONETARY FUND* ### 4.6 percent in FY2022/23 to 11.3 percent and 12.3 percent, respectively, in the following two years ### 1egyea2020001 - 4.6 percent in FY2022/23 to 11.3 percent and 12.3 percent, respectively, in the following two years ### Reserve accumulation and repayment profile - Envisaged reserve accumulation: "4.6 percent in FY2022/23 to 11.3 percent and 12.3 percent, respectively, in the following two years (or almost 24 percent of total reserves in these two years combined)." - Rationale: In view of the repayment profile and high uncertainties from the pandemic, the envisaged reserve accumulation during the program period and the authorities’ commitment to exchange rate flexibility are described as "prudent and appropriate, both to restore buffers and to limit risks to capacity to repay." - Projected evolution of scheduled repurchases (Egypt share of total GRA repurchases): rise from "5 percent in FY2022/23 to 30 percent in FY2024/25 and to 56 percent in FY2025/26, based on currently approved arrangements." ### Impact on the Fund’s liquidity position and credit exposure - Forward Commitment Capacity (FCC) and liquidity: - Current one-year Forward Commitment Capacity (FCC): "163,600.0" (in millions of SDR, as of 6/08/2020). - Impact of the SBA approval on the FCC: "-3,763.6" (in millions of SDR). - Impact in percent of current one-year FCC: "-2.3". - Text note: "Following approval of the SBA, the Fund’s Forward Commitment Capacity (FCC) would decline by around 2.3 percent from its current level of SDR 164 billion (Table 4)." - Since Egypt is not a member of the Financial Transactions Plan (FTP), "there would be no additional second-round impact on the FCC, when Egypt purchases under the SBA upon approval or at subsequent reviews." - Fund GRA credit exposure and concentration: - Fund GRA credit outstanding to Egypt (projected at time of approval, including first drawing): "12,081" (in millions of SDR). - In percent of current precautionary balances: "72.3". - In percent of total GRA credit outstanding: "14.6". - Fund GRA credit outstanding to top five borrowers in percent of total GRA credit outstanding: "74.9" (before Egypt initial drawing). - Including Egypt's initial drawing under the SBA, that share rises to: "76.0". - Egypt’s GRA credit outstanding after all purchases under the proposed SBA will "account for over 17 percent of total Fund credit outstanding (second to Argentina, at 38½ percent, by a large margin)." - The proposed SBA “would add further to the concentration of the Fund’s lending portfolio.” - Precautionary balances and burden sharing: - Fund's precautionary balances (end-FY2020): "16,700" (in millions of SDR). - Exposure to Egypt after initial drawing would amount to "72 percent of the estimated FY2020 level of precautionary balances (PBs)." - Estimated ratio of total Fund credit outstanding to PBs would rise from "474 percent to 497 percent after the first drawing." - Egypt's annual GRA charges in percent of Fund's residual burden sharing capacity for 2020/21: "3,088". - Fund's residual burden-sharing capacity: "10.6" (in millions of SDR, memorandum item). - Text: "Were Egypt to accrue arrears on charges, the Fund’s burden sharing mechanism would be clearly insufficient to cover such arrears. GRA charges for Egypt, projected at SDR 327 million for 2020/21, significantly exceed the Fund’s residual burden-sharing capacity, which has very low capacity in the current interest rate environment." ### Assessment: objectives, capacity to repay, and risks - Policy objective of the proposed SBA: "to help Egypt maintain macroeconomic stability and cope with the impact of the COVID-19 pandemic, while starting to rebuild buffers." - Exceptional access: The proposed SBA "entails exceptional access, with the previous RFI purchase already exceeding the cumulative access limit, and proposed access under the SBA exceeds both the annual and cumulative access limits." - Liquidity impact summary: On approval, "the Fund’s liquidity will be reduced by the full amount of the purchase and the Fund’s remaining lending capacity will fall by 2.3 percent." - Egypt’s exposure metrics on approval: - Egypt will remain "the second largest borrower of GRA resources (following Argentina by a large margin)." - The SBA will leave the Fund’s credit exposure to Egypt at "72 percent of current precautionary balances, and at over 17 percent of total GRA credit outstanding." - Capacity to repay: "adequate, albeit with some risks." - Repayment timing risk: "Repayment obligations to the Fund are bunched after FY2022/23." - Amounts and reserve share: "Total debt service payments to the Fund for FY2023/24 and FY2024/25 would amount to around SDR 8.3 billion (about US$11.5 billion) or almost 24 percent of gross international reserves." - Implication: underscores "the importance of the authorities’ efforts to rebuild their reserve buffers and lengthen the maturity of external debt." - Mitigating factors: - "High share of domestic currency debt held by domestic financial institutions." - "Retention of market access and affirmation of credit ratings of a stable outlook by major ratings agencies since the COVID-19 crisis." - "Substantial foreign exchange reserve buffers coming into the crisis." - "Authorities’ commitment to exchange rate flexibility as a crucial shock absorber." - Successful May 2020 international bond issuance and agreements with GCC bilateral creditors to roll over "US$13.4 billion" of deposits coming due in the next 12 months. - Policy expectation: "Policies under the SBA, including fiscal and monetary policies and structural reforms, are expected to enhance confidence in the Egyptian economy over the medium term, in turn mitigating risks to Fund finances." ### Government/authorities assessment and policy priorities (Statement by Hazem Beblawi and Ms. Wafa Abdelati, June 26, 2020) - Pre-COVID performance and buffers: - Economy was growing "at close to 6 percent in 2019/20" with "low and well-anchored core inflation." - Debt projected "to reach 70 percent of GDP by 2023/24." - "Gross international reserves stood at 125 percent of the ARA metric." - COVID-19 shock and fiscal effects: - Containment measures and global recession caused "loss of foreign exchange earnings from the halt in tourism, slowdown in remittances and in Suez Canal earnings—as well as sudden capital outflows." - Fiscal support equivalent to "1.8 percent of GDP, announced March 14, 2020." - Primary fiscal surplus target revised: previously "2 percent of GDP" now expected "around 1.4 percent of GDP." - GDP growth revisions: from "5.5–6 percent in 2019/20 and 2020/21 prior to COVID-19 to 2–4 percent for both years." - External financing and market access: - CBE gross reserves fell by "$8 billion between February and May 2020." - RFI provided support on "May 11." - International bond issuance on "May 21" raised "$5 billion" in 4-, 12-, and 30-year tranches. - Combined Fund financing "will meet about one fifth of the gap or 25 percent after the reserve drawdown." - Monetary and exchange rate policy: - "Anchoring inflation remains a key objective." - "Monetary policy will remain data-driven." - "Exchange rate flexibility will be maintained." - CBE aims to resume accumulation of reserves to "above 110 percent of the ARA metric as soon as conditions allow." - Fiscal policy and budget targets: - 2020/21 budget provisions: primary surplus floor "no less than 0.5 percent of GDP"; Parliament-approved budget included "a primary balance target of 2 percent of GDP" but "with an added provision that the primary balance is not fall below 0.5 percent of GDP." - Additional revenue measures in budget to yield "around 0.5 percent in additional revenues." - Debt and debt-management actions: - Share of new short-term domestic debt issuance will be limited to "30 percent in 2020/2021." - Goal to make domestic-currency debt eligible to be settled through Euroclear "by early 2021." - Update MTRS and MTDS "by December 2020." - Public financial management and social protection: - New PFM Law to be submitted to Parliament "by December 2020." - Planned Public Expenditure Review with the World Bank "by April 2021." - Social protection: roll-out of universal health care (introduced in 2018); new social protection law being considered to merge programs. - National Investment Bank (NIB): reform committee established; international audit nearly completed; reform plan to be put in place "by January 2021." ### Structural conditionality, reforms, and three pillars of policy priorities - Structural conditionality under the SBA: described as "consistent with the authorities’ priorities, macro-relevant to meet medium term objectives, and feasible under the circumstances." - Given uncertainty, "policies and targets may need to be recalibrated in the context of the first review" while balancing short-term stimulus and avoidance of undue imbalances. - Three Pillars of Egypt’s Economic Policy Priorities (summarized): 1. Enhancing institutional frameworks and capacities to safeguard macroeconomic stability and build resilience (including adoption of inflation targeting regime, MTDS, MTRS, new PFM law, fiscal risk management, pension reform, SOE transparency, NIB reform, food and water security). 2. Deepen structural reforms to encourage investment and private-sector-led growth (including export support package, new customs law, industrial land regime, doing-business reforms, SME tax regime, IPO program, procurement procedures, automation of government services). 3. Enhance human development and social protection consistent with SDG goals (including more efficient spending on health and education, universal health system rollout, social protection expansion and consolidation, labor skills reforms, financial inclusion). *International Monetary Fund* --- _Source: https://www.imf.org/-/media/files/publications/cr/2020/english/1egyea2020001.pdf_