## 1egyea2024002-print-pdf

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### Executive summary — context, performance, and recent developments
- Context and program actions:
  - Policy actions in March included unification of the exchange rate and a significant increase in the policy rate; the EFF Arrangement was augmented; an investment deal with Abu Dhabi Development Holding Company (ADQ) and financing announcements from the European Union, the World Bank, and other partners:
    - improved FX liquidity and helped restore confidence.
    - inflation has started to fall, though remains elevated.
    - there are signs that the three-and-a-half-year contraction of private sector activity is reversing.
  - The Monetary Policy Consultation Clause (MPCC) was triggered on account of inflation surprises in February.
- Program performance highlights:
  - Shift to a flexible exchange rate regime and liberalized FX system has been sustained; spread between official rate and measures of market clearing rates has remained closed; FX demand backlog at banks has remained zero; daily interbank FX turnover increased to about ten times pre-unification levels; the CBE has not conducted FX sale interventions since unification.
  - All but one of the QPCs for end-March were met. The primary fiscal balance including divestment fell short of target solely due to exchange rate valuations related to divestment proceeds.
  - The weekly QPC on the balance of the government’s overdraft facility at the CBE was not met for the weeks ending April 18 to May 23 because of borrowing in anticipation of receipt of the second tranche of the ADQ deal; the second tranche was received in late May; the balance on the overdraft facility was lowered below the ceiling by May 30, 2024.
  - Authorities met about half of ITs for end-March, including ITs on tax revenue and social spending; half of structural benchmarks for the review were met.
- Recent economic developments and key statistics:
  - Growth slowed to an average of 2.5 percent in the first half of FY2023/24 due to weak confidence and FX shortages.
  - Suez Canal revenues deposited at the Central Bank fell by 57 percent y/y in the first quarter of 2024.
  - Annual headline urban inflation reached an all-time high of 38 percent in September 2023 and fell to 28.1 percent in May 2024.
  - Sequential inflation: about 1 percent m/m in March and April and -0.7 percent m/m in May versus 11.4 percent m/m in February.
  - In the first ten months of FY2023/24, the budget sector primary surplus, excluding divestment proceeds, improved by 1 percent of GDP (y/y) and reached 2.0 percent of GDP.
  - Interest payments increased sharply to 9.0 percent of GDP in the first ten months of FY2023/24, accounting for 51 percent of total expenditure and 84 percent of total revenues.
- FY2024/25 budget targets:
  - Budget targets a primary surplus of 3.5 percent of GDP, exclusive of divestment proceeds.
  - Envisages an increase in overall revenues of 1 percent of GDP: tax revenues +0.7 percent of GDP and other non-tax revenues +0.3 percent of GDP.
  - Primary expenditure reduced by 0.5 percent of GDP compared with estimated outturn for FY2023/24.
  - MoF plans to secure 1 percent of GDP in divestment proceeds to reduce public debt.
- Policy recommendations (summary):
  - Maintain a flexible exchange rate regime and a liberalized FX system.
  - Monetary policy: CBE should adopt a clear data-driven focus to lower inflation and inflation expectations.
  - Fiscal policy and debt management: continue fiscal consolidation, shift toward tax revenue-based consolidation, develop robust debt management strategy, mobilize divestment and public sector resources, implement new public investment monitoring framework, contain fiscal risks and consider stronger efforts to put EGPC on a better financial footing.
  - Structural reforms: enhance governance of state-owned banks; strengthen competition framework; automate and modernize trade facilitation procedures.

### Banking system, financial sector resilience, and CBE recapitalization
- Banking sector stability and vulnerabilities:
  - Banks on average are profitable, liquid and have adequate capital that exceed prudential minimums.
  - Banks’ net foreign asset (NFA) positions have rebounded sharply reflecting an increase in capital inflows following the Ras El-Hekma deal and EFF reviews.
  - Banks remain compliant with regulatory limits on net foreign exchange open positions.
  - Vulnerability: foreign currency loans, particularly to public sector entities, are not fully matched by foreign currency deposits (particularly on the balance sheets of the biggest banks).
- Key figures and recent developments:
  - Net international reserves (NIR) were US$32.1 billion at end-April 2024 (reflecting an increase of US$12.3 billion relative to February 2024).
  - A strengthening of commercial banks’ net foreign assets was US$13.3 billion in FY2023/24: Q3.
  - Nonresident holdings of local currency T-bills and T-bonds, measured at face value, increased to about US$20 billion in April, an increase by about US$19 billion since unification.
- CBE recapitalization and financial sector policies:
  - Authorities prepared an initial plan to address recapitalization needs, but a more granular five-year quantitative assessment is required.
  - Structural benchmark on CBE recapitalization rephased from end-April 2024 to end-August 2024.
  - CBE will complete stress tests of the banking sector and share detailed results with IMF staff by end-September 2024 using end-March 2024 data (structural benchmark).
  - Governance: CBE to commission independent assessment of state-owned banks’ policies, procedures, and controls; tendering and selection process to be completed by end-October 2024 (proposed structural benchmark).

### Ras El-Hekma investment deal — timing, assumptions, and staff estimates
- Timing and structure:
  - Development not expected to start until 2025.
  - Land transferred to newly established Ras El Hekma for Urban Development Project Company; government will have 35 percent interest in profits after costs are recovered.
  - Authorities have not received development plan from ADQ; plan may take a year to complete.
- Scale and preliminary staff framework:
  - Preliminary information suggests investment could reach US$150 billion over 20–30 years.
  - Authorities suggested annual investment in the region of about US$3-4 billion, mostly FDI and domestic private investments.
  - Development expected to proceed without public sector guarantees; public sector required only to provide electricity grid access to the border of the region.
- Staff assumptions and incorporated receipts:
  - NUCA receipt of US$24 billion in new financing from Ras El-Hekma deal and conversion of US$11 billion UAE dollar deposits at the CBE into local currency.
  - From new financing, US$15 billion was purchased by the CBE to boost international reserves; remainder remains with NUCA.
  - Ministry of Finance received local currency equivalent of US$12 billion used to reduce debt financing.
  - Staff assumes annual inflow of FDI in range US$2.5 billion to US$5 billion, of which 70 percent finances non-oil imports related to project.
  - Over program period, cumulative increases in FDI of US$12.5 billion and non-oil imports of about US$8.8 billion.
- Staff calculations (selected Box Table entries, in billion US$ or percentage points where indicated):
  - Ras El-Hekma: net expected flows to Current Account by FY: FY24 0.8; FY25 1.5; FY26 1.5; FY27 1.5; FY28 1.5; FY29 3.8.
  - + FDI (inflows) FY25–FY29: 2.5; 5.0; 5.0; 5.0; 5.0 (cumulative FY2025-27 = 12.5).
  - - Non-oil imports & services FY25–FY29: 1.8; 3.5; 3.5; 3.5; 3.5 (cumulative = 8.8).
  - Combined Gross International Reserves (GIR) 1st and 2nd review path (in billion US$): FY24 49.2; FY25 52.2; FY26 60.2; FY27 65.6; FY28 66.7; FY29 68.1.
  - GIR in percent of ARA metric: FY24 115; FY25 118; FY26 130; FY27 136; FY28 133; FY29 130.
  - Current framework GIR (in billion US$): FY24 52.2; FY25 55.6; FY26 58.9; FY27 62.9; FY28 68.0; FY29 74.9.
  - Increase in real growth of construction and building sector FY25–FY29 (percentage points): FY25 1.0; FY26 5.4; FY27 5.0; FY28 4.5; FY29 4.1.
  - Increase in real GDP growth (relative) FY25–FY29 (percentage points): FY25 0.1; FY26 0.4; FY27 0.1; FY28 0.1; FY29 0.0.
  - Increase in private investment relative to GDP FY25–FY29 (percentage points): FY25 0.7; FY26 1.3; FY27 1.1; FY28 1.0; FY29 0.8.

### Outlook, macro assumptions, and debt dynamics
- Real growth:
  - Real growth for FY2023/24 projected to slow to 2.7 percent.
  - Strong recovery anticipated in FY2024/25 as Ras El-Hekma development begins and Red Sea disruptions abate in second half of fiscal year.
  - Over medium term, growth projected to increase to around 5½ percent.
- Inflation and money:
  - Inflation expected to trend downwards over next 12 months as base effects unwind and policy tightening takes hold.
  - The growth rate of M2 is currently lower than the inflation rate, while the opposite was true in the 2017 episode.
- Debt dynamics:
  - Despite large depreciation of official exchange rate and increase in policy rate, debt-to-GDP ratio projected to follow a downward trajectory. Drivers include using half of Ras El-Hekma financing for debt reduction, sustained primary surpluses, and favorable interest-growth differentials.
  - Decline in the debt ratio expected to start in FY2023/24; debt, interest burden, and rollover risk will remain high for some time.
- Net international reserves projections:
  - NIR projections for FY2023/24 and FY2024/25 revised upwards to reflect BOP data for December 2023, latest NIR data, assumptions on potential FDI inflows related to Ras El-Hekma, and step-increase of nonresident short-term inflows to local currency T-bills after unification.

### Monetary policy, exchange rate flexibility, and inflation dynamics
- Monetary actions and stance:
  - Jumbo hike in policy rate on March 6 to 27.25 percent; cumulative hikes in 2024:Q1 total 800 basis points.
  - Key policy rates raised cumulatively by 1900 bps since March 2022 (800 bps in 2022, 300 bps in 2023, and 800 bps in 2024 Q1).
  - Following three months of consecutive decreases in headline inflation (March, April, May), CBE’s monetary policy committee held rates unchanged at its May 2024 meeting.
  - CBE left policy rates unchanged at July 18, 2024 meeting, judging current stance appropriate.
- Inflation developments and MPCC:
  - Annual urban headline inflation rose to 35.7 percent in February 2024 and eased to 33.3 percent in March 2024; urban headline inflation recorded 33.3 percent in March 2024, outside the 3–27 percent band agreed under the EFF, triggering MPCC consultation.
  - Annual food inflation recorded 45.0 percent in March 2024, its lowest since December 2022.
  - Exchange rate unification on March 6, 2024 accounted for 10 percent of monthly headline inflation in March 2024, compared to 25 percent in February 2024.
  - CBE aims to strengthen communication and the monetary transmission mechanism; adopted fixed rate, full allotment of 7-day deposit operations to improve transmission.
- Monetary transmission and indicators:
  - CBE assumes cumulative impact of interest rate tightening on real economy peaks after three quarters.
  - M2 growth accelerated in March 2024 to 25.4 percent following depreciation; M2 growth (excl. revaluation) declined to 10.7 percent in March 2024, compared to 16.5 percent in previous month.
  - M2-Real GDP growth differential narrowed for four consecutive quarters, averaging 17.3 percent in 2024 Q1 versus 25.9 percent in 2023 Q1.

### Fiscal policy, public investment, and revenue reforms
- Fiscal stance and targets:
  - FY2023/24 primary surplus of 2.2 percent of GDP excluding divestment proceeds and 6.2 percent of GDP including divestment proceeds.
  - FY2024/25 target primary surplus of 3.5 percent of GDP excluding divestment proceeds plus expected 1 percent of GDP from divestment to reduce gross financing needs (performance criterion).
  - Identified tax measures to raise revenue by 0.7 percent of GDP and additional non-tax revenue 0.3 percent of GDP in FY2024/25.
  - Authorities committed to achieve revenue-based consolidation with tax revenue increasing by 3 percent of GDP over the program period; VAT reform expected to generate 1.0 percent of GDP on a 12-month basis, of which 0.2 percent of GDP will be achieved in FY2024/25.
- Public investment management and ceilings:
  - Prime Ministerial decree No. 739 of 2024 requires public entities to report projected investment; first submission for FY2024/25 made by April 30, 2024.
  - Program target ceiling on value of total public investment: January–June 2024 EGP 350 billion; FY2024/25 EGP 1,000 billion (indicative target).
- Subsidies, fuel pricing, and social protection:
  - Fuel prices increased in March 2024 producing annual savings worth 0.3 percent of GDP; structural benchmark on retail fuel indexation missed and replaced temporarily by firm commitment to restore retail fuel prices to cost recovery levels by December 2025.
  - Authorities raised subsidized bread price from EGP 0.05 per loaf to EGP 0.2 per loaf on June 1, 2024.
  - Takaful and Karama coverage expanded to more than 5 million households; average monthly payments increased by 45 percent since FY2022/23.
  - Total social protection package for FY2024/25: EGP 130 billion, plus EGP 50 billion cost incurred by Pension Fund for increased monthly pension payments.
  - Publication of new household income survey proposed as new structural benchmark for end-July 2024.
- EGPC fiscal risks and arrears:
  - Guarantees issued on behalf of EGPC account for about half of government guarantees.
  - EGPC arrears balance reduced to about US$5 billion after payments earlier this calendar year; anticipated payment before end of FY2023/24 would lower arrears to around US$3.5–3.8 billion.
  - Authorities raised electricity prices by 7–20 percent in January 2024 and retail fuel prices in March by 8–20 percent; EGPC expects additional EGP 10-11 billion of monthly revenues from recent and upcoming energy price hikes.
  - Value of guarantees issued on behalf of EGPC increased by about 5 percent of GDP since October 1, 2023 due to exchange rate depreciation and new guarantees.

### Debt management, domestic market developments, and financing
- Debt and financing indicators:
  - Public debt assessed sustainable but not with high probability; overall risk of sovereign stress assessed as High.
  - Authorities agreed with pension funds and insurance funds to extend maturity of portion of existing debt and with major state banks to issue new three-year T-bonds when existing T-bonds held by those banks mature.
  - Authorities committed to gradually extend issuance maturity of domestic debt through auction: from 0.52 years at end-March to 0.57 years at end-June 2024 and to 0.90 years at end-December 2024 (cumulative basis from beginning of fiscal year).
- Market developments:
  - Domestic financing before unification relied heavily on short-term T-bills, private placements at state-owned banks, and overdraft borrowing. After unification reliance shifted to weekly T-bill auctions and increased issuance of longer-term T-bills (such as 12-month T-bills).
  - Nonresident inflows pushed down T-bill interest rate below the central bank’s discount rate; authorities relied less on private placements since April and spreads have fallen significantly.
  - Nonresident holdings of local currency T-bills/T-bonds increased to about US$20 billion in April (increase by about US$19 billion since unification).
- Medium-term public debt projections (selected DSA baseline series, percent of GDP):
  - Public debt actual 2023: 105.3; 2024: 102.2; 2025: 89.5; 2026: 83.3; 2027: 76.8; 2028: 71.0; 2029: 65.3; 2030: 59.3; 2031: 53.4; 2032: 47.6; 2033: 41.8; 2034: 36.1.
  - Gross financing needs (GFN): 2023: 28.5; 2024: 38.4; 2025: 42.7; 2026: 41.5; 2027: 37.0; 2028: 31.1; 2029: 28.2; 2030: 24.7; 2031: 22.2; 2032: 20.9; 2033: 17.6; 2034: 14.6.
  - Debt service (percent of GDP) series includes: 2023: 29.9; 2024: 40.4; 2025: 45.9; 2026: 45.6; 2027: 41.5; 2028: 35.6; 2029: 32.7; 2030: 29.2; 2031: 26.7; 2032: 25.4; 2033: 22.1; 2034: 19.1.
- Public debt structure and financing needs:
  - Decomposition of budget sector debt (FY23/24, US$ billion): Total budget sector debt 323.1; External budget sector debt 82.6; Domestic budget sector debt 240.5.
  - Domestic debt instruments (US$ billion): T-Bills and MOF notes 103.2; T-bonds and Eurobonds held by residents 98.2; Nontradable domestic debt 39.1.
  - External multilateral creditors: Multilateral creditors 42.8; IMF component 17.4 (within multilateral). External market financing 32.5 (US$ billion).

### Program conditionality, structural benchmarks, and institutional reforms
- QPCs, ITs, and SBs performance and adjustments:
  - End-March QPCs: all but one were met; QPC on primary balance not met due to valuation effects; NIR QPC met by significant margin.
  - End-March ITs: four of seven met including tax revenue and social spending; IT on maturity of new domestic debt issuances missed by narrow margin; IT on guarantees missed by large margin due to revaluation and new guarantees on behalf of EGPC.
  - Half of structural benchmarks for third review met. Benchmarks met include: maintain flexible exchange rate and liberalized FX system; enact executive regulations of Unified Public Finance Law; publish tax expenditure and procurement contract reports; introduce fixed rate, full allotment of CBE’s 7-day deposit operations.
  - Several SBs not met; staff proposes to rephase two, modify one, and not reset two. Examples:
    - CAO audit reports publication SB rephased to end-November 2024 and modified.
    - CBE recapitalization SB rephased to end-August 2024.
    - Quarterly retail fuel price indexation SB modified to be temporarily replaced by firm commitment to restore fuel prices to cost recovery levels by December 2025.
    - SBs on reducing CBE claims on public sector agencies and preparing plan to reduce EGPC arrears not reset because authorities committed to actions.
- New and adjusted structural benchmarks proposed by staff:
  - Add six new SBs, majority focused on structural reforms including independent risk management assessment of state-owned banks, publication of household income survey, publication of CAO audit of FY2022/23 fiscal accounts, and two customs-related SBs; add data requirement on reporting of guarantees.
- Safeguards and governance:
  - Further progress needed on implementation of 2023 safeguards assessment recommendations and full implementation of Egyptian Accounting Standards (EAS).
  - Commitment to regularize use of 2021 SDR allocation for fiscal purposes requires implementation.
- Technical Memorandum of Understanding (TMU) monitoring:
  - Detailed definitions and reporting requirements provided for NIR, foreign reserve-related liabilities (US$15,372 million as of end-April 2024), program disbursements projections, adjustors to NIR floor, ceilings, and reporting lags for MoF and CBE data.

### Risks, risk matrix, and contingency considerations
- Program risks — downside (selected):
  - Intensification of regional conflicts (High likelihood; High impact), notably disruption of Red Sea trade reducing Suez Canal receipts.
  - Failure to sustain liberalized FX system.
  - Monetary policy too loose to bring inflation down.
  - Insufficient energy price adjustments preventing cost recovery and worsening SOE finances.
  - Difficulty integrating off-budget investment program into macro policymaking.
  - Lack of meaningful progress on structural reforms.
  - Sustained large surges in portfolio flows complicating macro management.
  - Rapid pickup in Ras El-Hekma investment could cause overheating and Dutch disease effects.
- Upside risks:
  - External financial market conditions ease more than expected and large capital inflows continue.
  - Larger-than-expected FDI from Ras El-Hekma or similar investments, conditional on minimizing fiscal risks.
  - Inflation could fall more quickly if confidence returns and exchange rate appreciates materially.
- DSA risk assessment and coverage:
  - Final assessment: Overall risk of sovereign stress — High.
  - Sustainability assessment: Public debt sustainable but not with high probability.
  - Contingent liability related to publicly-guaranteed debt: EGP4,311 billion as of March 2024.
  - Coverage in DSA: General government (budget sector, National Investment Bank, Social Insurance Funds); official creditor deposits at central bank included in public debt stock for this analysis.
- Annex I (selected baseline debt projections and realism checks) indicates debt projected to trend downwards under baseline with near- and medium-term risks flagged as High.

### NIR update, QPC status, breaches, and remedial actions (June–July 2024 supplement)
- NIR and QPC:
  - NIR on June 30, 2024 based on program definition: US$38,194 million.
  - Adjusted QPC on NIR for end-June 2024 of US$37,608 million was met, helped by central bank purchases in June.
  - NIR floor reverted to US$30,329 million (floor approved at completion of first and second reviews) given availability of end-June outturn.
  - NIR floor was adjusted upward by US$7,279 billion, mainly due to adjustor on holdings of local currency government T-bills and T-bonds held by nonresidents being significantly higher than projections.
    - Present value of stock at end-May 2024: actual US$16,533 million versus projected US$1,850 million; NIR floor adjusted upwards by 50 percent of excess (text notes US$7,342 million in footnote).
- Overdraft breaches and corrective action:
  - Weekly QPC on government overdraft balance at CBE breached in April–May 2024 and again for weeks ending July 10 and July 18, 2024; peak reported EGP 350.2 billion on May 23.
  - Deviations were temporary and corrected by July 23, 2024; staff supports waivers of nonobservance given corrective action.
  - Authorities committed to strengthen cash and debt management and develop enhanced forecasting and issuance planning.
- July 25, 2024 fuel price adjustment:
  - Octane 92 raised by 10 percent.
  - Octane 80 and Octane 95 raised by 11 percent.
  - Diesel raised by 15 percent.
  - Objective: step towards cost recovery by December 2025.

### Staff appraisal and recommendations
- Staff supports completion of the third review under the EFF Arrangement and waivers of nonobservance/applicability where breaches were temporary or data were not available by Board meeting.
- Staff recommends completion of MPCC consultation with the Executive Board given inflation deviations.
- Staff appraisal notes positive outcomes: exchange rate unification and monetary tightening curtailed speculation, attracted foreign inflows, moderated price growth; proceeds from Ras El-Hekma facilitated significant reduction in overdraft and boosted gross reserves.
- Staff emphasizes continued tight monetary policy to place inflation on a sustained declining trend and fiscal tightening geared to non-interest expenditure adjustment with protection for social spending.

*Source: 1egyea2024002-print-pdf*

### EXECUTIVE SUMMARY

### EXECUTIVE SUMMARY

### Context
- Policy actions in March as part of a strengthened program package—including unification of the exchange rate and a significant increase in the policy rate—combined with the augmentation of the Extended Fund Facility (EFF) Arrangement, the recent investment deal with Abu Dhabi Development Holding Company (ADQ) and the announcement of financing from the European Union, the World Bank, and other international partners:
  - improved FX liquidity and helped restore confidence.
  - inflation has started to fall, though remains elevated.
  - there are signs that the three-and-a-half-year contraction of private sector activity is reversing.
- The Monetary Policy Consultation Clause (MPCC) was triggered on account of inflation surprises in February.

### Program Performance
- Exchange rate and FX system:
  - The authorities have sustained the shift to a flexible exchange rate regime and a liberalized foreign exchange (FX) system.
  - Since unification, the spread between the official rate and measures of market clearing rates has remained closed; the FX demand backlog at banks has remained zero; daily interbank FX turnover increased to about ten times pre-unification levels; the CBE has not conducted FX sale interventions since unification.
- Quantitative Performance Criteria (QPC) and Indicative Targets (IT):
  - All but one of the QPCs for end-March were met.
  - The primary fiscal balance including divestment fell short of target solely due to exchange rate valuations related to divestment proceeds.
  - The weekly QPC on the balance of the government’s overdraft facility at the CBE was not met for the weeks ending April 18 to May 23 because of borrowing in anticipation of receipt of the second tranche of the ADQ deal; the second tranche was received in late May; the balance on the overdraft facility was lowered below the ceiling by May 30, 2024.
  - The authorities met about half of ITs for end-March, including the ITs on tax revenue and social spending.
  - The IT on the maturity of new domestic debt issuances through auctions was missed by a narrow margin due to reliance on short-term T-bills (before unification in January and February).
  - The IT on guarantees was missed by a large margin as guarantees denominated in foreign currency were revalued following the depreciation of the official exchange rate in early March and new guarantees were issued on behalf of EGPC.
  - Authorities met half of the structural benchmarks for the review.
- Reserve buffers:
  - Reserve buffers are notably stronger.
- Domestic financing and market developments:
  - Domestic financing relied heavily on short-term T-bills, private placements at state-owned banks, and borrowing from the overdraft facility before unification.
  - After unification, reliance shifted to weekly T-bill auctions and increased issuance of longer-term T-bills (such as 12-month T-bills); use of the overdraft facility was brought down below the statutory limit at end-March 2024 but temporarily exceeded the limit in April–May and returned below the limit by end-May 2024.
  - Nonresident holdings of local currency T-bills and T-bonds, measured at face value, increased to about US$20 billion in April, an increase by about US$19 billion since unification.
  - Nonresident inflows pushed down the T-bill interest rate below the central bank’s discount rate; authorities relied less on private placements since April and spreads have fallen significantly.

### Recent Economic Developments and Key Statistics
- Growth and activity:
  - Growth slowed to an average of 2.5 percent in the first half of FY2023/24 due to weak confidence and FX shortages.
  - Suez Canal revenues deposited at the Central Bank fell by 57 percent y/y in the first quarter of 2024.
- Inflation:
  - Annual headline urban inflation reached an all-time high of 38 percent in September 2023.
  - Annual headline urban inflation fell to 28.1 percent in May 2024—its lowest level since January 2023.
  - Sequential inflation was about 1 percent m/m in March and April and turned negative in May (-0.7 percent m/m) versus 11.4 percent m/m in February.
- Fiscal outcomes:
  - In the first ten months of FY2023/24, the budget sector primary surplus, excluding divestment proceeds, improved by 1 percent of GDP (y/y) and reached 2.0 percent of GDP.
  - Total revenues (excluding divestment proceeds) declined by 0.4 percent of GDP compared to the prior year; tax revenue collection declined by 0.2 percent of GDP.
  - Interest payments increased sharply to 9.0 percent of GDP in the first ten months of FY2023/24, accounting for 51 percent of total expenditure and 84 percent of total revenues.
  - Windfall revenue allocation from sale of development rights in Ras El-Hekma helped reduce gross financing needs and debt.
- FY2024/25 budget targets:
  - The budget targets a primary surplus of 3.5 percent of GDP, exclusive of divestment proceeds.
  - The budget envisages an increase in overall revenues of 1 percent of GDP, with increases in tax revenues and other non-tax revenues by 0.7 and 0.3 percent of GDP, respectively.
  - Primary expenditure will be reduced by 0.5 percent of GDP compared with the estimated outturn for FY2023/24.
  - The MoF plans to secure 1 percent of GDP in divestment proceeds to reduce public debt.

### Policy Recommendations
- Maintain a flexible exchange rate regime and a liberalized foreign exchange system to avoid a buildup of external imbalances and demonstrate that “this time is different.”
- Monetary policy:
  - The Central Bank should adopt a clear data-driven focus to lower inflation and inflation expectations to ward its target.
- Fiscal policy and debt management:
  - Continue fiscal consolidation to put debt on a downward path and contain demand pressures.
  - Make a clear shift toward a tax revenue-based consolidation to sustainably increase the primary surplus and make space for priority expenditure.
  - Take advantage of improved market sentiment to develop a more robust debt management strategy to lower gross financing needs.
  - Mobilize additional resources from divestment or from operations of public sector entities to help reduce the interest rate burden.
  - Transparently and rigorously implement the new framework to monitor and control public investment.
  - Contain fiscal risks and consider stronger efforts to put EGPC on a better financial footing if current plans fall short.
- Structural reforms and investor confidence:
  - Deliver early structural reform deliverables to secure investor confidence, release constraints to private sector activity, and hand over growth to the private sector; initial steps include:
    - Enhancing the governance structure of state-owned banks.
    - Continued strengthening of the competition framework.
    - Automating and modernizing trade facilitation procedures to increase efficiency and remove trade barriers.

### Program Risks
- External shocks and geopolitics:
  - Egypt is exposed to negative spillovers from the conflict in Gaza and Israel, notably disruption of trade in the Red Sea, which is significantly reducing Suez Canal receipts and eroding an important source of FX inflows and fiscal revenue; the persistence of this stressor is highly uncertain.
- Inflation and purchasing power:
  - Prolonged inflationary pressures would further erode purchasing power.
- Ras El-Hekma project:
  - The Ras El-Hekma investment project could positively boost growth and structurally improve the balance of payments, but it could also require continuous macroeconomic rigor to contain overheating risks.
- Program implementation risks:
  - Failure to sustain the shift to a liberalized FX system.
  - Insufficient energy price adjustments that do not reach cost recovery and fail to materially improve finances of state-owned energy companies.
  - Difficulty in delivering a transparent and comprehensive integration of the off-budget investment program into macroeconomic policymaking.
  - Failure to advance meaningfully with the structural reform program, which would dampen growth prospects.
  - Sustained large surges in portfolio flows could complicate macroeconomic management and heighten volatility.
- Capacity to repay the Fund is contingent on full program implementation and the materialization of all projected financing.

### IMF Staff Actions and Recommendations
- Staff supports the authorities’ request for completion of the third review under the EFF Arrangement.
- Staff supports requests for a waiver of non-observance of the end-June 2024 criterion on overdraft borrowing as the breach was temporary and corrective action was taken.
- Staff supports requests for waivers of applicability of the end-June QPCs on net international reserves and primary fiscal balance because the Executive Board discussion will take place in early July 2024 after the end-June 2024 test date when data are not available.
- Staff recommends completion of the MPCC consultation with the Executive Board.

*Source: EXECUTIVE SUMMARY (1egyea2024002-print-pdf)*

### 7.      The banking system remains stable so far following the recent increase in interest rates

### 7.      The banking system remains stable so far following the recent increase in interest rates 

### Banking sector stability and vulnerabilities
- Banks on average are profitable, liquid and have adequate capital that exceed prudential minimums.
- Banks’ net foreign asset (NFA) positions have rebounded sharply reflecting an increase in capital inflows following the announcement of the Ras El-Hekma deal and completion of the 1st and 2nd reviews under the EFF arrangement.
- Banks remain compliant with regulatory limits on net foreign exchange open positions.
- Vulnerability: foreign currency loans, particularly to public sector entities, are not fully matched by foreign currency deposits (particularly on the balance sheets of the biggest banks), implying potential exposure to exchange rate movements and credit risks.

### Key figures and recent developments
- Net international reserves (NIR) were US$32.1 billion at the end of April 2024 (reflecting an increase of US$12.3 billion relative to February 2024).
- A strengthening of commercial banks’ net foreign assets was US$13.3 billion in FY2023/24: Q3 (footnote reference in the source).
- Banks are reported to remain compliant with regulatory limits despite FX mismatches on some balance sheets.

### External flows, current account, and balance of payments
- The current account deficit widened further in the last calendar quarter of 2023 due to:  
  - a reduction in non-oil exports and a decompression of non-oil imports, weakening the non-oil trade balance;  
  - low remittances prior to exchange rate unification (due to the large parallel market spread);  
  - deterioration in the balance of services predominantly from a decline in tourism receipts (impact of the conflict in Gaza and Israel).
- The widening current account deficit was fully financed by a significant increase in the financial account, with a strong increase in FDI (boosted by net reinvested earnings and real estate purchases by non-residents) and other investments (led by an increase in short-term suppliers’ credit).
- Preliminary data for 2024: Q1 suggest a further widening of the current account deficit, driven by a pronounced decline in Suez Canal receipts (by 60 percent y/y) due to disruptions in the Red Sea, despite a rebound in remittances in March after the exchange rate unification.
- The overall BOP balance is expected to turn positive as inflows from Ras El-Hekma and T-bills held by nonresidents provide a significant boost to the financial account; the latter explains a large increase in commercial banks’ net foreign assets.

### Ras El-Hekma project: timing and scale
- Development is not expected to start until 2025.
- The land was transferred to a newly established Ras El Hekma for Urban Development Project Company; the government will have a 35 percent interest in profits after costs are recovered.
- The authorities have not received the development plan from ADQ; the plan may take a year to complete.
- Preliminary information suggests the investment could reach US$150 billion over a period of 20–30 years.
- Authorities suggested annual investment in the region could be about US$3-4 billion, mostly in the form of FDI and domestic private investments.
- Development is expected to take place without public sector guarantees to support private sector investment; only electricity grid access to the border of the region is required from the public sector.

### Outlook and macro assumptions
- Real growth projections:
  - Real growth for FY2023/24 is projected to slow to 2.7 percent to internalize the weak outturn in the first half of the fiscal year.
  - A strong recovery is anticipated in FY2024/25 as development of the Ras El-Hekma region begins and pressures from the conflict and Red Sea disruptions are assumed to abate in the second half of the fiscal year.
  - Over the medium term, growth is projected to increase to around 5½ percent.
- Inflation: expected to trend downwards over the next 12 months as base effects unwind and policy tightening takes hold.
- National accounts methodology change: the recent change for calculating private investment reallocates spending from private consumption to private investment but does not change the level of GDP or other expenditure subcomponents. The change increases private investment and total investment by an estimated 1.6 percent of GDP in FY2023/24 while reducing private consumption by the same amount.
- Debt dynamics:
  - Despite the large depreciation of the official exchange rate upon unification and the increase in the policy rate, the debt-to-GDP ratio is projected to follow a downward trajectory.
  - Drivers: half of the new financing from the Ras El-Hekma deal was applied to debt reduction, sustained primary surpluses, and favorable interest-growth differentials.
  - The decline in the debt ratio is expected to start in FY2023/24; nevertheless, debt, the interest burden, and rollover risk will remain high for some time.
- Net international reserves projections:
  - Projections for NIR for FY2023/24 and FY2024/25 have been revised upwards to reflect BOP data for December 2023, latest NIR data, assumptions on potential FDI inflows related to Ras El-Hekma, and the sharp step-increase of nonresident short-term inflows to local currency T-bills after unification.
  - Commercial bank NFA stocks were revised upwards in FY2023/24 to reflect a significant increase observed in FY2023/24: Q3, but are projected to remain broadly neutral in FY2024/25.

### Preliminary staff estimates of Ras El-Hekma economic impact (Box 1)
- Framework already incorporated:
  - NUCA receipt of US$24 billion in new financing from the Ras El-Hekma deal and conversion of US$11 billion UAE dollar deposits at the CBE into local currency.
  - From new financing, US$15 billion was purchased by the CBE to boost international reserves; the remainder remains with NUCA.
  - The Ministry of Finance received the local currency equivalent of US$12 billion which was used to reduce debt financing.
- Staff assumptions to incorporate development into the macro framework:
  - Annual inflow of FDI in the range of US$2.5 billion to US$5 billion, of which 70 percent is assumed to finance non-oil imports related to the project.
  - Over the program period, cumulative increases in FDI of US$12.5 billion and non-oil imports of about US$8.8 billion.
- Box Table highlights (staff calculations):
  - Ras El-Hekma: net expected flows to Current Account by FY: FY24 0.8, FY25 1.5, FY26 1.5, FY27 1.5, FY28 1.5, FY29 3.8 (in billion US$).
  - + FDI (inflows) across FY25–FY29: 2.5, 5.0, 5.0, 5.0, 5.0 (in billion US$); cumulative FY2025-27 = 12.5 (in billion US$).
  - - Non-oil imports & services (outflows) FY25–FY29: 1.8, 3.5, 3.5, 3.5, 3.5 (in billion US$); cumulative = 8.8 (in billion US$).
  - Combined Gross International Reserves (GIR) 1st and 2nd review path: FY24 49.2, FY25 52.2, FY26 60.2, FY27 65.6, FY28 66.7, FY29 68.1 (in billion US$).
  - GIR in percent of ARA metric: FY24 115, FY25 118, FY26 130, FY27 136, FY28 133, FY29 130.
  - Current framework GIR: FY24 52.2, FY25 55.6, FY26 58.9, FY27 62.9, FY28 68.0, FY29 74.9 (in billion US$).
  - Increase in real growth of construction and building sector FY25–FY29: FY25 1.0, FY26 5.4, FY27 5.0, FY28 4.5, FY29 4.1 (percentage points).
  - Increase in real GDP growth (relative) FY25–FY29: FY25 0.1, FY26 0.4, FY27 0.1, FY28 0.1, FY29 0.0 (percentage points).
  - Increase in private investment relative to GDP FY25–FY29: FY25 0.7, FY26 1.3, FY27 1.1, FY28 1.0, FY29 0.8 (percentage points).

### Risks to the outlook
- Downside risks:
  - Failure to sustain the shift to a flexible exchange rate regime and a liberalized foreign exchange system.
  - Monetary policy too loose to bring inflation down.
  - Insufficient adjustment of energy prices (prices remain below cost recovery levels).
  - Difficulty integrating the off-budget investment program into overall macroeconomic policy decision making.
  - Lack of meaningful progress on structural reforms, dampening growth prospects.
  - Intensification of regional conflicts and prolonged Red Sea disruptions could further undermine growth, fiscal revenues, the divestment process, and the external position.
  - A large increase in portfolio inflows could increase the risk of capital flow reversals and external vulnerabilities.
  - Rapid pickup in Ras El-Hekma investment (estimated total US$150 billion or about 50 percent of current GDP) could cause overheating and upward pressure on the currency, risking Dutch disease effects detrimental to manufacturing and agriculture.
- Upside risks:
  - External financial market conditions for Egypt could ease more than expected and large capital inflows could continue.
  - Larger-than-expected FDI associated with Ras El-Hekma or additional similar investments is an upside risk on growth, provided fiscal risks associated with these transactions are minimized.
  - Inflation could fall back more quickly than projected, particularly if a return of confidence results in a material appreciation of the exchange rate.

### Program performance and implementation
- Program performance for the third review was satisfactory.
- Controlling QPCs for the 3rd review are the end-June 2024 QPCs.
- The authorities did not meet the weekly QPC on the overdraft account at the CBE as the government temporarily borrowed from the account in April and May; however, as of May 31, 2024, the balance of the account was zero, well below the QPC ceiling.
- End-March QPCs: all but one were met.
  - The authorities met the QPC on net international reserves (NIR) by a significant margin as reserves were boosted by increase in nonresident inflows into local currency T-bills in March 2024.
  - The authorities met QPCs on reduction of the CBE overdraft facility balance and CBE lending to government agencies.
  - The QPC for the primary balance was not met, mainly because the realized exchange rate used to convert the dollar proceeds from Ras El-Hekma deal was less depreciated than under program assumptions.
- Indicative targets (ITs) and structural benchmarks (SBs):
  - The authorities met four of seven ITs for end-March including ITs on tax revenue and social spending.
  - Missed ITs by narrow margins: the IT on the maturity of new domestic debt issuances through auctions (reliance on short-term T-bills before unification) and the IT on the debt stock (due to high interest rates).
  - The IT on guarantees was missed by a large margin as guarantees denominated in foreign currency were revalued following depreciation of the official exchange rate and new guarantees were issued on behalf of EGPC.
  - Annual urban inflation exceeded the upper outer band under the program for end-March 2024, triggering the MPCC consultation with the Board.
  - Half the structural benchmarks for the third review were met. Benchmarks met include:
    - Maintain a flexible exchange rate regime and a liberalized FX system.
    - Enact the executive regulations of the Unified Public Finance Law.
    - Publish comprehensive tax expenditure and government procurement contract reports.
    - Introduce a fixed rate, full allotment of the CBE’s 7-day deposit operations.

*Source: IMF staff report excerpt (chapter 7).*

### 15.      At the same time, several SBs were not met. Staff proposes to rephase two, modify one, and

### 1egyea2024002-print-pdf - 15.      At the same time, several SBs were not met. Staff proposes to rephase two, modify one, and

### Structural benchmarks update
- Several structural benchmarks (SBs) were not met; staff proposes to rephase two, modify one, and not reset two.
- SB to introduce a binding requirement to ensure the timely publication of the Central Auditing Organization’s (CAO) annual audit reports on the fiscal accounts by end-March 2024:
  - Rephased to end-November 2024.
  - Modified to be more specific because the authorities are currently amending the law governing the CAO and plan to introduce this requirement into the law rather than implement it through a decree.
- SB to prepare a recapitalization plan for the CBE:
  - Rephased to end-August 2024 as the authorities prepared an initial estimate of the recapitalization needs of the CBE, but require more time to refine the estimate and plan for an effective recapitalization strategy.
- SB on the quarterly implementation of the retail fuel price indexation mechanism:
  - Modified as it will be temporarily replaced by a firm commitment to restore fuel prices to their cost recovery levels by December 2025.
- SB to create a plan to reduce CBE claims on public sector agencies (excluding the MOF):
  - Not reset because the authorities have committed to reducing the claims by EGP 150 billion by end-July 2024 and further reduce CBE claims by EGP 100 billion every fiscal year until the claims are reduced to zero as reflected in the QPC on CBE claims on government agencies.
- SB to prepare a plan to reduce EGPC arrears:
  - Not reset because the authorities have articulated a strategy to repay EGPC arrears, including measures to boost EGPC revenues through increases in energy prices, but stronger conditionality on improving EGPC’s financial situation will be considered in the future if the current plan falls short.

*INTERNATIONAL MONETARY FUND — ARAB REPUBLIC OF EGYPT*

### Policy discussions — overview and program objectives
- Program objectives remain unchanged from program approval.
- Policy discussions focused on:
  - Bringing inflation down to the central bank’s target.
  - Establishing monetary policy as the main lever for demand management in the context of a flexible exchange rate regime.
  - Allowing exchange rate flexibility to be the first line of policy response to capital inflows and outflows.
  - Reducing debt and gross financing needs through a revenue-led fiscal consolidation coupled with a comprehensive and cohesive multi-pronged debt management strategy.
  - Containing fiscal risks from off-budget investment and operations of Economic Authorities.
  - Enhancing the institutional governance framework for state-owned banks.
  - Implementing measures to advance the state-ownership policy, fiscal transparency, and leveling the playing field across economic agents.
- The updated Memorandum of Economic and Financial Policies (MEFP) reflects the authorities’ commitment to these objectives.

### A. Exchange rate and monetary policies
- Policy priorities:
  - Bringing down inflation.
  - Sustaining a flexible exchange rate regime and a liberalized FX system.
  - Relying primarily on exchange rate flexibility to manage capital flows.
- Monetary policy actions and context:
  - The jumbo hike in the policy rate on March 6 to 27.25 percent has pushed the policy rate to historic highs, in a significantly more aggressive stance than during the 2016–17 stabilization episode.
  - The growth rate of M2 is currently lower than the inflation rate, while the opposite was true in the 2017 episode.
  - Decrease in headline inflation in April suggests passthrough from the recent exchange rate depreciation (and appreciation in the parallel market) has largely occurred, FX-related goods shortages have dissipated, and Ramadan-related effects have dropped out of food prices.
  - Following three months of consecutive decreases in headline inflation (March, April, and May), the CBE’s monetary policy committee held rates unchanged at its May 2024 meeting, judging that the current monetary stance remains appropriate to place inflation on a declining path.
  - Significant reduction in the government’s use of CBE overdraft facility and CBE sterilization efforts associated with FX inflows are expected to reduce liquidity and inflation pressures.
  - The CBE is committed to take actions if data outturns signal deviations from its projected inflation path towards achieving its target.
  - The MPCC bands have been proposed to be tightened relative to the prior review, based on recent inflation outturns and revised baseline projection for inflation.
- Strengthening communication and transmission:
  - The CBE aims to strengthen its communication strategy and the monetary transmission mechanism.
  - Efforts to refine measurement of inflation expectations will strengthen the analytical basis for rate decisions.
  - Recent adoption of a fixed rate full allotment of its 7-day deposit operations will improve the transmission of monetary policy.
- Exchange rate flexibility and capital flows:
  - Exchange rate flexibility is a key response to capital inflows and outflows.
  - In capital inflows: exchange rate should be allowed to appreciate once reserve buffers are rebuilt and official reserves reach adequate levels, provided the exchange rate is not overvalued and inflation remains higher than the target level.
  - Capital flow management (CFM) measures should not substitute for warranted adjustments in macroeconomic policies and reforms (including exchange rate appreciation, reserve accumulation, fiscal tightening, and debt management strategy).
  - In capital outflows: exchange rate depreciation would be a key part of adjustment to avoid exacerbating external imbalances and to allow economic agents to face exchange rate risk.
  - The program includes a volatility-based intervention framework that the CBE has not needed to use so far; authorities agreed the existing intervention framework under the program remains adequate.

### B. Fiscal policy and debt management
- Policy priorities:
  - Implement strong and decisive tax policy changes, particularly related to the Value-Added Tax (VAT).
  - Continued reduction of untargeted fuel subsidies to create space for high-quality social support measures.
  - Improve monitoring and execution of public investment, including off-budget investment by state-owned enterprises.
  - Active debt management to reduce gross financing needs and debt.
- Revenue and VAT reform targets:
  - Authorities committed to achieve a revenue-based fiscal consolidation with tax revenue increasing by 3 percent of GDP over the program period.
  - VAT reform expected to generate 1.0 percent of GDP in additional revenues in a 12-month period, of which 0.2 percent of GDP will be achieved in FY2024/25.
  - Authorities identified 19 VAT exemptions for possible removal out of 58 in the current VAT law and plan to submit a package of VAT reforms to parliament by end-November (existing structural benchmark).
  - Given a significant VAT policy gap in Egypt (about 2.7 percent of GDP), removal of additional VAT exemptions and other tax expenditures identified in the tax expenditure report (published in April) could yield up to 4.4 percent of GDP in additional tax revenue (see MEFP) and might be needed to achieve the targeted structural increase in medium-term tax revenue.
- Other domestic resource mobilization options under study:
  - Adopting a carbon tax to support emissions reduction and in light of the implementation of the European Union’s (EU) Carbon Border Adjustment Mechanism.
  - Adopting a withholding tax on sales from freezones in Egypt to the domestic market.
  - Participating in the Organization of Economic Cooperation and Development’s (OECD) Automatic Exchange of Information (AEOI); authorities completed the Peer Review on Information Exchange on Request of the OECD. Egypt is rated as partially compliant to the standard of transparency and exchange of information. Authorities plan to address peer review recommendations and provide a self-assessment report by 2026 to participate in AEOI.
  - New proposals for additional tax incentives will be contained notwithstanding the creation of a freezone within the Ras El-Hekma region; authorities will replace fragmented CIT incentives by a framework solely within the new Income Tax Law, being drafted with IMF assistance.
  - Authorities will assess the economic benefits of the current freezones (existing structural benchmark).
- Social protection and subsidy reform:
  - Reducing untargeted fuel subsidies would provide more room for social protection spending and human capital development.
  - Authorities committed to restoring fuel prices to their cost recovery level by December 2025.
  - Authorities raised the subsidized bread price from EGP 0.05 per loaf to EGP 0.2 per loaf on June 1, 2024.
  - Takaful and Karama cash transfer program coverage expanded to more than 5 million households and average monthly payments increased by 45 percent since FY2022/23.
  - The social registry has detailed information on 11 million households; publication of the new household income survey is a proposed new structural benchmark for end-July 2024.
  - A steering committee led by the Prime Minister is overseeing consolidation of various social support programs; a new Social Solidarity and Cash Transfer law to unify cash transfer programs under Takaful and Karama was approved by the Egyptian Senate in March 2024 and will be submitted to the House of Representatives.
- Public sector monitoring and fiscal risk control:
  - Cabinet-level committee chaired by the CAO established to gather data, analyze, and report on all public investment in accordance with Prime Ministerial decree No. 739 of 2024.
  - Decree requires all public agencies to report each September and March implementation amounts and percentages relative to pre-agreed targets for January–June and July–December periods, respectively; reports to be submitted to the Public Economic Governance Committee of the Cabinet.
  - Program target ceiling on the value of total public investment from January–June 2024 is EGP 350 billion and the target for FY2024/25 is EGP 1,000 billion (indicative target).
  - Government submitted to parliament a consolidated general government reporting budget that includes all 59 Economic Authorities (EAs), including EGPC, along with separate budget proposals for the budget sector and each of the 59 EAs; EAs will now be subject to binding ceilings on their debt, adjustment of which will require parliamentary approval.
  - Authorities progressing on sector classification of the EAs in accordance with GFSM 2014 (existing structural benchmark) and have requested IMF technical assistance for the classification exercise.
- EGPC fiscal risks and remediation:
  - Guarantees issued on behalf of EGPC account for about half of government guarantees.
  - Shocks undermining EGPC’s financial position include foreign exchange shortages, downturns in domestic production of gas and oil, increased subsidies from EGPC to the electricity sector, slow adjustment in retail fuel prices, and depreciation of the exchange rate given EGPC’s mainly EGP-earning assets but significant U.S. dollar-denominated liabilities.
  - EGPC’s operating cashflow is negative and it has accumulated FX payment arrears to international oil companies.
  - Domestic banks are requiring government guarantees on all loans to EGPC.
  - The value of guarantees issued on behalf of EGPC has increased by about 5 percent of GDP since October 1, 2023, due to depreciation in the official exchange rate and new guarantees issued by the MoF to provide the banking sector with full coverage of any lending risks to EGPC.
  - Authorities raised electricity prices by 7–20 percent in January 2024 and retail fuel prices in March by 8–20 percent.
  - Authorities committed to raise retail fuel prices, excluding fuel oil sold to the bakeries, and electricity prices until cost recovery levels are reached.
  - EGPC expects additional foreign currency inflows from export earnings of a large refinery it owns, once the refinery becomes fully operational.
  - EGPC anticipates an increase of EGP 10-11 billion of monthly revenues from recent and upcoming energy price hikes.
  - Payments earlier this calendar year lowered EGPC arrears balance to about US$5 billion; an anticipated payment before the end of FY2023/24 would lower the arrears to around US$3.5–3.8 billion.
- Debt management strategy and reforms:
  - Public debt is assessed as sustainable but not with high probability; overall risks of sovereign stress are assessed as high (Annex II).
  - Current baseline includes impact of earlier agreement with pension funds and insurance funds to extend maturity of a portion of existing debt and agreement with major state banks to issue new three-year T-bonds when existing T-bonds held by those banks mature.
  - Authorities committed to continue to gradually extend issuance maturity of domestic debt through auction (existing indicative target), from 0.52 years at end March to 0.57 years at end-June 2024 (both on a cumulative basis, from the beginning of the fiscal year) and to 0.90 years at end-December 2024.
  - Broader public debt management reforms include:
    - Targeting in the medium-term the institutional setup of debt management (reorganization of the Debt Management Unit (DMU) along front, middle, and back-office functions).
    - Regulatory setup reforms (e.g., harmonizing taxation between resident and non-resident investors).
    - Domestic debt market development (broadening the investor base; introducing new instruments like retail bonds and a revamped primary dealership system).
    - Improved debt reporting and investor relations.
  - DMU priorities and near-term deliverables:
    - Update and publish by December 2024 a medium-term debt management strategy.
    - Articulate a multi-year borrowing plan updated annually and anchored by a portfolio cost and risk management framework.
    - Strategy to include debt portfolio risk tolerance thresholds and operational targets, covering foreign and domestic debt and available and potential instruments and sources of financing.
    - Revised Primary Dealership setup to be finalized and operationalized by end-September 2024.
    - Improve short-term reporting on government financing from the domestic market by including information on key domestic financing instruments in the current debt reporting framework (including auction results, private placements, and overdraft borrowing).
    - Seek IMF technical assistance where appropriate to help with design, sequencing, and implementation of these reforms.

*INTERNATIONAL MONETARY FUND — ARAB REPUBLIC OF EGYPT*

### 29.      The recapitalization needs of the CBE should be addressed in an integrated and effective

### 29.      The recapitalization needs of the CBE should be addressed in an integrated and effective manner.

### C. Financial Sector Policies — stability, liquidity, and recapitalization
- The authorities prepared an initial plan to address the recapitalization needs, but a more granular and comprehensive quantitative assessment of recapitalization needs over the next five years is required that takes into account both the legacy negative equity and forward-looking income statement dynamics.
- The recapitalization plan should consider both the government’s debt management strategy and the need to safeguard CBE balance sheet and its price stability mandate.
- The structural benchmark on CBE recapitalization is proposed to be reset from the original date of April 2024 to August 2024 (reset structural benchmark).
- Banking system position and monitoring:
  - The banking system remains on average adequately capitalized and liquidity is ample.
  - Banks have remained in compliance with their net open position limits; the CBE closely monitors maturity and composition of banks’ foreign currency assets and liabilities, including exposure to public sector agencies.
  - Foreign currency loans, particularly to public sector entities, are not fully matched by foreign currency deposits (particularly on the balance sheets of the biggest banks).
- Stress testing and transparency:
  - The CBE’s regulatory stress tests reportedly point to adequate capital and liquidity buffers under large, combined exchange rate and interest rate shocks.
  - The CBE will complete stress tests of the banking sector and share detailed results with IMF staff by end-September 2024 using end-March 2024 data; these tests will be prepared in consultation with IMF staff (structural benchmark).
  - The CBE plans to strengthen transparency and communication of financial sector issues, including ensuring public reporting (e.g., the annual financial stability report) is done on a predictable schedule and without excessive lags.
- Governance of state-owned banks:
  - Strengthening governance practices and competition in the banking sector is a key priority given the large presence of state-owned banks.
  - The CBE will commission an independent assessment of policies, procedures, and controls of state-owned banks (with CBE and IMF input and agreement on terms of reference) by an internationally recognized firm, with the tendering and selection process completed by end-October 2024 (proposed new structural benchmark).

### D. Structural Reform Policies — state-ownership policy, SOE transparency, and divestment
- State-Ownership Policy (SOP) implementation:
  - The authorities sent draft legislation to parliament to give key elements of the SOP the force and durability of law, including creation of a unit in the Prime Minister’s office with powers to establish guidelines for governance of state-owned enterprises and to facilitate divestment.
  - They aim to secure passage of the legislation before the end of calendar year 2024, and in the interim will lay groundwork to establish the central unit.
  - An indicator to monitor implementation of the SOP (structural benchmark) is being developed and will, starting from the next review, provide visibility to the agenda.
- SOE transparency and reporting:
  - The authorities are expanding and refining an internal database on SOEs, which covers about 80 percent of the known SOEs and will eventually include all SOEs covered by the SOP.
  - The database will be a key source for preparation of an aggregate annual report by end-September 2024 (structural benchmark).
  - The authorities plan to publish an annual report containing an evaluation of each divestment undertaken in FY2023/24 as envisaged in the SOP.
  - The 2023 Financial Stability Report is currently under compilation and will be published towards the end of calendar year 2024.
- Divestment outcomes and targets:
  - In FY2023/24, the authorities finalized divestment deals worth US$2.2 billion, of which US$2 billion had been captured in the CBE’s FX reserves by end-April 2024.
  - For FY2024/25, the authorities are progressing negotiations to secure the program assumption of US$3.6 billion in dollar inflows from divestment, plus another 0.5 percent of GDP in additional divestment flows either denominated in EGP or USD.
  - The divestment strategy will continue to provide external financing with a more backloaded profile.
  - Projected asset sales are US$2.8 billion and US$3.6 billion for FY2023/24 and FY2024/25, respectively.
  - Divestment in FY2023/24 is highly likely to fall short of projections, but the authorities are committed to make up the difference during the program period to achieve the full divestment envelope of about US$8.7 billion established at the time of program approval.
  - The authorities have publicly indicated that over 200 SOEs are available for divestment.
- Business climate and competition:
  - Executive Regulations implementing the amendment to the Competition Law (passed December 2022) were published earlier this year, empowering the Egyptian Competition Authority (ECA) to control mergers that would limit, restrict, or harm competition.
  - The ECA has redrafted amendments to the competition law to align the independence of the ECA with other regulators; the redraft is undergoing a peer review and the authorities have committed to submit the amendments to parliament by end-October 2024 (proposed structural benchmark).
  - Proposed customs-related structural benchmarks to improve the business environment:
    - Introducing a “Green Lane” where a percentage of the cargo associated with low risk and compliant companies will be released immediately without any controls (proposed new structural benchmark).
    - Integrating risk-based control between Customs Authority, Export and Import Control Authority, National Food Safety Authority, Agricultural and Veterinary Quarantines to reduce the number of containers inspected and thus reduce clearance procedures and time in ports (proposed new structural benchmark).

### Extended Fund Facility program financing, conditionality, and risks
- Financing needs and commitments:
  - The total financing needed to reach the revised net international reserve targets is US$7.7 billion and US$6.8 billion for FY2023/24 and FY2024/25, respectively, excluding IMF purchases.
  - The authorities have secured firm financing commitments for the next 12 months from international partners to close the gap.
  - Assurances remain that US$19 billion of official deposits from Arab countries at the CBE will not be withdrawn until after the expiration of the EFF arrangement in September 2026 unless they are used for the purchase of equities, with the FX proceeds of such sales expected to remain in CBE’s foreign reserve assets.
- Program modifications and conditionality changes:
  - Authorities requested modification of program conditionality to reflect recent developments and maintain reform momentum.
  - QPCs for end-June 2024 on NIR and the primary balance and QPCs for end-December 2024 on NIR and CBE lending to government agencies are proposed to be revised.
  - The continuous QPC on the balance of CBE lending to public agencies excluding the MOF would be updated to reflect the latest plan and commitment by the authorities to reduce it over time.
  - The MPCC upper outer band for end-December 2024 would be lowered relative to the previous review to maintain ambition in ensuring policy settings consistent with a continued decline in inflation.
  - The fourth review is expected to be completed on or after September 15, 2024, and the fifth review is expected to be completed on or after March 15, 2025, based on end-June 2024 and end-December 2024 performance criteria, respectively.
- Structural benchmark adjustments and additions:
  - Authorities requested several changes to structural benchmarks, including adding six new benchmarks, the majority focused on structural reforms.
  - A firm commitment to reach cost recovery levels for retail fuel prices by December 2025 would temporarily replace application of the retail fuel indexation mechanism in the related structural benchmark.
  - The structural benchmark on CBE recapitalization would be rephased from end-April 2024 to end-August 2024 and modified to be more specific.
  - The structural benchmark on publishing CAO audits of fiscal accounts would be rephased from end-March 2024 to end-November 2024 and modified to be more specific.
  - Staff proposes six new structural benchmarks including an independent risk management assessment of state-owned banks, publication of household income survey, publication of the CAO audit of the FY2022/23 fiscal accounts, and two benchmarks on customs; staff also proposes to add a data requirement on reporting of guarantees.
- Capacity to repay and risks:
  - Fund credit outstanding as a share of gross international reserves is projected to reach 34 percent in FY2023/24 and decline by the end of the Fund-supported program.
  - Fund obligations as a share of gross reserves and of exports are expected to peak at 13 percent and at 10 percent, respectively, in FY 2024/25.
  - Egypt’s stock of gross and net international reserves exceeds its obligations to the Fund.
  - The composition of reserves has improved with the conversion of US$11 billion in UAE dollar deposits at the central bank into EGP-equivalent deposits.
  - Risks to capacity to repay include a significant structural decline in Suez Canal receipts, policy slippages that could lead to higher trade deficits and disruptive capital outflows, and materialization of significant contingent liabilities from state-owned enterprises.
  - Enterprise risks stem from the size of credit exposure and risks to program implementation; failure to advance the structural reform agenda could generate reputational risks to the EFF arrangement.

### Safeguards, governance, and operational reforms
- Safeguards assessment:
  - Further progress is needed on implementation of the 2023 safeguards assessment recommendations.
  - The commitment to conduct a more comprehensive assessment of the CBE’s recapitalization needs should be coupled with full implementation of Egyptian Accounting Standards (EAS).
  - Other outstanding safeguards recommendations, including establishing an agreement that regularizes the use of the 2021 SDR allocation for fiscal purposes, should be implemented.
- Public debt management and domestic market development:
  - Authorities committed to strengthening the public debt management function and overhauling government borrowing.
  - Near-term priorities include operationalizing the revised Primary Dealership setup by end-September 2024 and updating and publishing by December 2024 a medium-term debt management strategy.
  - Prioritizing domestic financing via market mechanisms (auctions), phasing out short-term recourse to private placements, and limiting recourse to the overdraft facility at the CBE to within the statutory limit are highlighted as measures to improve the quality and transparency of the financing mix.

### Staff appraisal — recent developments and policy stance
- Positive outcomes to date:
  - Unification of the exchange rate together with monetary policy tightening have curtailed speculation, brought in foreign inflows, and moderated price growth, with inflation falling in March, April, and May and reaching its lowest since January 2023.
  - Borrowing terms have improved in recent T-bill auctions.
  - Proceeds from the Ras El-Hekma deal have facilitated a significant reduction in the overdraft facility at the CBE to legal limits and a significant boost to gross reserves.
- Current policy stance:
  - Following hikes in key policy rates by a cumulative 800 basis points in 2024: Q1, the current monetary stance remains appropriate to place inflation on a declining trend.
  - A tight monetary policy will remain necessary to ensure a sustained decline in underlying inflation.
  - The purchase of proceeds from the Ras El-Hekma transaction for reserve accumulation have been fully sterilized.
  - Fiscal tightening continues, albeit currently tilted toward non-interest expenditure adjustment.
  - The process established under Prime Ministerial Decree 739 of 2024 for establishing more comprehensive management of the overall public investment portfolio is moving ahead, with the first submission by all public entities outlining projected investment for FY2024/25 as planned in April.

*Source: 1egyea2024002-print-pdf - 29.      The recapitalization needs of the CBE should be addressed in an integrated and effective*

### 46.      New forward-looking commitments in the financial sector intend to boost financial

### New forward-looking commitments in the financial sector intend to boost financial stability

### Financial sector resilience and forward-looking assessments
- The financial sector has shown resilience to macroeconomic shocks, including to the needed sharp adjustments in the exchange rate and policy rates.
- A near-term stress test of the banking sector will enable banks to properly anticipate and mitigate future risks.
- A comprehensive forward-looking assessment of CBE recapitalization needs is needed to inform a recapitalization plan that considers both:
  - central bank balance sheet soundness—thus ensuring the ability to deliver on a sustained decline in inflation; and
  - the government’s debt management strategy.
- The commitment to "commission an independent assessment of state banks’ policies, procedures, and controls by an internationally recognized firm" will help enhance governance practices and economic outcomes in the state-dominated banking sector.

### Legal framework for state-ownership policy
- Authorities have sent draft legislation to parliament to embed key elements of the state-ownership policy into law.
- The draft legislation would, in part, legislate the creation of a unit in the Prime Minister’s office with the powers to:
  - establish guidelines for the governance of state-owned enterprises; and
  - facilitate divestment.
- Work is progressing on developing an indicator to track implementation of the state-ownership policy, to be delivered at the next review, which should allow for transparent monitoring of progress.

### Fiscal consolidation, VAT reform, and SOE fiscal risks
- Moving forward with an ambitious VAT reform in November is deemed crucial to avoiding the risk of a largely expenditure-based consolidation and compromising the domestic revenue mobilization goals of the program.
- More ambitious tax reforms may also be necessary to meet program objectives.
- Near-term tangible deliverables on commitments to leveling the playing field and reducing the role of the state will be needed to enhance the credibility of the structural reform agenda.
- Priority should be given to channeling more public resources to reducing fiscal financing needs. Potential resource sources identified include:
  - increasing the share of divestment proceeds going to the Treasury; and
  - redirecting own resources of public sector entities to meet priority needs.
- A strong plan of action will be needed to mitigate significant fiscal risks associated with SOEs in the energy sector, especially EGPC.
- Authorities are confident that reform plans, especially the planned restoring retail fuel prices to their cost recovery levels by December 2025, will strengthen the financial position of EGPC, but the text stresses that further efforts will be needed to:
  - limit operational losses;
  - improve the commercial orientation of SOEs in the energy sector; and
  - strictly limit excessive recourse to government guarantees.

*ARAB REPUBLIC OF EGYPT — INTERNATIONAL MONETARY FUND*

### 49.      Staff supports the authorities’ requests for waivers of nonobservance and applicability of

### Staff supports the authorities’ requests for waivers and completion of the third review under the EFF arrangement

### Staff recommendation and program status
- Staff supports the authorities’ requests for waivers of nonobservance and applicability of QPC and recommends completion of the required monetary policy consultation and the completion of the third review under the EFF arrangement.
- The nonobservance of the weekly criterion on overdraft borrowing between April 18 and May 23 was temporary and corrective action has been taken.
- Staff supports waivers of applicability of the end-June QPCs on net international reserve and primary fiscal balance because the data to assess performance on these QPCs would not be available by the time of the Board meeting in early July, and there is no evidence these QPCs would not be met; program performance appears to be broadly on track.
- The attached Letter of Intent (LOI) and MEFP present a strong set of policies and the authorities’ commitment to pursue the objectives of the strengthened Fund-supported program.

### Key macroeconomic projections and indicators (selected)
- Real GDP (annual change, in percent): 3.6; 3.3; 6.7; 4.0; 3.8; 3.0; 2.7; 4.1; 5.1; 5.1; 5.6; 5.6
- CPI inflation (end-of-period, in percent): 5.6; 4.9; 13.2; 14.8; 35.7; 32.1; 29.3; 14.9; 12.3; 8.4; 7.1; 6.4
- CPI inflation (average, in percent): 5.7; 4.5; 8.5; 15.8; 24.4; 32.5; 33.7; 21.2; 13.5; 10.2; 7.7; 6.6
- Current account (percent of GDP): -2.9; -4.4; -3.5; -3.0; -1.2; -6.3; -6.5; -4.9; -4.0; -3.6; -3.8; -3.9
- Gross international reserves (in billions of US$): 37.2; 39.4; 31.5; 37.1; 32.8; 42.8; 43.8; 47.2; 50.6; 54.5; 59.6; 66.5
- Reserves in months of next year's imports: 6.0; 6.8; 3.1; 3.7; 5.3; 7.3; 7.7; 7.2; 6.8; 6.4; 6.1; 6.0

### Fiscal outlook and debt dynamics (selected)
- Gross debt, general government (percent of GDP): 86.2; 89.9; 88.5; 88.3; 95.9; 96.4; 90.5; 82.8; 77.5; 71.8; 66.5; 61.3
  - External component (percent of GDP): 18.0; 19.0; 19.5; 22.1; 25.1; 31.0; 26.1; 21.3; 18.4; 16.0; 14.9; 13.7
  - Domestic component (percent of GDP): 68.3; 70.9; 69.0; 66.2; 70.8; 65.4; 64.4; 61.6; 59.1; 55.7; 51.7; 47.7
- Budget sector: Revenue and grants (percent of GDP): 15.9; 16.6; 16.9; 16.9; 15.4; 15.3; 14.6; 15.4; 16.9; 18.4; 18.7; 18.5
- Expenditure (incl. net acquisition of financial assets, percent of GDP): 23.4; 23.7; 23.1; 24.8; 21.4; 21.7; 21.7; 24.6; 23.8; 22.7; 21.6; 20.2
- Overall balance (percent of GDP): -7.5; -7.1; -6.2; -7.8; -6.0; -6.3; -7.1; -9.2; -6.8; -4.3; -2.9; -1.7
- Primary balance including divestment proceeds (percent of GDP): 1.7; 1.4; 1.3; 1.7; 1.6; 7.1; 6.2; 4.5; 5.2; 5.5; 5.5; 5.5

### External financing and public debt service (selected)
- External financing needs and sources (summary, US$ billions):
  - External financing needs (A) sample entries: 21.5; 11.3; 6.6; 39.8; 26.7; 32.9; 18.7; 25.9; 17.0; 25.9
  - External financing sources (B) sample entries: 21.4; 12.6; 39.4; 44.2; 20.4; 26.2; 29.7; 24.1; 29.9; 26.0
- Decomposition of budget sector debt (FY23/24, US$ billion): Total budget sector debt 323.1; External budget sector debt 82.6; Domestic budget sector debt 240.5
  - External multilateral creditors (US$ billion): Multilateral creditors 42.8; IMF component 17.4 (within multilateral)
  - External market financing (US$ billion): 32.5
  - Domestic debt instruments (US$ billion): T-Bills and MOF notes 103.2; T-bonds and Eurobonds held by residents 98.2; Nontradable domestic debt 39.1

### Monetary, banking, and financial soundness indicators (selected)
- Policy rate (end of period, in percent) entries include: 9.25; 8.25; 11.25; ...; 18.25 (not all projection years shown)
- Broad money (M2, annual percent change): 17.5; 18.0; 23.5; 30.4; 24.7; 38.6; 32.1; 21.5; 15.5; 13.5; 15.2; 17.0
- Reserve money (annual percent change): 25.1; 15.4; 20.8; 23.1; 28.2; 12.6; 18.4; 24.1; 17.7; 17.6; 23.1; 17.4
- Credit to the private sector (percent change): 19.5; 20.5; 24.3; 18.0; 25.4; 30.0; 33.9; 28.0; 18.0; 18.0; 23.1; 24.1
- Banking system indicators (selected):
  - Regulatory capital to risk-weighted assets: 14.5; 14.0; 14.7; 15.7; 17.7; 20.1; 22.2; 20.9; 17.0; 17.5; 18.1; 18.6
  - NPLs to total loans (percent): 7.1; 6.0; 4.9; 4.1; 4.2; 4.0; 3.4; 3.2; 3.5; 3.3; 3.3; 3.0
  - Return on assets: 1.5; 2.0; 1.5; 1.4; 1.8; 1.2; 1.2; 1.2; 1.2; 1.2; 1.2; 1.2

### Program conditionality: QPCs, indicative targets, and structural benchmarks (selected)
- Quantitative Performance Criteria and Indicative Targets: staff notes temporary breach of the weekly overdraft ceiling in April–May 2024; balance was brought below the ceiling by end May.
- Schedule of Reviews and Purchases under the Augmented EFF (memorandum):
  - Board approval: December 16, 2022 — 261.13 Millions of SDR — 12.8 Percent of Quota
  - First review and end-June 2023 targets: March 15, 2023 — 261.13 Millions of SDR — 12.8 Percent of Quota
  - Second review and end-June 2023 targets: March 15, 2024 — 356.98 Millions of SDR — 17.5 Percent of Quota
  - Third review and end-March 2024 targets: June 15, 2024 — 618.11 Millions of SDR — 30.3 Percent of Quota
  - Total scheduled amount: 6,111.69 Millions of SDR — 300.0 Percent of Quota
- Structural Benchmarks (status highlights):
  - Publication monthly of public procurement contracts exceeding EGP 20 million: Recurring SB — 30 days after month end — Met
  - Implementation of the retail fuel price adjustment mechanism per TMU: Last day of the month after quarter end — Not met; Modified in line with firm commitment to reach cost recovery levels by December 2025.
  - Ministry of Finance monitoring/reporting of payment arrears 90 days after fiscal year end: Recurring SB — 90 days after each fiscal year end — Not applicable for 3rd review
  - Binding requirement for timely publication of CAO annual audit reports: End-March 2024 — Not met; Rephased to end-November and modified
  - Enact executive regulation of the PFM law (budget calendar, MTBF update, separation of baseline/new policy initiatives, climate section): End-March 2024 — Met
  - Publish comprehensive annual tax expenditure report (breakdown by classification, coverage of free economic zones, SOEs, military-owned companies): End-April 2024 — Met
  - Sustain the flexible exchange rate regime (to be assessed once per program review): Assessed — Met
  - Implement a plan for the recapitalization of the CBE (in consultation with IMF staff): End-April 2024 — Not met; Rephased to end-August 2024 and modified
  - CBE to introduce fixed rate, full allotment 7-day deposit operations and publish results within one hour: End-April 2024 — Met
  - CBE plan to reduce existing claims on public sector agencies to zero by end-FY2025/26: End-April 2024 — Not met; Not reset given commitment embedded in related QPC
  - Repayment strategy for EGPC USD-denominated supply contract arrears: End-April 2024 — Not met; Not reset to allow time to strengthen EGPC’s financial situation under current strategy
  - Other SBs to be assessed or marked not applicable/modified for the 3rd review (e.g., CBE stress tests, sector classification of economic authorities, publication of SOE procurement and SOE portfolio reports, assessment of freezones, VAT amendments).

*Sources: Egyptian authorities; and IMF staff estimates and projections.*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Global Risks
- Intensification of regional conflicts
  - Relative Likelihood: High
  - Impact if Realized: High
  - Description: Escalation or spread of the conflict in Gaza and Israel, Russia’s war in Ukraine, and/or other regional conflicts or terrorism disrupt trade (e.g., energy, food, tourism, supply chains), remittances, FDI and financial flows, payment systems, and increase refugee flows.
  - Recommended Policy Response:
    - Improve inclusiveness of government policies, via well-targeted measures and strengthened social safety net.
    - Allow the exchange rate to act as a shock absorber.
    - Implement structural reforms to diversify economy and increase exports to add sources of FX revenue.
- Commodity price volatility
  - Relative Likelihood: High
  - Impact if Realized: High
  - Description: A succession of supply disruptions (e.g., due to conflicts, export restrictions, and OPEC+ decisions) and demand fluctuations causes recurrent commodity price volatility, external and fiscal pressures in EMDEs, cross-border spillovers, and social and economic instability.
  - Recommended Policy Response: (same as above)
- Abrupt global slowdown or recession
  - Relative Likelihood: Medium
  - Impact if Realized: Medium
  - Description: Global and idiosyncratic risk factors cause a synchronized sharp growth downturn, with recessions in some countries, adverse spillovers through trade and financial channels, and market fragmentation triggering sudden stops in EMDEs.
  - Recommended Policy Response:
    - Implement the MTDS and MTRS to reduce debt vulnerabilities and build fiscal buffers.
    - Reprioritize spending to reduce financing pressure.
    - Allow exchange rate flexibility to be the first line of defense against capital outflows.
- Social discontent
  - Relative Likelihood: Medium
  - Impact if Realized: High
  - Description: High inflation, real income loss, spillovers from conflicts (including migration), worsening inequality, and disputed elections cause social unrest and detrimental populist policies. This exacerbates imbalances, slows growth, and leads to policy uncertainty and market repricing.
  - Recommended Policy Response:
    - Improve inclusiveness of government policies, via well-targeted measures and strengthened social safety net.
    - Allow the exchange rate to act as a shock absorber.
    - Implement structural reforms to diversify economy and increase exports to add sources of FX revenue.

### Domestic Risks
- Failure to allow for exchange rate flexibility
  - Relative Likelihood: Medium
  - Impact if Realized: High
  - Description: A build-up of external imbalances eventually leads to a sudden and large exchange rate adjustment, with implications on sovereign borrowing and debt service costs and inflation.
  - Recommended Policy Response:
    - Implement package of consistent reforms including allowing the exchange rate to find its market-clearing equilibrium so it can act as a shock absorber, with two-way movements that reflect foreign exchange demand and supply conditions.
- Tourism revenue, remittances, and/or Suez Canal revenue suffer amidst the continued war in Ukraine and the conflict in Gaza and Israel
  - Relative Likelihood: Medium
  - Impact if Realized: Medium/High
  - Description: Lower remittance, tourism, and Suez Canal inflows impact economic activity and dampen the growth outlook, while reduced foreign exchange revenue puts pressure on the exchange rate.
  - Recommended Policy Response:
    - Allow the exchange rate to act as a shock absorber.
    - Implement structural reforms to diversify economy and increase exports to add sources of foreign exchange revenue.
- Slower-than-expected structural reform implementation
  - Relative Likelihood: Medium
  - Impact if Realized: Medium/High
  - Description: Lack of reform leads to re-accumulation of imbalances, lowering growth potential and leaving country more vulnerable to shocks.
  - Recommended Policy Response:
    - Re-invigorate the structural reform agenda focusing on priority areas such as SOE reform, competition and the investment climate, trade facilitation, and health and education reform to address key constraints to growth.
- Materialization of fiscal contingent liabilities
  - Relative Likelihood: Medium
  - Impact if Realized: Medium/High
  - Description: Economic Authorities (EAs), SOEs, and central bank require government’s recapitalization or repayment of government-guaranteed debt, putting pressure on public expenditure while increasing public debt.
  - Recommended Policy Response:
    - Improve transparency, governance, and financial reporting of EAs and SOEs.
    - Implement state ownership policy.
    - Clearly define and separate commercial and non-commercial activities of Economic Authorities and SOEs.
    - Prohibit central bank lending to public sector agencies excluding the Ministry of Finance.

### DSA Summary Assessment and Sovereign Risk
- Final assessment: Overall risk of sovereign stress — High
- Sustainability assessment: Public debt is assessed as sustainable but not with high probability.
- Key reasons:
  - High risks related to gross financing needs (GFN).
  - Mitigating factors: country’s track record of sustaining high gross financing needs, supported by stable financing by domestic banks, and mitigating impact from the Ras El-Hekma deal.
  - Contingent liability related to publicly-guaranteed debt: EGP4,311 billion as of March 2024.
- Horizon assessments:
  - Near term: n.a. (near-term assessment not applicable where there is a disbursing IMF arrangement)
  - Medium term: High (risk signals from the debt fanchart and the GFN module)
  - Long term: Moderate (debt ratio and GFN projected to trend downwards with sustained primary surpluses and favorable interest-growth differentials; risks from pension and health cost)

### Debt Coverage and Disclosures
- Coverage used in the DSA: General government (budget sector, National Investment Bank, and Social Insurance Funds). Official creditor deposits at the central bank are included in the public debt stock for the purposes of this analysis.
- Subsector inclusion (captured in the baseline):
  - Budgetary central government: Yes
  - Extra budgetary funds (EBFs): Yes
  - Social security funds (SSFs): Yes
  - State governments: Yes
  - Local governments: Yes
  - Public nonfinancial corporations: No
  - Central bank: Yes
  - Other public financial corporations: No
- Commentary: The coverage in this analysis is for the general government. Reporting on intra-government debt holdings and valuation notes: Includes GCC deposits at CBE; market value only for traded debt securities.

### Public Debt Structure Indicators (select observations)
- Public debt is mainly domestic, held by domestic banks, and in local currency, and it is subject to local law.
- Debt is primarily in marketable instruments, including a large share of T-bills, resulting in a relatively short maturity of public debt.
- Residual maturity: 4. years (as presented)
- Debt by currency (projection series shows foreign currency and local currency shares by year as tabulated in figures).

### Baseline Scenario (selected numeric projections and contributions; percent of GDP unless indicated)
- Public debt:
  - Actual 2023: 105.3
  - 2024: 102.2
  - 2025: 89.5
  - 2026: 83.3
  - 2027: 76.8
  - 2028: 71.0
  - 2029: 65.3
  - 2030: 59.3
  - 2031: 53.4
  - 2032: 47.6
  - 2033: 41.8
  - 2034: 36.1
- Change in public debt (year-on-year):
  - 2024: -3.2
  - 2025: -12.7
  - 2026: -6.2
  - 2027: -6.5
  - 2028: -5.9
  - 2029: -5.7
  - 2030: -5.9
  - 2031: -5.9
  - 2032: -5.8
  - 2033: -5.8
  - 2034: -5.7
- Contribution of identified flows (percent of GDP):
  - 2024: -11.1
  - 2025: -5.0
  - 2026: -3.9
  - 2027: -4.6
  - 2028: -4.6
  - 2029: -4.8
  - 2030: -5.1
  - 2031: -5.2
  - 2032: -5.1
  - 2033: -5.2
  - 2034: -5.2
- Primary deficit (general government) 2/:
  - 2023: -1.1
  - 2024: -1.8
  - 2025: -3.0
  - 2026: -3.9
  - 2027: -4.4
  - 2028–2034: -4.3 (each year)
- Noninterest revenues and expenditures (selected):
  - Noninterest revenues: 2023: 16.7; 2024: 16.6; 2025: 17.4; 2026: 18.9; 2027: 20.4; 2028: 20.8; 2029–2034: 20.5
  - Noninterest expenditures: 2023: 15.6; 2024: 14.8; 2025: 14.4; 2026: 15.0; 2027: 16.0; 2028: 16.4; 2029–2034: 16.2
- Automatic debt dynamics and real rates (selected):
  - Automatic debt dynamics: 2024: -6.0; 2025: -1.6; 2026: 0.2; 2027: 0.3; 2028: 0.2; later years around 0.1 to -0.4
  - Real interest rate and relative inflation (series includes values such as -6.0 for 2023; -3.3 for 2024; 2.4 for 2025; 4.6 for 2026; 4.4 for 2027)
  - Real interest rate (series lists -11.1 for 2023; -12.7 for 2024; -5.0 for 2025; 1.2 for 2026; 2.3 for 2027; continuing values)
  - Relative inflation: 2023: 5.1; 2024: 9.4; 2025: 7.4; 2026: 3.4; 2027: 3.4; subsequent years declining to 0.5 by 2034
- Real GDP growth (percent):
  - Memo: Real GDP growth (percent): 2023: 3.8; 2024: 2.7; 2025: 4.1; 2026: 5.1; 2027–2034: 5.6 (each year)
- Inflation (GDP deflator; percent):
  - 2023: 24.8; 2024: 33.0; 2025: 22.4; 2026: 13.9; 2027: 9.9; 2028: 7.4; 2029–2034: 6.3 (each year)
- Nominal GDP growth (percent):
  - 2023: 29.5; 2024: 36.5; 2025: 27.5; 2026: 19.6; 2027: 15.5; 2028: 13.4; 2029–2034: 12.3 (each year)
- Effective interest rate (percent):
  - 2023: 9.7; 2024: 16.6; 2025: 16.2; 2026: 15.5; 2027: 13.1; 2028: 11.9; 2029: 11.0; 2030: 10.4; 2031: 10.3; 2032: 10.3; 2033: 10.0; 2034: 10.0
- Gross financing needs (GFN):
  - 2023: 28.5
  - 2024: 38.4
  - 2025: 42.7
  - 2026: 41.5
  - 2027: 37.0
  - 2028: 31.1
  - 2029: 28.2
  - 2030: 24.7
  - 2031: 22.2
  - 2032: 20.9
  - 2033: 17.6
  - 2034: 14.6
- Of which: debt service (percent of GDP):
  - 2023: 29.9
  - 2024: 40.4
  - 2025: 45.9
  - 2026: 45.6
  - 2027: 41.5
  - 2028: 35.6
  - 2029: 32.7
  - 2030: 29.2
  - 2031: 26.7
  - 2032: 25.4
  - 2033: 22.1
  - 2034: 19.1
- Local currency vs foreign currency share of debt service (percent of GDP):
  - Local currency: 2023: 24.1; 2024: 32.7; 2025: 34.6; 2026: 37.9; 2027: 34.3; 2028: 30.7; 2029: 27.9; 2030: 25.1; 2031: 22.5; 2032: 21.8; 2033: 19.0; 2034: 16.2
  - Foreign currency: 2023: 5.8; 2024: 7.7; 2025: 11.2; 2026: 7.7; 2027: 7.2; 2028: 4.9; 2029: 4.9; 2030: 4.1; 2031: 4.2; 2032: 3.6; 2033: 3.1; 2034: 2.9
- Commentary: After increasing in FY2022/23 and FY2023/24 mainly due to exchange rate depreciation (for 2024 this is captured by the residual), public debt is projected to be on a downward trend, with sustained primary surpluses and favorable interest-rate growth differential.

### Realism of Baseline Assumptions (summary)
- Realism tools do not signal major concerns.
- Forecast error track record does not signal a pattern of optimistic forecast errors.
- Debt drivers are projected to largely follow past experience.
- Noted observations:
  - 3-year debt reduction is above 75th percentile.
  - Primary balance surplus contributes to debt reduction in the next five years by more than the last five years.
  - Baseline growth projection is higher than suggested by the multiplier tool, reflecting recovery from the COVID crisis.
  - The growth projection over the medium term is above the past average, but the latter is affected by several country-specific and global shocks during that period.

### Medium-Term Risk Assessment (selected indicators)
- Debt fanchart results:
  - Final fanchart (pct of GDP) terminal debt-to-GDP x: 47.0
  - Debt fanchart index (DFI): 1.9
  - Risk signal: Moderate (per chart thresholds)
- Gross financing needs (GFN) module:
  - Average baseline GFN: 36.5
  - Banks' claims on the general government (pct bank assets): 51.9
  - Change in banks' claims in stress (pct bank assets): 6.3
  - GFN financeability index (GFI): 31.4
  - Risk signal: High
- Medium-term index and final assessment:
  - Prob. of missed crisis, 2024-2029, if stress not predicted: 72.7 pct.
  - Prob. of false alarms, 2024-2029, if stress predicted: 3.4 pct.
- Commentary: Medium-term risks are assessed as high, given the risk signals from the debt fanchart and GFN modules. The high risk signal from the GFN module reflects high average gross financing needs and the large claims of the domestic banking sector on the government. Contingent liability related to publicly-guaranteed debt (EGP4,311 billion as of March 2024) poses significant medium-term risks.

### Long-Term Risk Analysis (summary)
- Long-term risks assessed as Moderate.
- Rationale:
  - Debt ratio and gross financing needs are projected to trend downwards with sustained primary surpluses and favorable interest-growth differentials.
  - Risks to public debt related to pension and health cost are noted.
- Pension financing needs (selected scenarios):
  - Permanent adjustment needed in the pension system:
    - 2.0%: keep pension assets positive for 50 years
    - 3.1%: keep pension assets positive until 2100
    - 4.8%: keep pension assets positive for 30 years
- Health (demographics) and health (demographics + ECG) scenarios presented, showing increased long-term costs and implications for GFN-to-GDP and total public debt-to-GDP ratios.
- Commentary: Long-term risks are assessed as moderate, as the debt ratio and gross financing needs are projected to trend downwards with sustained primary surpluses and favorable interest-growth differentials, while there are risks to public debt related to pension and health cost.

*Source: IMF staff (Annex I. Risk Assessment Matrix; Annexes II–IV figures and tables included in the provided content).*

### Annex III. Monetary Policy Consultation

### Annex III. Monetary Policy Consultation

### Inflation Deviation from the Consultation Band
- Urban headline inflation recorded 33.3 percent in March 2024, outside the 3–27 percent band agreed under the Extended Fund Facility (EFF).
- February 2024 spike:
  - Annual urban headline inflation rose to 35.7 percent in February 2024 from 29.8 percent in January.
  - Annual core inflation recorded 29.0 percent in January and 35.1 percent in February 2024.
  - Drivers: greater-than-anticipated demand pressures related to seasonal effects on food (including Ramadan), an increase in education prices (delayed from October 2023 to February 2024), and an unexpectedly large depreciation in the parallel market in January that passed through to domestic prices in February.
- March 2024 developments:
  - Annual urban headline and core inflation eased to 33.3 percent and 33.7 percent in March 2024, respectively.
  - Monthly dynamics returned to historical trend instead of increasing after the official exchange rate depreciation on March 6, 2024.
  - Exchange rate unification on March 6, 2024 availed foreign exchange liquidity, cleared import backlogs, and alleviated market uncertainty; the exchange rate accounted for 10 percent of monthly headline inflation in March 2024, compared to 25 percent in February 2024.
  - Conclusion: March 6 exchange rate unification served as a corrective measure with little-to -no inflationary impact on prices.
- Supply and food dynamics:
  - Annual food inflation recorded 45.0 percent in March 2024, its lowest rate since December 2022 (food inflation peaked at 73.6 percent annually in September 2023).
  - Supply shocks’ contribution to March 2024’s inflation outturn has completely abated compared to around 30 percent contribution in February 2024.
  - Monthly core food inflation declined from 19.8 percent in February 2024 to 1.4 percent in March 2024.
- Fiscal/regulatory measures contributing to March inflation:
  - Government measures included increases in: (1) electricity prices for both residential and commercial use (between 7 and 20 percent across various categories) in January 2024, (2) public transportation prices (railway and metro fares) in January 2024, (3) prices of home landline phone contracts (January 2024), (4) regulated prices of other commodities and services such as medical care, and (5) prices of domestic fuel products through the Fuel Automatic Pricing Mechanism in March 2024.
  - Regulated items’ component contributed 7.0 percent to March 2024’s monthly headline inflation.

### Policy Responses
- Monetary tightening since March 2022:
  - Key policy rates raised cumulatively by 1900 bps since March 2022 (800 bps in 2022, 300 bps in 2023, and 800 bps in 2024 Q1).
  - Reserve requirement ratio raised in September 2022 from 14 to 18 percent.
  - Phasing out of subsidized lending schemes and increased liquidity absorption via main operation through a fixed rate operation with full allotment at the mid-corridor rate.
- Transmission and macro impacts:
  - CBE assumes cumulative impact of interest rate tightening on the real economy peaks after three quarters.
  - Impact on real economy: contractionary effects on gross domestic investments and slowing of real GDP growth in the first half of FY 2023/24; real GDP growth registered 2.5 percent compared to 4.2 percent during corresponding period of FY 2022/23.
  - Gross domestic investments contracting for six consecutive quarters as of 2022 Q3; contraction mainly driven by declining contribution of public investments throughout FY 2022/23; private investments also contracting at a slower pace.
  - Decline in real growth of private business sector loans in local currency noted.
- 2024 Q1 policy action objective:
  - Cumulative tightening of key policy rates by 800 bps in 2024 Q1 aims to fast-track the disinflation path by bringing the real interest rate into positive territory, ensuring a sustained decline in underlying inflation and anchoring inflation expectations.
  - CBE committed to targeting single-digit inflation and assessing cumulative impact of monetary policy tightening on prevailing and forecasted stance.
- Monetary policy reaction function and data monitoring:
  - CBE uses key policy rates according to a reaction function minimizing deviations of expected inflation from targets and deviations of expected real economic activity from full capacity utilization.
  - Monetary policy decisions are data-driven through monitoring a wide range of domestic and global indicators, including leading indicators for the real economy, measures of underlying inflation, development of M2 growth, and real credit growth to the private sector, as well as international commodity prices, global financial conditions, and political developments.

### Inflation Outlook
- CBE forecast and expected path:
  - Recent outturns signal return of monthly dynamics to usual trend prior to March 2022.
  - CBE forecast suggests inflation has peaked and, assuming absence of external shocks, inflation is expected to moderate in 2024.
  - Significant decline in inflation anticipated in 2025 Q1 due to combined impact of monetary policy tightening, subsiding market imbalances, and a favorable base effect—consistent with cumulative 800-bps hikes in 2024 Q1.
- Money supply and monetary indicators:
  - M2 growth accelerated in March 2024 to record 25.4 percent following the depreciation of the Egyptian pound.
  - M2 growth (excl. revaluation) declined to reach 10.7 percent in March 2024, compared to 16.5 percent in the previous month, and well below M2’s historical average of 15 percent.
  - M2-Real GDP growth differential narrowed for four consecutive quarters, recording an average of 17.3 percent in 2024 Q1, compared to 25.9 percent in 2023 Q1.
  - Interpretation: acceleration of M2 driven solely by revaluation effects; decelerating M2 growth (excl. revaluation) and narrowing differential point towards easing inflationary pressures from money creation.
- Upside risks to disinflation path:
  - Escalation of current geopolitical tensions leading to higher international commodity prices and negative spillovers on services.
  - Higher-than-expected fiscal consolidation measures.
  - Unfavorable climate conditions domestically and internationally leading to higher food and commodity prices.
  - Higher-for-longer tightening of global financial conditions.
- Near-term target deviation communication and policy stance:
  - Annual inflation rates likely to deviate from announced target of 7 percent (± 2 p.p.) on average in 2024 Q4.
  - An explanation for deviation will be communicated to stakeholders along with the likely path to return to single digits to enhance credibility and transparency, consistent with transition to an inflation targeting regime.
  - CBE will ensure monetary policy stance anchors inflation expectations, reins in inflationary pressures, and places inflation on a sustained declining trajectory.

*Source: Annex III. Monetary Policy Consultation (1egyea2024002-print-pdf).*

### 2. However, we still face large uncertainty in economic outlook. Negative spillovers from

### However, we still face large uncertainty in economic outlook.

### Recent developments and outlook
- Negative spillovers from the conflict in Gaza and Israel have become more pronounced due to associated trade disruption in the Red Sea and the notable reduction in Suez Canal receipts, reducing key sources of foreign exchange inflows and fiscal revenues.
- Inflation remains high but has been slowing in recent months, possibly reflecting:
  - positive impact of the unification of the exchange rate market on stabilizing the foreign exchange market,
  - anchoring of inflation expectations and normalization of pricing behavior,
  - improvements in foreign exchange liquidity, and
  - past monetary policy rate hikes.
- Government debt and gross financing needs remain elevated because of exchange rate adjustments, successive and significant interest rate hikes, and intentional reliance on short-term domestic financing to avoid locking in high debt service costs for extended periods.
- Private sector activity remains weak; a recovery is expected with recent policy adjustments and future reforms.
- Since exchange rate unification in March:
  - the exchange rate has been market determined,
  - (i) the spread between the official rate and measures of market clearing rates has remained closed,
  - (ii) the foreign exchange demand backlog at banks has remained zero,
  - (iii) daily interbank foreign exchange turnover has increased significantly relative to the pre-unification period.
- After unification and the monetary policy rate hike, demand for local currency Treasury securities increased and nonresident holdings of local currency increased significantly.
- The government now relies much less on the central bank’s overdraft facility and maturity of new domestic issuances through auction has increased.
- ADQ investment deal effects:
  - NUCA received new financing of US$24 billion from the Ras El-Hekma investment deal with the ADQ.
  - UAE’s deposits of US$11 billion at the CBE were converted to local currency for the ADQ’s investment inside Egypt.
  - The CBE captured US$15 billion of the new financing in its foreign exchange reserves.
  - The government reduced budget sector debt by about half of the local currency equivalent of the new financing of US$24 billion.
- Ras El-Hekma project:
  - New investment not expected to start until master plan finalized and approved during 2025.
  - Land to be transferred to newly established Ras El Hekma for Urban Development Project Company with golden licenses; government will have a 35 percent interest in profits after cost recovery.
  - Initial estimates indicate annual investment in the region will be about US$3-4 billion, mostly FDI and domestic private investments.
  - Public sector will not undertake, finance directly or indirectly, nor guarantee financing of any new investment in the area designated for the project.
- Growth and inflation indicators:
  - Growth slowed to an average of 2.5 percent in the first half of FY2023/24.
  - Projected growth for FY2023/24 would fall short of 3 percent.
  - Inflation remains high at 28.1 percent in May.
  - Suez Canal revenues decreased by almost 57 percent year-on-year between January and March 2024, with a loss of around US$1.3 billion relative to the same period in 2023.
- Fiscal tightening continues, tilted toward non-interest expenditure adjustment while protecting social spending.
  - Tax revenues rose by 34.4 percent year over year during July-April FY2023/24, but tax-to-GDP ratio only stabilized due to high inflation.
  - Achieved a primary surplus of 3.4 percent of GDP in the first ten months of FY2023/24.
  - Target primary surplus of 3.5 percent of GDP exclusive of divestment inflows in FY2024/25.
  - FY2024/25 budget envisages an increase in tax revenue by 0.7 percent of GDP and non-tax revenue by 0.3 percent of GDP versus FY2023/24 projected outturns.
- Banking system status:
  - Banks on average are profitable, liquid and have adequate capital per prudential minimums.
  - Bank net foreign assets increased significantly with additional foreign exchange liquidity from the ADQ deal and exchange rate unification.
  - Banks remain compliant with regulatory limits on net foreign exchange open positions.
- Medium-term expectations and risks:
  - Expect growth recovery and acceleration with stronger private sector contribution, continued deceleration of inflation, increased reserve buffers, and downward debt trajectory.
  - Significant risks include regional conflict, portfolio flows, high inflation and cost of borrowing, uncertainty on reform impacts, and the size and pace of FDI inflows.
  - Contingency plans are being developed.

### Program performance
- Commitment to EFF program remains strong; met all but one of end-March 2024 quantitative performance criteria (QPCs).
  - Met end-March QPC of net international reserves (NIR) by a significant margin.
  - Met QPCs on reduction of CBE overdraft balance and CBE lending to public agencies.
  - Missed end-March QPC on primary balance including divestment proceeds solely due to valuation effects from exchange rate differences for Ras El-Hekma proceeds.
  - Missed weekly QPC on government overdraft balance at CBE for weeks ending April 18 to May 23 due to borrowing in anticipation of second ADQ tranche; balance lowered below ceiling by May 30, 2024.
  - Met continuous performance criteria on non-accumulation of external arrears and prohibition on exchange restrictions, multiple currency practices, and import restrictions.
- Indicative targets (end-March 2024):
  - Met ITs on tax revenue and social spending.
  - Narrowly missed IT on maturity of new domestic debt issuances through auctions due to reliance on short-term T-bills; maturity started lengthening after March.
  - Missed IT on budget sector debt by a small margin due to over reliance on short-term borrowing.
  - Missed IT on guarantees by a large margin due to depreciation of official exchange rate and guarantees issued to allow EGPC to continue borrowing from banks.
  - Met ITs on CBE’s FX intervention rule and budget.
- Structural benchmarks (SBs) for the third review:
  - Met SBs: flexible exchange rate regime and liberalized FX system; enacting executive regulations of PFM law; monthly publication of public procurement contracts exceeding EGP 20 million; publication of comprehensive tax expenditure report; immediate introduction of fixed rate, full allotment 7-day deposit operations and publication of results.
  - Did not meet recurring SB on quarterly implementation of retail fuel price indexation mechanism, although prices were increased in March 2024 for all fuel products with projected annual savings worth 0.3 percent of GDP (exceeding formula adjustments of 0.07 percent of GDP).
  - Did not meet SB on timely publication of Central Auditing Organization’s (CAO) annual audit reports despite progress drafting a new CAO law.
  - SB on CBE recapitalization not met; SB on plan to reduce central bank claims on government agencies outside Ministry of Finance requires additional time.
  - SB to prepare plan to reduce EGPC arrears not met though a broad strategy was prepared.
  - Inflation rate in March 2024 exceeded MPCC upper outer band, triggering consultation with IMF’s Executive Board; policy rate hike in March expected to slow inflation and fall below MPCC’s upper bound for end-June.

### Economic program objectives and policy measures
- Key program objectives:
  - Maintain flexible exchange rate regime and liberalized FX system.
  - Reduce inflation towards target using monetary, fiscal, and structural policies.
  - Sustain increase in tax revenues.
  - Reduce untargeted fuel subsidies to increase space for social and human capital support.
  - Contain broad public investment.
  - Strengthen debt management to contain gross financing needs and debt.
  - Improve governance of state banks.
  - Accelerate structural measures supporting state-ownership policy, enhance e-transparency, and level playing field across economic agents.

### Exchange rate and monetary policies
- Maintain flexible exchange rate regime and liberalized FX system; monitor via comprehensive indicators including:
  - closing of spread between official and market-clearing exchange rates,
  - elimination of FX demand backlogs at banks,
  - increased FX turnover in interbank market (structural benchmark).
- Continuous performance criterion: no introduction or intensification of exchange restrictions, multiple currency practices, import restrictions for BOP purposes, or bilateral payment agreements inconsistent with Article VIII.
- CBE interventions guided by volatility-based framework and reserve accumulation goals.
- Rebuild foreign reserve buffers:
  - CBE to accumulate official reserves based on agreed definition including Tier 1 and Tier 2 assets and other usable foreign currency assets (performance criterion).
  - CBE will not grant exemptions for banks breaching net foreign exchange open position limits and will apply sanctions (structural benchmark).
  - CBE to consult IMF staff if aggregate banks’ NFAs show a cumulative decline of US$2 billion over a three-month period (consultation clause).
  - No accumulation of general government external debt payment arrears (continuous performance criterion).
- Monetary policy priority: reduce inflation towards target.
  - Key policy rate raised by 200 basis points in February and by 600 basis points in March to current level of 27.25 percent.
  - CBE’s MPC left policy rates unchanged in late-May 2024.
  - Monetary decisions to be data-dependent; adherence to MPCC which triggers consultation when headline urban CPI (y/y) falls outside agreed range.
  - CBE to enhance capacity to monitor inflation expectations and transition to inflation targeting.
  - Government use of CBE overdraft reduced and committed to keep it below statutory limit on a recurrent, weekly basis (performance criterion).
  - CBE has not increased and remains committed not to increase its lending to public sector agencies excluding the Ministry of Finance (performance criterion).
  - Commitment to reduce stock of CBE claims on public agencies by EGP 150 billion (about 1 percent of GDP) by end-July 2024; thereafter reduce remainder by EGP 100 billion per year through repayment strategy possibly including use of operational surpluses or part of divestiture receipts, aiming to get at least 50 percent of divesture proceeds over the medium term.
  - CBE will refrain from extending, renewing, or introducing subsidized lending schemes.

### Fiscal policy and debt management
- FY2023/24 outcomes and composition:
  - Primary surplus of 2.2 percent of GDP excluding divestment proceeds and 6.2 percent of GDP including divestment proceeds.
  - Divestment proceeds in FY2023/24 include the Egyptian pound equivalent of $12 billion from Ras El-Hekma (3.7 percent of GDP) and other divestment proceeds (0.15 percent of GDP).
- FY2024/25 targets and measures:
  - Target primary surplus of 3.5 percent of GDP excluding divestment proceeds and additional 1 percent of GDP from divestment proceeds to reduce gross financing needs (performance criterion).
  - New structural revenue measures expected to improve tax and non-tax revenue by about 1.0 percent of GDP in FY2024/25 versus projected outturns for FY2023/24.
  - Identified tax measures of 0.7 percent of GDP including elimination of preferential tax treatment and exemptions for SOEs, rationalization of VAT exemptions, and anti-fraud measures.
  - Enact law to speed up resolution of tax disputes expected to provide additional 0.15-0.2 percent of GDP in FY2024/25.
  - Submit amendments to VAT law by November 2024 (structural benchmark); VAT reform targets structural increase in VAT revenue of at least 1 percent of GDP on a 12-month basis, of which 0.2 percent of GDP will be generated in FY2024/25.
  - Dividend receipts targeted to increase by 0.2 percent of GDP; additional 0.1 percent of GDP from measures under review.
  - Commitment to floor on tax revenues (indicative target) and ceiling on gross debt of the budget sector (indicative target).
  - No introduction of additional corporate income tax exemptions and significant limitation of CIT tax incentives; replace fragmented incentives with a transparent framework in new income tax law being drafted with IMF assistance.
  - Detailed assessment of current freezones to be completed by end-September 2024 (structural benchmark); limit any further expansion of freezones in the meantime.
- Medium-term fiscal targets (by FY2026/27):
  - Target primary surplus of 5.0 percent of GDP and 5.5 percent inclusive of divestment proceeds.
  - Tax revenue to GDP to increase by around 3 percent of GDP by FY2026/27.
  - Measures to achieve this include VAT reforms, widening tax base (including e-commerce taxation), implementing new Income tax law by FY2025/26, consolidating amendments, rationalizing exemptions (including possibly freezones), withholding tax on turnover from exports to domestic market from freezones, adopting green fees and taxes, implementing Automatic Exchange of Information Standard by FY2026/27, implementing EU’s CBAM requirement, accelerating property tax reform, and strengthening e-tax platform to improve tax efficiency and reduce informal economy.

*Source: Excerpt from IMF document.*

### 19. We are adjusting domestic fuel prices to make space for better targeted social support.

### 19. We are adjusting domestic fuel prices to make space for better targeted social support.

### Fuel pricing and subsidies
- On-budget fuel subsidies were reduced to 0.3 percent of GDP in 2021 but rose to about 1.2 percent of GDP in FY2022/23 due to FX adjustments, a depreciated local currency, and elevated cost of borrowing.
- To align with the indexation formula since the start of the EFF program, fuel prices for almost all products were increased in March 2024, producing annual savings worth 0.3 percent of GDP.
- The structural benchmark for April 2024 on the retail fuel price indexation mechanism was missed, but authorities are committed to gradually restoring fuel prices for gasoline, diesel and fuel oil used by industry to their cost recovery level by December 2025.
- The fuel price increases are intended to support decarbonization efforts outlined in the updated Nationally Determined Contribution published in 2023.
- Transparency measures: strengthen communication on the mechanism, explain pricing rationale, and record and publish fuel subsidies and any liabilities to Egyptian General Petroleum Corporation (EGPC).

### Structural fiscal measures and tax policy
- Published an annual tax expenditure report in April 2024 with estimates of tax exemptions and tax breaks; report identified tax revenue losses due to exemptions of 3.0-4.5 percent of GDP.
- Authorities will identify poorly targeted exemptions not benefiting lower income groups or human capital objectives and/or with limited impact on competitiveness, and develop a plan to gradually streamline well-identified exemptions.
- Amending the law governing the Central Auditing Organization (CAO): publish CAO’s audit reports for FY2022/23, including on the budget sector and Economic Authorities, by end-August 2024 (structural benchmark).
- Submit the CAO law to parliament by end-November 2024 (revised structural benchmark).

### Social protection and targeted support
- Takaful and Karama coverage broadened to 5.3 million households in 2023.
- Measures to protect vulnerable groups include increasing monthly payments, raising the minimum public sector wage, monthly nominal increases for public sector employees, and increased pension payments for civil servants in FY2022/23 and FY2023/24.
- Total social protection package for FY2024/25: EGP130 billion, plus EGP 50 billion cost incurred by the Pension Fund for increased monthly pension payments.
- Update analysis of social protection adequacy based on the latest household income survey; full results to be published by July 2024 (new structural benchmark).
- A Prime Minister–led steering committee will refine eligibility criteria and apply a model to establish conditional cash transfer programs with improved targeting within a year.
- Drafted a new social protection law is being considered by Parliament.
- Will publish a report evaluating the social housing program and explore efficiency gains in food subsidies.
- Continue rollout of universal health insurance; maintain a minimum level of social spending consistent with support objectives (indicative target).

### Public investment management and ceilings
- Slow down implementation of public investment projects, including national projects, to ensure domestic and external stability.
- Prime Ministerial decree number 739 of 2024 requires all public entities to report annual projected investment to a cabinet-level committee chaired by the Central Auditing Organization (CAO).
- First submission outlining projected investment for FY2024/25 was made by April 30, 2024; submissions to be annual by April 30 thereafter.
- Committee directives: entities to report implementation amounts and percentages each September and March for January–June and July–December periods respectively; reports to the Public Economic Governance Committee.
- Target ceiling on total public investment:
  - January–June 2024: EGP 350 billion
  - FY2024/25: EGP 1,000 billion (indicative target)

### Fiscal reporting perimeter and Economic Authorities (EAs)
- General government fiscal reporting expanded to include fiscal activities of Economic Authorities (EAs); FY2024/25 budget submission reported fiscal indicators for the general government including all 59 EAs for the first time.
- These entities are required to report to the MOF semiannually in FY2024/25 and quarterly thereafter once capacity is developed.
- Binding ceilings introduced on the debt of entities included in these indicators in the annual budget law; adjustments require MOF recommendation and parliamentary approval.
- Sector classification exercise of all 59 EAs in accordance with GFSM 2014 concepts and principles, with documented rationale for each classification decision by end-September 2024 (structural benchmark). Only nonmarket producers should be included in the general government.

### EGPC arrears and repayment strategy
- EGPC accumulated payment arrears on supply contracts of about US$5 billion, denominated in U.S. dollars.
- Buildup of arrears reflects FX shortages, elevated cost of borrowing, cyclical downturn in domestic gas production, higher domestic consumption reducing gas exports, price deviations from cost recovery, and increased EGPC subsidies to the electricity sector.
- Authorities are developing a repayment strategy to prevent new arrears and clear existing ones; discussions continue to finalize the strategy.
- Commitment to adjust energy prices to reach cost recovery levels as a critical component of the strategy and to put EGPC on a sounder financial footing.
- Planned adjustments in electricity and fuel prices, plus additional revenues from expanded oil refinery capacity, aim to avoid operational losses and contain fiscal risks, including guarantee-related risks.
- Resume semi-annual publication of EGPC’s financial statements, starting with publication of the end-December 2023 statement by end-June 2024.
- Plan other measures to reach a positive operating cashflow for EGPC in FY2025/26.

### Public debt management and borrowing strategy
- Strengthen public debt management across structural and operational pillars: DMU reorganization (front, middle, back-office), regulatory setup, domestic debt market development, investor base broadening, new instruments (retail bonds), revamped primary dealership system, diversification, and improved debt reporting and investor relations.
- Update and publish the medium-term debt management strategy by December 2024; will articulate a multi-year borrowing plan, portfolio cost and risk management framework, debt portfolio risk tolerance thresholds, and operational targets.
- Revised Primary Dealership setup to be finalized and operationalized by end-September 2024.
- Seek IMF technical assistance where appropriate.

- Borrowing strategy measures:
  - Gradually lengthen the maturity of new domestic issuances (indicative target).
  - Agreed with pension funds and insurance funds to extend maturity of existing debt maturing in the next several years.
  - Agreed with major state banks to voluntarily participate in issuing new three-year treasury bonds when existing bonds held by these banks mature.
  - Increase financing from multilateral and official bilateral creditors; reduce use of the overdraft at the CBE.
  - Prioritize domestic financing via market mechanisms (auctions); phase out private placements and any CBE financing above the regulatory ceiling in the short-term.
  - Improve short-term reporting on government financing from the domestic market by including auction results, private placements, and overdraft borrowing.

### CBE recapitalization and SDR regularization
- Conduct a comprehensive assessment of CBE recapitalization needs covering the next five years, accounting for planned reduction in the stock of CBE’s credit to public agencies and plan to reduce the CBE’s subordinated debt issued to state-owned banks, by end-August 2024 (reset structural benchmark).
- Recapitalization plan agreed by MOF and CBE will protect the CBE’s price stability mandate and consider the government’s debt management strategy and target to put debt to GDP on a firmly downward path.
- Establish an agreement between the CBE and the Ministry of Finance that fully regularizes the use of the 2021 SDR allocation for fiscal purposes.

### Fiscal risk management and arrears reporting
- MOF will report annually the payment arrears of the budget sector, including to critical SOEs and EAs, within 90 days of the end of the fiscal year (recurrent structural benchmark). Reporting includes stocks of commitments, overdue payments, overdue transactions, and gross liabilities and due payments to and from the MOF, in aggregate and by specified entities.
- Efforts to report the same data on a quarterly basis will be redoubled.
- Ensure the stock of government guarantees relative to GDP declines annually from its projected value of about 34 percent of GDP at end-June 2024 (indicative target).
- Published an annual fiscal risk statement as a chapter of the budget documentation starting from FY2024/25, in line with IMF technical assistance.

### Financial sector resilience and governance
- Banking system remains adequately capitalized with ample liquidity; banks remain in compliance with net open position limits.
- CBE to monitor maturity and composition of banks’ foreign currency assets and liabilities, including exposure to public sector agencies.
- With IMF technical assistance, the CBE is establishing a bank resolution unit and will strengthen transparency and communication of financial sector issues; public reporting to be on a predictable schedule.
- CBE to complete stress tests of the banking sector and share detailed results with IMF staff by end-September 2024 using end-March 2024 data; tests prepared in consultation with IMF staff (structural benchmark).
- Governance measures: CBE will not issue any new subordinated debt to state-owned banks.
- Commission an independent assessment of policies, procedures, and controls of state-owned banks (with CBE and IMF input) by an internationally recognized firm; tendering and selection process completed by end-October 2024 (new structural benchmark).

### State-ownership policy and divestment
- Reinstate regular publication of annual aggregate reports on Egypt’s SOE portfolio on the appropriate government website, expanded to include all SOEs covered by the state-ownership policy (recurring structural benchmark, starting end-September 2024 and each end-September thereafter).
- Develop an indicator to track implementation of the state-ownership policy by end-July 2024 (structural benchmark). Candidate indicators: share of private investment in total investment; share of private credit in total credit; measure of reduction of SOEs in non-strategic sectors.
- Draft legislation sent to parliament to incorporate key elements of the state-ownership policy into law and create a Unit in the Prime Minister’s office with governance powers and divestment facilitation; seek passage by December 2024.
- Divestment progress:
  - Inventory of over 700 SOEs; about 200 identified as candidates for divestment in non-strategic sectors.
  - Worked with the IFC on a sector-by-sector divestment approach.
  - FY2023/24 divestment deals finalized worth US$2.2 billion, of which US$2 billion has been received.
  - Shortfall expected relative to FY2023/24 target of securing US$2.8 billion in dollar inflows from divestment.
  - FY2024/25 targets: new divestment of US$3.6 billion denominated in U.S. dollar, and additional divestment of 0.5 percent of GDP denominated in either U.S. dollar or Egyptian pound.
  - Foreign exchange proceeds from sales of state-owned assets will be kept at the CBE to rebuild reserves.
  - Channel 1.0 percent of GDP of divestment proceeds in FY2024/25 and another 0.7 percent of GDP in FY2025/26 to the MOF’s budget to reduce budget sector debt and gross financing needs.

*Source: Excerpt from the IMF document provided.*

### 33. We will continue our efforts to level the playing field and strengthen business climate

### 33. We will continue our efforts to level the playing field and strengthen business climate and governance

### Competition law, Egyptian Competition Authority (ECA), and governance
- Executive Regulations implementing the amendments to the Competition Law introduced in December 2022 were published.
- The regulation empowers the Egyptian Competition Authority (ECA) to control mergers that would limit, restrict, or harm competition.
- Redrafted amendments to the Competition Law will:
  - Align the independence of the ECA with the independence of other regulators with comparable mandates, including the CBE and the Financial Regulatory Authority (FRA).
  - Empower the ECA to issue direct administrative sanctions similar to the CBE.
- Commitment: submit the redrafted amendments to parliament (new structural benchmark for end-October 2024).
- The ECA has hired external advisors to develop a private sector survey to:
  - Underlie development of an index to track the views of key stakeholders regarding competitive neutrality.
  - Identify necessary reforms to the competitive neutrality framework.

### Ease of doing business and customs modernization
- Customs procedures are transitioning towards a risk-based approach to reduce import clearance times.
- Introduce a “Green Lane” where a percentage of the cargo associated with low risk and compliant companies will be released immediately without any controls (new structural benchmark).
- Integrate risk-based control between Customs Authority, Export and Import Control Authority, National Food Safety Authority, Agricultural and Veterinary Quarantines to reduce the number of containers needing inspection and thus reduce clearance procedures and time of goods in ports (new structural benchmark).
- Timing for structural benchmarks:
  - Introduce a “Green Lane”: New December -2024.
  - Integrate risk-based control across agencies: New April-2025.

### Procurement transparency and e-procurement upgrade
- Monthly procurement awards greater than EGP 20 million are posted, including findings from GAGS on-site post-procurement audits of budget unit procurement awards.
- Reports are posted on the GAGS website (accessible in Egypt) and the Ministry of Finance website (accessible internationally), freely available to the public without restriction.
- With assistance from the Korea International Cooperation Agency (KOICA), the public e-procurement system is being upgraded to align with Law No. 182 of 2018 Regulating Contracts Entered by Public Entitles and to allow posting of final awards.
- The new e-procurement system is to be operational by June 2025.

### Financing the program and reserves
- Total financing needed to reach the revised net international reserve targets:
  - US$7.7 billion in FY2023/24.
  - US$6.8 billion in FY2024/25.
  - These figures exclude IMF purchases.
- Firm financing commitments secured for the 12 months ending in June 2025 from international partners to fully close the financing gap.
- Assurances from Arab countries to keep official deposits at the CBE for US$19 billion until the end of the EFF arrangement in September 2026 unless used for the purchase of equities.
- ADQ inflow: US$24 billion to acquire development rights of the Ras El-Hekma region; at least US$15 billion of the proceeds have been captured in the CBE’s foreign reserves.
- Divestment strategy: compensate for smaller divestment flows during FY2023/24 with larger divestment in FY2024/25 relative to the original projection; strategy to be strengthened by advice from the IFC.

### Program monitoring, instruments, and reporting
- The program will be monitored through prior actions, quantitative performance criteria, indicative targets, and structural benchmarks.
- Quantitative performance criteria and indicative targets are listed in Table 1; prior actions and structural benchmarks are listed in Table 2.
- The Technical Memorandum of Understanding (TMU) indicates definitions of quantitative performance criteria, indicative targets, structural benchmarks, consultation clauses, and data provision requirements.
- Current commitment: report the CBE’s net international reserves and their components with a submission lag of no more than 15 calendar days after the end of each month; work will continue to shorten the submission lag for timelier monitoring.

### Technical Memorandum of Understanding (selected exchange rate and reserves definitions and values)
- Program exchange rates for assessment of quantitative targets in FY2022/23 (prevailing on September 30, 2022):
  - SDR 0.781323 per U.S. dollar
  - Euro 1.0293 per U.S. dollar
  - U.K. Pound 0.9213 per U.S. dollar
  - Japanese Yen 144.7094 per U.S. dollar
  - Saudi Arabian Riyal 3.7576 per U.S. dollar
  - Chinese Yuan 7.1305 per U.S. dollar
  - Egyptian pound program exchange rate against the U.S. dollar for FY2022/23: 19.4970 (the CBE’s official buy rate on September 30, 2022)
  - Monetary gold valued at US$1,654.80 per troy ounce (the rate on September 30, 2022)
- Program exchange rates for end-March 2024 test date (prevailing on January 31, 2024):
  - SDR 0.751945; Euro 0.9228; U.K. Pound 0.7883; Japanese Yen 147.5000; Saudi Arabian Riyal 3.7500; Chinese Yuan 7.1807; U.A.E. Dirham 3.6725 per U.S. dollar
  - Egyptian pound program exchange rate for end-March 2024 test date: 30.8272 (the CBE’s official buy rate on January 31, 2024)
  - Monetary gold valued at US$2,053.25 per troy ounce (the rate on January 31, 2024)
- Program exchange rates for end-June 2024 test date and test dates in FY2024/25 (prevailing at end-April 2024):
  - SDR 0.7588; Euro 0.9330; U.K. Pound 0.7974; Japanese Yen 156.8200; Saudi Arabian Riyal 3.7500; Chinese Yuan 7.2420; U.A.E. Dirham 3.6725 per U.S. dollar
  - Egyptian pound program exchange rate for end-June 2024 test date and test dates in FY2024/25: 47.7860 (the CBE’s official buy rate on April 30, 2024)
  - Monetary gold valued at US$2,307 per troy ounce (the rate at end-April 2024)
- Definition of Net International Reserves (NIR) of the Central Bank of Egypt (CBE) under the program:
  - NIR = foreign reserve assets minus foreign reserve-related liabilities.
  - For program monitoring, assets and liabilities in currencies other than the U.S. dollar are converted into U.S. dollar equivalents using the program exchange rates indicated in the TMU.
  - Foreign reserve assets include: CBE holdings of monetary gold, SDRs, foreign currency cash, foreign currency securities, CBE’s deposits abroad (irrespective of maturity), the country’s reserve position at the Fund, the CBE’s foreign currency deposits at local banks, and the CBE’s other foreign currency assets that could be used for reserve management purposes.
  - Excluded from foreign reserve assets: assets that are frozen, pledged, used as collateral, or otherwise encumbered (including assets acquired through short-term currency swaps with original maturity of less than 360 days), claims on residents other than the CBE’s foreign currency deposits at local banks, precious metals other than gold, assets in nonconvertible currencies, and illiquid assets.
  - As of end-April 2024, foreign reserve assets thus defined amounted to US$46,518 million.

*Source: 1egyea2024002-print-pdf - 33. We will continue our efforts to level the playing field and strengthen business climate*

### 7. Foreign reserve-related liabilities are defined as comprising all short-term foreign exchange

### 7. Foreign reserve-related liabilities are defined as comprising all short-term foreign exchange 

### Foreign reserve-related liabilities: definition and stock
- Defined as all short-term foreign exchange liabilities of the CBE to residents and nonresidents with original maturity of less than 360 days, except deposits at the CBE with original maturity of less than 360 days that are owed to official GCC member creditors.
- Include government foreign currency deposits with an original maturity of less than 360 days.
- Include banks’ required reserves in foreign currency.
- Include all credit outstanding from the Fund that is on the balance sheet of the CBE.
- Exclude liabilities under currency swaps with original maturities of 360 days or more.
- As of end-April 2024, foreign reserve-related liabilities thus defined amounted to US$15,372 million.

### Adjustors to the Net International Reserves (NIR) floor
- The NIR floor will be adjusted for:
  - (i) deviation in program disbursements relative to projections;
  - (ii) deviation in external commercial borrowings (including Eurobonds and syndicated loans) relative to baseline assumptions;
  - (iii) deviation in the stock of government T-bills and T-bonds denominated in local currency and held by nonresidents relative to program assumptions;
  - (iv) repo margin calls; and
  - (v) use of reserves according to a FX intervention framework.
- Related information is reported in Table 13 of the staff report.

### Program disbursements: definition and scope
- Defined as disbursements of:
  - (i) loans denominated in foreign currency (excluding external borrowings from private creditors such as Eurobonds, Sukuk, Panda bond, and Samurai bond that are part of baseline BOP projections, but including T-bonds and other government securities denominated in foreign currency), grants, and deposits for budget support purposes denominated in foreign currency. Loans denominated in foreign currency that qualify as program disbursements are those that constitute new financing; they do not include conversions of deposit liabilities that existed at end-September 2022 at the CBE or conversions of official bilateral loans to the government;
  - (ii) net issuance of T-bills in foreign currency;
  - (iii) purchases under the IMF’s Extended Fund Facility;
  - (iv) foreign reserve-related loans and deposits to the CBE with original maturity of more than 360 days except for official creditor deposits at the CBE which are included regardless of maturity;
  - (v) rollovers by more than 360 days of existing foreign loans and foreign reserve-related liabilities, from official multilateral creditors, official bilateral creditors, and private creditors, including external bond placements denominated in foreign currency; and
  - (vi) foreign currency resources generated by sales of state-owned assets, including the sale of equity stakes in SOEs as defined below, and the sale of stakes in other assets such as land, excluding the investment deal for the development of Ras El-Hekma.
- All FX proceeds received by public entities involved in these sales would be captured by the CBE and would be reported as FX inflows to the CBE and go towards increasing the NIR.
- State-owned asset sales that qualify as program disbursements are those that constitute new financing; they do not include conversions of deposit liabilities that existed at end-September 2022 at the CBE or conversions of official bilateral loans to the government.
- Program disbursements do not include project loans and project grants.

### Application of NIR adjustors and projection figures
- Adjustor for deviations in program disbursements relative to projections:
  - NIR floor adjusted up by the full amount of any excess in cumulative program disbursements relative to projections.
  - NIR floor adjusted down by the full amount of the shortfall in cumulative program disbursements relative to projections.
  - Projections for cumulative external program disbursements (excluding the IMF) from June 30, 2023, are:
    - US$6,204 million as of end-June 2024,
    - US$1,456 million as of end-September 2024,
    - US$3,399 as of end-December 2024,
    - US$5,462 million as of end-March 2025, and
    - US$6,825 as of end-June 2025.
- Adjustor for deviations in external commercial borrowings relative to baseline assumptions:
  - NIR floor adjusted up by the full amount of any excess in net external borrowings from private creditors in foreign currency relative to baseline projections in the BOP.
  - Projections for net external borrowing from private creditors from December 2023 are:
    - -US$110 million as of end-June 2024,
    - US$1,000 million as of end-September 2024,
    - US$2,500 million as of end-December 2024,
    - US$3,500 million as of end-March 2025, and
    - US$3,639 as of end-June 2025.
- Adjustor for deviations in the flow of government T-bills and T-bonds denominated in local currency and held by nonresidents:
  - NIR floor adjusted up by 50 percent of any excess in this flow relative to program assumptions.
  - This adjustor uses holdings one month before the test date (e.g., for end-December 2022 test date, end-November 2022 holdings used).
  - Program assumptions for cumulative flows (from the beginning of each fiscal year) of local currency T-bills and T-bonds held by nonresidents:
    - US$16,059 million for the end-June 2024 test date,
    - US$750 million for the end-September 2024,
    - US$1,500 million for end-December 2024,
    - US$2,250 million for end-March 2025, and
    - US$3,000 million for end-June 2025.
- Adjustor for repo margin calls:
  - NIR floor adjusted down (up) by any margin call payments (receipts) associated with the CBE’s repo facilities.
- Adjustor for FX intervention:
  - NIR floor adjusted down by the amount of FX intervention (sales) undertaken by the CBE, provided the intervention is consistent with the intervention framework.

### Budget sector: primary fiscal balance (PC) and related definitions
- Budget sector comprises:
  - 184 central government (administration) units, including the executive powers (presidency, parliament, senate, and ministers), the legislative powers (judiciary and prosecution),
  - 323 local government units, and
  - 156 entities in the public service authorities, which include universities and hospitals.
- Primary fiscal balance of the budget sector under the program:
  - Defined as the overall balance measured on a cash basis minus total cash interest payments of the budget sector.
  - Overall balance under the program is defined as total revenue and grants minus total expenditure plus net acquisition of financial assets.
  - Measured on a cumulative basis from the beginning of the fiscal year.
  - For FY2022/23, the primary balance thus defined was EGP 164 billion.

### Off-budget funds and divestment proceeds
- Authorities will immediately inform IMF staff of creation of any new off-budgetary funds or programs as defined in the IMF’s Government Finance Statistics Manual 2014.
- Divestment proceeds flowing to the budget:
  - Part of divestment proceeds raised from sale of state-owned assets in both FX and Egyptian pounds, including sale of equity stakes in SOEs and sale of stakes in other assets such as land.
  - Recorded in the net acquisition of financial assets for program purposes.
  - Program assumptions for divestment proceeds flowing to the budget are listed in the QPC table.
- Adjustor on primary balance:
  - The floor on the primary balance of the budget sector will be adjusted up by the full amount of the excess of divestment proceeds (including sale of equity stakes in SOEs and sale of stakes in other assets such as land) relative to program assumptions for divestment proceeds flowing to the budget as indicated in the QPC table.

### Tax revenues (IT)
- Tax revenues include personal income tax, corporate income tax, capital gain tax, property tax, tax on T-bills/T-bonds, value-added tax, excises, tax on specific services, stamp tax, international trade taxes, tax on use of goods and on permission to use on goods and perform activities and other taxes and development fees.
- Tax revenues totaled EGP 1,046 billion as of March 2024 since the start of FY2023/24.

### Health and social spending (IT)
- Health and social spending of the budget sector includes all spending related to the budget of the Ministry of Health and the Ministry of Social Solidarity.

### Public investment ceiling (IT)
- Program target defined as cumulative capital investment spending undertaken by all public agencies and entities controlled or owned directly or indirectly by public entities.
- For FY2023/24, the ceiling for end-June 2024 applies to the period from January 1, 2024, to June 30, 2024. Thereafter the ceiling applies to the investment spending since the beginning of the relevant fiscal year.

### Ceiling on balance of government’s overdraft account at the CBE (PC)
- Target defined as the balance on the government’s overdraft account at the CBE.
- The ceiling on the balance is shown in Table 1 of the MEFP.
- The target applies recurrently, weekly, based on data at the end of each week.

### Ceiling on CBE lending to public agencies excluding the Ministry of Finance (PC)
- Target defined as the balance on lending by the CBE to public agencies excluding the Ministry of Finance.
- The ceiling on the balance is EGP 661.172 billion, reflecting the stock of outstanding lending as of January 2024 to six entities.
- This performance criterion will apply continuously.
- The ceiling is applicable for the period following an indicative or test date until a new ceiling is established (e.g., the end-September 2024 ceiling applicable from October 1, 2024, until end-December 2024).
- Balance to be reported transparently in the weekly analytical balance sheet of the CBE, with “Other Items, net” split into a component relating to CBE lending to public agencies excluding the Ministry of Finance and a component reflecting all other items.
- Loan-by-loan information will be reported separately (Table 1B).

### Floor on average original maturity of newly issued local currency tradable debt (IT)
- Target defined as the weighted average original maturity of local currency tradable debt of the budget sector issued through public placements.
- Weights are volumes of issuance under each maturity.
- Weighted average original maturity calculated cumulatively from the beginning of each fiscal year.
- Local currency tradable debt defined as local currency tradable securities (tradable T-bills and T-bonds) denominated in Egyptian Pounds, including those issued by the budget sector to the Pension Fund and other public entities.

### Ceiling for gross debt of the budget sector (IT)
- Gross debt defined as the outstanding stock of debt issued by the budget sector as defined in the IMF’s Government Finance Statistics Manual 2014.
- Includes debt issued to the pension fund and other public entities.
- Sukuk issued by the budget sector will be treated as debt of the budget sector.
- For program monitoring, U.S. dollar amounts of foreign currency debt will be converted to Egyptian pound equivalents using the program exchange rates indicated in this TMU.
- Adjustor: ceiling for gross debt will be adjusted down by the full amount of the excess of divestment proceeds (including resources raised through sale of equity stakes in SOEs and sale of stakes in other assets such as land) relative to program assumptions. Program assumptions for divestment proceeds flowing to the budget are listed in the QPC table.

### Ceiling on government guarantees (IT)
- Target defined as cumulative change in stock of guarantees issued by the Ministry of Finance, with guarantees on foreign currency denominated borrowing converted to Egyptian pound equivalents using program exchange rates indicated in this TMU.
- Guarantee defined as an arrangement whereby the Ministry of Finance has an obligation to pay a third-party beneficiary when another institutional unit fails to perform certain contractual obligations.
- Ministry of Finance will report to the IMF the stock of guarantees in billions of Egyptian pounds at both program and actual exchange rates 90 days after the relevant test date.
- Data will show guarantees on domestic currency and foreign currency borrowing by Economic Authorities (EGPC, GASC, Transport, NUCA, other) and state-owned enterprises (NIB, Electricity, other).
- Stock of guarantees will be broken down into domestic and external guarantees by currency denomination of the guaranteed borrowing with the U.S. dollar value of guarantees of foreign currency denominated borrowing reported at actual and program exchange rates.
- For the cumulative values for end-March and end-June 2024 test dates the ceiling is on the change in nominal value of the stock of guarantees since September 30, 2023. Thereafter the cumulative ceiling applies to the change in the nominal value of the stock of guarantees since the beginning of the relevant fiscal year.

### Structural benchmark: maintain a flexible exchange rate regime and liberalized FX system (SB)
- Structural benchmark assesses whether a shift to a flexible exchange rate regime and a liberalized FX system is sustained.
- Assessed comprehensively using indicators including:
  - FX demand backlogs at banks (CBE to provide data covering eight banks identified by the CBE; sample fixed throughout the program).
  - Spread between the official rate and measures of market-clearing rate (measures include local parallel market rate, exchange rates implied by transactions in gold, GDR, and ADR markets monitored daily).
  - Interbank FX turnover (CBE to provide daily data).
- The SB will be assessed once for each program review, based on information over the period between program reviews.
- Data sources for monitoring include parallelrate.org, sarf-today.com, egypt.gold-price-today.com, and Bloomberg; monitoring of GDR and ADR will focus on Commercial International Bank (CIB) stock.

### Commercial banks’ Net Foreign Assets (NFA) consultation clause
- NFA of commercial banks defined as claims on nonresidents (including foreign currency holdings) minus liabilities to nonresidents of other depository corporations.
- NFA measured in US dollars using monetary data reported in the standardized report form.
- NFA at end-December 2023 was -US$16.2 billion.
- Consultation with IMF staff triggered if banks’ NFA at the aggregate level decline by cumulative $2 billion over any past three-month period.
- Cumulative change in banks’ NFA assessed at the end of every month.
- Consultation to review reasons for decline in banks’ NFA and whether: (i) there were imbalances in the FX market; and (ii) any corrective actions by the CBE are necessary.

### Monetary policy consultation clause
- Inflation defined as year-on-year change in the end-of-period headline urban consumer price index (average FY2018/19 = 100) as measured and published by CAPMAS.
- Consultation with IMF Board triggered if end-June or end-December inflation falls outside of the upper outer band or the lower outer band (bands indicated in Table 1 of the MEFP). Consultation will cover reasons for deviations, stance of monetary policy, inflation outlook, program status, and CBE remedial actions before further purchases under the EFF could be requested.
- Consultation with IMF staff triggered if end-June or end-December inflation falls outside of the upper inner band or the lower inner band (bands indicated in Table 1 of the MEFP). Consultation will cover reasons for deviations, stance of monetary policy, inflation outlook, and CBE remedial actions.

### Other continuous performance criteria
- Non-accumulation of external debt payments arrears by the general government (general government comprises the budget sector, the Social Insurance Funds (SIFs), and the National Investment Bank (NIB)).
- External debt payments include principal and interest payments, including payments on long-term leases.
- New external debt payments arrears cannot be accumulated during the program period.
- An external debt payments arrear is defined as the amount of payment obligation (principal and interest) due to nonresidents by the general government and the CBE, which has not been made when due under the contract, including any applicable grace period.
- This performance criterion applies continuously.
- Standard continuous performance criteria include: (i) prohibition on the imposition or intensification of restrictions on making of payments and transfers for current international transactions; (ii) prohibition on the introduction or modification of multiple currency practices; (iii) prohibition on the...

*Source: 1egyea2024002-print-pdf - 7. Foreign reserve-related liabilities are defined as comprising all short-term foreign exchange*

### conclusion of bilateral payments agreements that is inconsistent with Article VIII; and (iv) prohibition on

### conclusion of bilateral payments agreements that is inconsistent with Article VIII; and (iv) prohibition on the imposition or intensification of import restrictions for balance of payments reasons.

### Other Structural Benchmarks
- Definition of State-owned companies (SOEs) for structural benchmarks: all public corporations, regardless of legal framework and overseeing agency. They cover public sector companies, public business sector companies, military-owned companies, economic authorities, and joint ventures and partnerships.
- Reoccurring (annual) publication of domestic payment arrears:
  - Defined as publishing within 90 days after fiscal year end the stocks of commitments, overdue payments, and overdue transactions as well as the stock of gross liabilities and due payments to and from MOF with EGPC, GASC, NUCA, National Postal Authority, National Authority for Egyptian Railways, National Investment Bank, Central Bank of Egypt, Egyptian Electricity Holding Company, Holding Company for Drinking Water and Sanitation, and EgyptAir.
- Reoccurring (quarterly) implementation of the retail fuel indexation mechanism:
  - Defined as enacting increases in retail fuel prices in each quarter in line with the indexation mechanism formula.
  - The mechanism is considered fully implemented in quarter t if the retail price of all fuels, including gasoline, diesel, fuel oils (excluding fuel oil for bakeries and electricity) is changed by the specified computation within a month of the end of the quarter.
  - Formula components and parameters (verbatim terms preserved from source):
    - P____mtm (retail fuel price in quarter t) = 0.8 × (BP__mt_{t−1} × FEt_{t−1}) + 0.2 × A____ (annual adjustment due to other costs) + CmtP__chfp AaaftmPmt_{t−1} (catchup adjustment).
  - Where:
    - The retail fuel price in quarter t is the price in end-quarter in domestic currency.
    - BP Pm t−1 is the average Brent crude oil price in the U.S. dollar in the previous quarter.
    - F F F t−1 is the average exchange rate of the Egyptian pound against the U.S. dollar in the previous quarter.
    - 0.8 is the share of oil in the production cost of fuel products.
    - For gasoline and diesel, the change is rounded to multiples of 25 piasters.
    - The Ministry of Petroleum will provide the relevant data.
  - Annual adjustment due to other costs:
    - Adjustments to other direct and indirect costs, as identified from the fuel subsidy table (percent change in per unit costs), are included on an annual basis in the second quarter of the fiscal year.
    - Adjustments due to other direct and indirect costs are zero in the remaining quarters of the fiscal year.
    - The Ministry of Petroleum will provide the relevant data.
  - Catchup adjustment:
    - Because changes in retail fuel price are capped at 10 percent in absolute value, any adjustments not fully implemented in one quarter will result in additional adjustment in the following quarter, giving rise to the term CmtP__chfp AaaftmPmt_{t−1}.
    - The catchup adjustment is taken to be zero for the adjustment in the third quarter of FY2022/23.
    - During a transition period, retail fuel prices will not be reduced and the catchup adjustment and the pass-through from changes in crude oil prices in domestic currency will not be negative.
    - The transition period will conclude once the level of fuel subsidies for products covered by the mechanism in the previous fiscal year has been eliminated.
- CBE subsidized lending initiatives (structural benchmark):
  - Defined as schemes where the CBE provides subsidies to financial institutions based on loans those institutions extend to predefined sectors or households at predefined interest rates.
  - Existing schemes include, but are not limited to: the mortgage finance initiative for middle-income class, the industrial, agricultural, and construction private sectors initiative, the tourism sector initiative, and that aimed at substituting cars to work with dual fuel.
  - As of December 31, 2023, the total amount of loans utilized under the subsidized lending schemes was EGP 73.2 billion.
- CBE lending to public agencies excluding the Ministry of Finance (structural benchmark):
  - The CBE would issue a strategy, approved by the CBE Board, detailing how its claims on public agencies excluding the Ministry of Finance will be reduced to zero.
  - For each outstanding claim, the strategy would detail either:
    - i) the timing and entities involved in repaying the claim to the CBE; or
    - ii) Transferring the claim off the balance sheet of the CBE.
- Reoccurring (monthly) publication of public procurement awards (structural benchmark):
  - Defined as posting within 30-day of the previous month’s end reports that comprise procurement awards greater than EGP 20 million made by budget sector units during the previous month and the previous month’s findings from General Authority for Government Services (GAGS) on-site post-procurement audits of budget unit procurement awards, which will be selected at random.
  - The monthly reports will be posted on the GAGS website, accessible in Egypt, and the Ministry of Finance website, accessible internationally.

### Monitoring and Reporting Requirements
- Performance under the program will be monitored using data reported by the Ministry of Finance and the CBE to the IMF, with frequency and submission lag indicated in Table 1A and Table 1B.
- Data are defined consistently with the program definitions above.
- CAPMAS will report data on inflation to the IMF, with submission lag of no more than 10 business/working days after each test date.
- In case of any data revisions, the authorities will transmit to the IMF immediately.

### Egypt: Reporting Requirements for Ministry of Finance (selected items and exact frequencies/lags)
- Overall deficit of the budget sector: Frequency M; Submission Lag 30 calendar days.
- Overall deficit of the general government, the NIB, and the SIFs: Frequency Q; Submission Lag 60 calendar days.
- Summary of budget sector accounts, including revenues, expenditures, and net acquisition of financial assets on a cash basis, consistent with the IMF’s Government Financial Statistics Manual 2001: Frequency M; Submission Lag 30 calendar days.
- Budget sector expenditures by the ministries of health and social solidarity: Frequency M; Submission Lag 30 calendar days.
- Summary accounts of the NIB and the SIFs, consistent with presentation of general government accounts: Frequency Q; Submission Lag 60 calendar days.
- Total divestment proceeds and divestment proceeds flowing into the budget, including sales of equities and land: Frequency M; Submission Lag 30 calendar days.
- Domestic debt stock and debt service costs of the general government and the budget sector, including interest payments and amortization. Information on the below the line transactions (non-deficit debt creating flows) of the budget sector and the composition, including accrued interest expense and issuance of T-bonds for recapitalization of the CBE for the budget sector debt and the below the line transactions (60 days for the general government debt): Frequency Q; Submission Lag 30 calendar days.
- Debt of the budget sector by maturity of issuance and by debt holder, including debt to the NIB, the SIFs, and other public entities, at actual and program exchange rates: Frequency M; Submission Lag 30 calendar days.
- End-week balance of government overdraft at the CBE, as defined in this TMU. Separately, interest payments including penalty: Frequency W; Submission Lag 5 working days.
- Gross and net stock of bonds issued by the budget sector to the NIB and the SIFs: 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 M; Submission Lag 30 calendar days.
- 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 5 working days.
- Private placements of domestic and external debt (issuance amount, maturity date, currency of issuance, and interest rate). The information on each issuance should be reported: Frequency W; Submission Lag 5 working days.
- Recapitalization of the CBE by the government (date of recapitalization, amount, information on instruments used to recapitalize the CBE including maturity and interest rate): When recapitalization takes place; Submission Lag 5 working days.
- Average original maturity of newly issued local currency tradable debt of the budget sector...: Frequency Q; Submission Lag 30 calendar days.
- Gross issuance of guarantees in billions of Egyptian pounds at program and actual exchange rates...: Frequency Q; Submission Lag 60 calendar days.
- Stock of outstanding domestic arrears by creditor. Stocks of commitments, orders to pay, and overdue payments of the budget sector in aggregate and by following entities (EGPC, GASC, NUCA, National Postal Authority, National Authority for Egyptian Railways, Egyptian Electricity Holding Company, Egyptian Natural Gas Holding Co., Holding Company for Drinking Water and Sanitation, and EgyptAir): Frequency Q; Submission Lag 30 calendar days.
- Financial information of the NIB: detailed balance sheet, income statement, cash flow projections for the next 12 months; list of non-performing loans (overdue for more than 90 days), including loan amounts: Frequency Q; Submission Lag 60 calendar days.
- Breakdown of fuel subsidies by product, including volumes, prices, and costs and revenue of EGPC: Frequency Q; Submission Lag 45 calendar days.
- EGPC arrears to oil companies on supply contracts denominated in U.S. dollars: Frequency Q; Submission Lag 30 calendar days.
- Breakdown of food subsidies by ration card spending and wheat purchase price and quantity: Frequency Q; Submission Lag 45 calendar days.
- Submit each October and April all investment spending executed over the periods January – June and July – December, respectively...: Frequency S; Submission Lag End April and end October of each year.
- Note: S= Semi-annual Q= quarterly; M = Monthly; W = Weekly.

### Egypt: Reporting Requirements for Central Bank of Egypt (selected items and exact frequencies/lags)
- Gross international reserves at the CBE, at market and program exchange rates: Frequency M; Submission Lag 7 working days.
- Program net international reserves at the CBE and its components (foreign reserve assets and foreign reserve-related liabilities), at market and program exchange rates: Frequency M; Submission Lag 15 calendar 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 market and program exchange rates: Frequency M; Submission Lag 15 calendar days.
- Program disbursements as defined in this TMU, including purchases of state-owned assets (including sales of equities and land) in foreign currencies by official bilateral partners including sovereign wealth funds and the private sector. Breakdown of program disbursements described in this TMU: Frequency M; Submission Lag 7 working days.
- Stock of government T-bills and T-bonds denominated in local currency and held by nonresidents: Frequency W; Submission Lag 7 working days.
- Stock of outstanding external debt payment arrears of the general government and the CBE (if any), by creditor: Frequency M; Submission Lag 30 calendar days.
- Debt service schedule for external debt payments, with breakdown of interest and amortization. Breakdown by type of creditor and type of debt...: Frequency Q; Submission Lag 90 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 and same presentation format as the CBE’s SDDS tables. Values of export and imports of goods, with a breakdown by main categories, including exports of natural resources oil, natural gas, and gold. All items in BOP financing (below-the-line) that reconcile changes in reserves implied by the BOP and changes in the program gross international reserves: 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 bank deposits (Egyptian pound and foreign currency) by sector (household, corporate, and public): Frequency M; Submission Lag 30 calendar days.
- End-week stock of bank-by-bank FX demand backlogs in U.S. dollar, for the eight banks identified by the CBE...: Frequency W; Submission Lag 5 working days.
- End-month bank-by-bank foreign exchange net open position (NOP) as a ratio of bank capital...: Frequency M; Submission Lag 30 calendar days.
- Bank-by-bank net foreign assets, as defined in this TMU: Frequency M; Submission Lag 30 calendar days.
- Daily interbank turnover in the FX spot market: Frequency W; Submission Lag 5 working days.
- Daily central bank purchases and sales of foreign exchange by counterparts (commercial banks, EGPC, GASC, government): Frequency W; Submission Lag 2 working days.
- Information on the FX intervention, including full array of bids, both prices and volumes: When intervention takes place; Submission Lag End of the day of intervention.
- Daily official exchange rates (EGP per USD): Frequency W; Submission Lag 5 working days.
- Daily average buy and sell exchange rates (EGP per USD) as quoted by foreign exchange bureaus and banks: Frequency W; Submission Lag 5 working days.
- Bank-by-bank data: (i) balance sheets by currency (Egyptian pound and foreign currency); (ii) income statements; (iii) breakdown of loan classification, deposits, due from/to, securities holdings, repos, fixed and repossessed assets, 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. Reporting on “Other Items, net” will be split into a component relating to the stock of outstanding CBE lending to public agencies excluding the Ministry of Finance and a component reflecting all other items: Frequency W; Submission Lag 7 working days.
- Monthly CBE financial statements (unaudited): Frequency M; Submission Lag 20 calendar days.
- Quarterly and annual CBE financial statements (audited): Frequency Q; Submission Lag 60 calendar days.
- Recapitalization of the CBE by the government (date of recapitalization, amount, information on instruments used to recapitalize the CBE including maturity and interest rate): When recapitalization takes place; Submission Lag 5 working days.
- End-week balance of government overdraft at the CBE, as defined in this TMU. Separately, interest payments including penalty: Frequency W; Submission Lag 5 working days.
- New CBE lending to public agencies excluding the Ministry of Finance (amount, terms of lending): When lending takes place; Submission Lag 5 working days.
- Stock of outstanding CBE lending to public agencies excluding the Ministry of Finance, by individual loan (amount, date contracted, terms of lending): Frequency M; Submission Lag 5 working days.
- Daily overnight interbank rate (CONIA) and the daily mid-corridor rate: Frequency W; Submission Lag 2 working days.
- Stock of loans under CBE subsidized lending initiative, both utilized and allocated / committed amounts, with the decomposition by initiative: Frequency M; Submission Lag 30 working days.
- Bank-by-bank holdings of government securities, with for each security information on: (i) the total issuance amount; (ii) name of issuer; (iii) type of instrument (bills, bonds, other); (iv) accounting treatment (AFS, HTM, HFT); (v) maturity date; (vi) coupon rate and interest payment frequency; (vii) current market price; (viii) yield to maturity. Data for bank-by-bank holdings of government securities at end-March 2024 will be provided by end-June 2024: Frequency Q; Submission Lag 60 calendar days.
- Note: Q= quarterly; M = Monthly; W = Weekly.

### Supplementary update (excerpt on inflation and monetary policy)
- Headline consumer price inflation:
  - Declined for the fourth consecutive month in a row in June 2024 to 27.5 percent (y/y).
  - This is below the upper outer limit of the Monetary Policy Consultation band and above the upper inner band, requiring a consultation with staff.
- Authorities’ outlook and policy stance:
  - Authorities underlined that their forecast suggests that inflation has peaked and, in the absence of external shocks, inflation is expected to moderate further in 2024 even with increases in administrative prices.
  - A significant decline in inflation is anticipated in 2025 Q1 due to the combined impact of monetary policy tightening, subsiding impact of previously existing market imbalances and a favorable base effect.
  - Authorities emphasized they will continue to conduct monetary policy decisions in a data-dependent manner, and stand ready to take action if data outturns signal deviations from their projected inflation path towards achieving their target.
  - On July 18, 2024, the Monetary Policy Committee left policy rates unchanged judging that the current monetary stance is appropriate to support the sustained moderation of inflation.

*Supplement: Third Review under the Extended Arrangement—Supplementary information, revised proposed decision, and supplementary Letter of Intent (ARAB REPUBLIC OF EGYPT).*

### 2.      Net international reserves (NIR) on June 30, 2024, based on the program’s

### 1egyea2024002-print-pdf — Net international reserves (NIR) and program update (June–July 2024)

### NIR outturn, adjustments, and QPC status
- Net international reserves (NIR) on June 30, 2024, based on the program’s definition, were US$38,194 million.
- Because the NIR outturn for end-June 2024 became available before the Executive Board’s consideration of the third review, the authorities no longer request modification and a waiver of applicability for the quantitative performance criterion (QPC) on NIR at end-June 2024.
- The QPC floor on NIR at end-June 2024 reverts to the floor of US$30,329 million approved by the Board at the completion of the first and second reviews.
- The adjusted QPC on NIR for end-June 2024 of US$37,608 million was met, in part thanks to the central bank’s purchase of foreign exchange in June.
- The NIR floor was adjusted upward by   US$7,279 billion, mainly due to the adjuster on the holdings of local currency government T-bills and T-bonds held by non-residents, which were significantly higher at end-June 2024 relative to program projections at the completion of the first and second reviews.
- Specific adjustor details:
  - Present value of the stock of local currency government T-bills and T-bonds held by nonresidents at end-May 2024: US$16,533 million (actual) versus projections at completion of the first and second reviews: US$1,850 million.
  - The NIR floor was adjusted upwards by 50 percent of the excess in the present value of that stock (the text reports the upward adjustment as US$7,342 million in the footnote).
  - Other adjustors applied: (ii) deviations in program disbursements (adjusted downwards by US$53 million); and (iii) repo margin calls (adjusted downwards by US$ 9.5 million).
  - The adjustor on net external borrowing from private creditors in foreign currency was not applied because this borrowing was lower-than-projected.

### Quantitative performance criteria, indicative targets, and related data
- Continuous performance criteria met:
  - Balance of central bank lending to public agencies excluding the Ministry of Finance (continuous ceiling) was met.
  - Accumulation of external debt payment arrears by the general government (continuous ceiling) was met.
- Data not available / assessment pending:
  - Final data to assess performance relative to the QPC on the budget sector primary balance is not available; there is no evidence that the QPC would not be met.
  - Data to assess some other indicative targets (ITs) is not available.
- Indicative targets performance:
  - ITs for end-June 2024 related to foreign exchange sales were met.
  - The target on the average maturity of gross local currency debt issuance was missed by a de minimis amount.

### Structural benchmark, rephasing, and authorities’ request
- The authorities did not meet the end-June 2024 structural benchmark to create an indicator to track implementation of the State Ownership Policy.
- Rationale provided by authorities: the indicator is complex, sensitive to subjective interpretation, and there is limited international experience and agreed standards to guide its construction.
- The authorities requested additional time to develop the indicator in consultation with IMF staff.
- The authorities propose, and staff agrees, to rephase the structural benchmark to end-September 2024.

### Breaches, remedial action, and operational commitments
- The quantitative performance criterion on the balance of the government’s overdraft account at the CBE (weekly ceiling) was breached in July 2024.
  - Staff learned the balance exceeded the weekly ceiling for the weeks ending July 10 and July 18, primarily due to large debt repayments and cyclically lower tax collections in July.
  - The balance had also exceeded the ceiling for the weeks ending April 18 through May 23 (previously highlighted). The reported peak amount was EGP 350.2 billion on May 23.
  - The deviation observed in July was temporary and was corrected by July 23, with the balance falling significantly below the program’s ceiling.
- Authorities’ corrective commitments:
  - Strengthen cash and debt management.
  - Develop an enhanced system to forecast cash needs and timely adjust domestic debt issuance plans by the next program review.
- Staff recommendation:
  - Staff continues to recommend completion of the review and approval of the waiver requests as set forth in the staff report, the authorities’ original LOI, the MEFP, the TMU, and the authorities’ updated LOI.
  - Staff supports updating the request for a waiver of nonobservance for the QPC on the balance of the overdraft account to also include the weeks ending July 10 and July 18 because the breach was temporary and corrective action has been taken.

### Additional policy action: fuel price adjustment
- The authorities raised retail fuel prices on July 25, 2024:
  - Octane 92: raised by 10 percent.
  - Octane 80 and Octane 95 (both gasoline grades): raised by 11 percent.
  - Diesel: raised by 15 percent.
- Policy objective: step towards delivering on the plan to reach cost recovery level by December 2025.

*Source: Supplementary information and updated Letters of Intent and staff supplement (July 24 and July 26, 2024).*

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_Source: https://www.imf.org/-/media/files/publications/cr/2024/english/1egyea2024002-print-pdf.pdf_