## 1egyea2026002

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---

### Recent developments
- IMF reviews and disbursements:
  - Seventh review under the Extended Fund Facility (EFF) and second review under the Resilience and Sustainability Facility (RSF) were agreed on June 29, 2026; staff report completed on July 17, 2026.
  - Completion of the Executive Board reviews allows immediate drawings of:
    - SDR 1.11 billion (about US$1.5 billion) under the EFF,
    - SDR 200 million (about US$272 million) under the RSF,
    - bringing total purchases and disbursements under the two arrangements to about SDR 5.4 billion (about US$7.3 billion).
- Real activity and labor market:
  - Real GDP growth: 5 percent in the third quarter of FY2025/26; 5.2 percent growth over the first nine months of the fiscal year; FY2025/26 growth expected at about 4.6 percent (0.1 percentage points lower than at the time of the 5th and 6th Reviews).
  - FY2026/27 growth projected to moderate to 4.4 percent due to lagged war effects.
  - Unemployment rate fell to 6.0 percent in Q1 2026.
- Inflation and monetary policy:
  - Headline inflation: 15.2 percent in March 2026 (about 1.4 percentage points above staff expectations); eased to 14.3 percent in June 2026.
  - Core inflation: rose to 14.3 percent; seasonally adjusted month-on-month core inflation estimated at 1.5 percent.
  - MPC adopted a wait‑and‑see approach in May and July 2026, leaving policy rates unchanged.
- External sector and reserves:
  - Current account deficit: estimated at 4.5 percent of GDP in FY2025/26.
  - Gross international reserves: reached 119 percent of the ARA metric by end-June 2026; gross international reserves in USD billion projected at 62.0 (2025/26) and 58.6 (2026/27) in program tables.
  - Non-resident holdings of local-currency government debt: record high of US$39.1 billion on February 18, 2026; fell to US$22.2 billion by April 8; recovered to $36.4 billion by June 24.
  - Exchange rate: depreciation of about 14–17 percent peak-to-trough in March; after inflows resumed the exchange rate was about 2.5 percent weaker than before the conflict.
- Fiscal and financing indicators:
  - GFNs declined by 5 percent of GDP in FY2025/26 (aim to reduce by 10 percent of GDP over FY2025/26–FY2026/27).
  - Tax-to-GDP ratio: projected to rise by 1.2 percentage points in FY2025/26; tax package expected to yield about 1.2 percent of GDP between June 2025 and June 2027.
  - Primary surplus: expected to increase from 4.8 percent of GDP in FY2025/26 to 5 percent of GDP in FY2026/27.
  - Divestment proceeds brought to around $520 million; program targets and expectations for additional proceeds specified (see Divestment).
- Structural reforms and RSF:
  - Updated State Ownership Policy (SOP) adopted; Gabal El Zeit deal finalized; MoF sales of shares in selected publicly traded companies completed.
  - RM3 met; RM4 completed early; proposal to modify RM9 and rephase RM4 under RSF.

### Outlook and risks
- Baseline near-term projections:
  - Growth: projected at 4.4 percent in FY2026/27 (lagged war effects, higher input costs, uncertainty).
  - Inflation: expected to rise to 16.7 percent in the second half of 2026; headline inflation projected to rise to about 17 percent by September 2026 in some sections.
  - Current account: projected to narrow as oil prices normalize and services surplus and remittances improve.
  - Reserves: expected to remain well above 100 percent of the ARA metric.
- Downside risks:
  - Renewed regional escalation could reduce growth, raise global inflationary pressures, tighten financial conditions, and strain fiscal and external positions.
  - Domestic risks: difficulties sustaining tight policies amid social pressures, elevated rollover and refinancing needs, slower-than-expected pace of reducing the state’s role in the economy.
- Adverse scenario (selected impacts, staff estimates):
  - Assumptions include international oil prices rising to US$103 per barrel, Suez Canal traffic unchanged at current levels, tourism receipts 5 percent below baseline, reduction in portfolio inflows equivalent to about half of that experienced in Q3–Q4 FY2025/26, and a 150 basis point increase in spreads.
  - Under this scenario:
    - Growth would decelerate to 3.0 percent in FY2026/27 and 4.4 percent in FY2027/28 (baseline: 4.4 percent and 5.0 percent).
    - Current account deficit would widen by 0.6 percentage points of GDP to 4.9 percent in FY2026/27 relative to baseline.
    - Reserves would decline to $58 billion (98 percent of the ARA metric) absent additional policy measures.
    - Average inflation could rise by 4 percentage points relative to baseline.

### Program performance and conditionality
- Quantitative performance criteria (QPCs) and indicative targets:
  - All end-March 2026 quantitative performance criteria met except a temporary breach on CBE lending to public entities, which was corrected.
  - End-June 2026 QPCs on CBE lending to public entities and the stock of privately-placed MoF notes were met; all end-June criteria expected to have been met based on available information.
  - Four out of seven end-March indicative targets achieved.
  - Missed ITs include the inflation clause, breach of end-December budget sector debt ceiling, and end-June ATM issuance target (missed three consecutive quarters).
  - Authorities agreed to reach an ATM at issuance of 1.25 by end-September and to reduce stock of privately placed MoF notes to EGP 375 billion.
- Waivers and staff support:
  - Staff supports waivers of applicability of end-June QPCs on NIR, tax revenue, primary balance, and overdraft because data to assess these QPCs were not available by the July Board meeting and there is no indication they would not be met.
  - Staff supports establishment of new end‑September 2026 QPCs and proposed rephasing of RM4 and modification of RM9 under the RSF.

### Policy recommendations (core IMF advice)
- Monetary and exchange rate policy:
  - Adopt a tighter monetary policy stance to complete disinflation.
  - Maintain exchange rate flexibility as first line of defense; continue building reserves via market-based purchases when conditions permit.
  - Guide monetary policy by domestic inflation dynamics and ensure clear, consistent communication to anchor expectations.
- Fiscal and debt policy:
  - Sustain revenue-based fiscal consolidation to reduce debt and create space for targeted social safety nets.
  - Strengthen debt management and accelerate implementation of the strategy to reduce GFNs.
  - Priorities: reduce reliance on short-term and non-market financing; limit one-off measures; broaden investor base; mobilize concessional financing; strengthen debt management institutions.
  - Maintain sustained primary surpluses, pursue voluntary liability management operations, and extend maturities to reduce rollover risks.
- State‑owned enterprises, divestment, and structural reforms:
  - Decisive implementation of the State Ownership Policy and acceleration of divestment agenda to reduce state footprint and improve competitive neutrality.
  - Strengthen SOE and SOB governance; prioritize majority sales and foreign investment where appropriate; ensure proceeds allocated to debt reduction.
  - Continue business climate, trade facilitation, and competition reforms to attract investment and boost productivity.
- Financial sector and contingency planning:
  - Maintain vigilance to safeguard financial stability; implement governance diagnostics of large state-owned banks and corrective actions.
  - Identify and operationalize contingency measures; test crisis preparedness.
- Energy pricing and fiscal risks:
  - Resume automatic fuel pricing mechanism to reduce untargeted energy subsidies and advance toward energy cost recovery.
  - Strengthen public financial management and mitigate fiscal risks from SOEs and EGPC.

### Debt management, GFNs, and divestment
- GFN reduction targets and measures:
  - GFNs declined by 5 percent of GDP in FY2025/26 (vs. 6 percent envisaged earlier); additional 5 percent of GDP effort projected in FY2026/27 to reach cumulative 10 percent of GDP reduction.
  - FY2025/26 contributions to GFN/GDP reduction (Text Table 5):
    - Qatar land sales (US$3.5 billiion)0.86
    - Divestment proceeds (US$100mn)0.03
    - Maturity extension of 3m T-bills1.65
    - Maturity extension of privately placed MOF notes2.04
    - Voluntary liability management operations0.46
    - Overall effort, FY25/265.0
  - FY2026/27 estimated measures (Text Table 5):
    - Divestment (US$920 million)0.2
    - Maturity extension of T-bills2.5
    - Voluntary liability management operations2.3
    - Overall effort, FY26/275.0
  - Note: maturity-lengthening operations within the one-year horizon amounting to 4.5 percent of GDP are not reflected in annual GFN projections due to aggregation rules.
- Divestment proceeds and targets:
  - Original EFF objective: US$8.7 billion in divestment proceeds (half to debt reduction).
  - Progress to end-FY2023/24: US$2.2 billion; sale of land to Qatar for US$3.5 billion executed.
  - By July 2026, at least US$500 million in proceeds to be collected from key transactions (sale of 100 percent stake in Gabal El Zeit and MoF shareholdings); Misr Life proceeds expected by end‑August; proceeds to be fully allocated to debt reduction.
  - Supplementary update: By July 26, 2026, divestment proceeds totaling US$526.3 million transferred to the budget (US$420 million Gabal El‑Zeit; US$106.3 million from MoF sales).
- Debt and public debt projections:
  - Gross debt, general government (% GDP) projected series (selected):
    - 2022/23: 95.9
    - 2023/24: 90.9
    - 2024/25: 86.8
    - 2025/26: 87.0
    - 2026/27: 85.6
    - 2027/28: 84.4
    - 2028/29: 82.8
    - 2029/30: 80.9
    - 2030/31: 77.6
  - Public debt is projected to decline gradually from 91.1 percent of GDP in FY2025/26 to below 75 percent by 2031 under baseline assumptions.
- Debt management institutional strengthening:
  - Publication of MTDS and ABP; establishment of a dedicated DMO; recruitment of staff; World Bank TA.
  - Priorities: complete DMO structure, strengthen debt recording and IT systems, enhance cash-debt coordination, publish ABP with monitoring, promote liquid benchmarks and secondary market development, and strengthen investor relations.
- Domestic issuance and ATM:
  - ATM of new issuances increased to 1.1 years by end-June 2026 (highest in three years) but below target; target ATM at issuance of 1.25 by end-September 2026.
  - Share of one-week MoF notes declined to 6.2 percent by June from 83.9 percent in March.
  - Outstanding stock of privately placed MoF notes reduced from EGP 752 billion to EGP 475 billion over the last twelve months; interim target to reduce to EGP 375 billion by end-September 2026.

### Financial sector soundness and digital/regulated developments
- Banking system indicators (end-2025 and related):
  - System-wide capital adequacy ratio: 19.3 percent at end-2025.
  - Return on assets: above 2½ percent.
  - Banks’ exposure to central government: 35 percent of assets as of end-2025.
  - Total exposure to public sector: credit to Local Governments 16.9 percent and to SOEs 2.1 percent as of end-2025.
  - Liquidity metrics: LCR local currency 640.9 percent; LCR foreign currency 219.2 percent; NSFR total 169.9 percent.
- Resilience and contingency:
  - Money market tightened modestly after conflict; overnight interbank rate moved toward upper bound of policy corridor but pressures contained.
  - Recommendation: continue vigilance, strengthen contingency planning, implement governance diagnostics and corrective action plans for state-owned banks (interim report by August; final by end-September 2026).
- Digital finance and fintech:
  - e-KYC, digital banking, fintech sandbox, and cyber resilience measures progressing; first fully licensed digital bank expected before end-2026.
- Nonbank financial sector:
  - Mutual fund assets EGP 316 billion in 2025; insurance sector assets EGP 420 billion (about 15 percent y-o-y increase).
  - NBFS highly exposed to government securities; recommend promoting longer-term institutional investors (pension and life insurance funds) to deepen markets.

### Structural reforms, business environment, and public financial management
- State Ownership Policy (SOP) 2026–30:
  - Shift to portfolio management framework, creation of SOE Unit, commercial risk-return considerations, improved corporate governance and competitive neutrality, Cabinet-approved execution plan with time-bound actions.
  - Executive plan to be prepared and secured by Cabinet (new structural benchmark).
- Business environment and trade facilitation:
  - Customs clearance times fell from 16 days in 2021 to 5.8 days; amendments to Customs Law adopted in June to support advance clearance.
  - Action plan to re-engineer procedures covering 90 licensing authorities and 468 economic activities published end-June 2026.
  - Competition Law amendments approved in April 2026 to strengthen Egyptian Competition Authority.
- Public financial management and transparency:
  - FY2026/27 budget accompanied by a fiscal risk statement and medium-term budget; contingency reserves about 1.1 percent of GDP.
  - Full digitalization of procurement pilot starting July 2026; e-procurement platform rollout targets for end-2026 and end-2027.
  - SOE reporting responsibilities transferred to the SOE Unit; objective to expand coverage to 230 SOEs by end-November 2026; 2026 annual SOE report to be published by end-October.
  - Open Budget Index Score increased to 59 in 2025 (from 49 in 2023).

### RSF climate-related reforms and progress
- RM3: met — integration of climate considerations into national investment planning; applied to projects above EGP 500 million.
- RM4: completed early — expanded asset registry, integrated climate risk into investment monitoring, conducted assessments of six projects totalling EGP 27 billion.
- RM5: quantitative analysis of long-term climate-related fiscal risks and contingent liabilities incorporated in draft budget and published in June 2026.
- Proposed RM9 modification: strengthen PPP monitoring and transparency; modify target date from end‑June 2026 to end‑August 2026.
- Other RSF reform measures in progress: RM6 (binding ESRMS regulatory framework issued June 30, 2026), RM7 (national disaster risk financing strategy in progress), RM8 (MRV system work in progress), RM10 (National Water Council operational).

### Key statistics and exact figures (selected)
- Drawings at completion: SDR 1.11 billion (about US$1.5 billion) under EFF; SDR 200 million (about US$272 million) under RSF; total about SDR 5.4 billion (about US$7.3 billion).
- Growth and inflation snapshots:
  - Real GDP growth (selected projections from Text Table 2): 2025/26 (Proj.): 4.7; 2026/27 (Proj.): 4.6; 2027/28 (Proj.): 5.4.
  - Inflation (end of period from Text Table 2): 2025/26: 11.7; 2026/27: 14.3; 2027/28: 8.7.
- Current account and reserves (Text Table 2):
  - Current account (% GDP): 2025/26: -3.9; 2026/27: -4.5.
  - Gross International Reserves (USD billion): 2025/26: 62.0; 2026/27: 58.6.
  - Reserves in percent of ARA metric: 2025/26: 114.4; 2026/27: 109.9.
- Public debt and GFNs:
  - Primary balance (% GDP): 2025/26: 4.8; 2026/27: 4.8; later years targeted at 5.0.
  - Gross debt, general government (% GDP): 2025/26: 87.0; 2026/27: 85.6; 2027/28: 84.4; 2029/30: 80.9.
  - Gross financing needs: 2025: 35.3; 2026: 42.0; 2027: 36.2.
- Financing pipeline and non‑IMF financing:
  - Expected non-IMF financing and revised divestment profile: US$4.7 billion in FY2025/26; $6.7 billion in FY2026/27.
  - Text Table 6 exact lines (select): External financing needs: 35.6; 32.7; 32.6. Current account deficit: 16.6; 19.6; 20.6. IMF, Extended Fund Facility: 3.5; 2.0; 3.0. Sales of state-owned assets: 5.0; 3.5; 0.4.
- Banking sector metrics:
  - Banks’ net foreign assets: peak US$14.5 billion in January; US$5.8 billion at end-March; US$7.7 billion in May.
  - Banks’ exposure to central government: 35 percent of assets as of end-2025.
  - System-wide capital adequacy ratio: 19.3 percent at end-2025.

*Source: IMF staff report: "2026. Discussions with the officials of the Arab Republic of Egypt on economic developments and policies," staff report completed on July 17, 2026; chapter content and tables as provided in the supplied document.*

### 2026. Discussions with the officials of the Arab Republic of Egypt on economic

### 2026. Discussions with the officials of the Arab Republic of Egypt on economic developments and policies

### Recent developments
- Seventh review under the Extended Fund Facility (EFF) and second review under the Resilience and Sustainability Facility (RSF) were agreed on June 29, 2026; staff report completed on July 17, 2026.
- Completion of the Executive Board reviews allows immediate drawings of:
  - SDR 1.11 billion (about US$1.5 billion) under the EFF,
  - SDR 200 million (about US$272 million) under the RSF,
  - bringing total purchases and disbursements under the two arrangements to about SDR 5.4 billion (about US$7.3 billion).
- Macroeconomic indicators and policy actions:
  - Real GDP growth: 5 percent in the third quarter of FY2025/26; 5.2 percent growth over the first nine months of the fiscal year; FY2025/26 growth expected at about 4.6 percent (0.1 percentage points lower than at the time of the 5th and 6th Reviews).
  - Headline inflation: increased to 15.2 percent in March 2026 (about 1.4 percentage points above staff expectations); eased to 14.3 percent in June 2026.
  - Core inflation: rose to 14.3 percent; seasonally adjusted month-on-month core inflation estimated at 1.5 percent.
  - Current account deficit: estimated at 4.5 percent of GDP in FY2025/26.
  - Gross international reserves: reached 119 percent of the ARA metric by end-June 2026.
  - GFNs (gross financing needs): declined by 5 percent of GDP in FY2025/26.
  - Tax-to-GDP ratio: projected to rise by 1.2 percentage points in FY2025/26.
  - Primary surplus: expected to increase from 4.8 percent of GDP in FY2025/26 to 5 percent of GDP in FY2026/27.
- Structural reform progress:
  - Updated State Ownership Policy (SOP) adopted; Gabal El Zeit deal finalized; MoF sales of shares in selected publicly traded companies completed.
  - Divestment proceeds brought to around $520 million.
  - Progress uneven: divestment program slower than anticipated and needs acceleration.

### Outlook and risks
- Near-term projections:
  - Growth projected to moderate to 4.4 percent in FY2026/27 due to lagged effects of the war, higher input costs, and persistent uncertainty.
  - Inflation expected to rise to 16.7 percent in the second half of 2026, with convergence to the CBE’s inflation target range delayed by about one year.
  - Current account deficit projected to narrow as oil prices normalize and services surplus and remittances improve.
  - Gross international reserves expected to remain broadly in line with previous projections and well above 100 percent of the ARA metric.
- Downside risks:
  - Renewed regional escalation could reduce growth, raise global inflationary pressures, tighten financial conditions, and strain fiscal and external positions.
  - Domestic risks include difficulties sustaining tight policies amid social pressures, elevated rollover and refinancing needs, and slower-than-expected pace of reducing the state’s role in the economy.
- Upside scenarios:
  - Renewal of the US–Iran ceasefire agreement could lower energy prices and improve investor sentiment.
  - Recovery in Suez Canal activity and accelerated structural reforms could boost growth and private sector development.

### Program performance
- Program implementation:
  - All end-March 2026 quantitative performance criteria met, except for a temporary breach of the ceiling on central bank lending to public entities, which was corrected.
  - Based on available information, end-June 2026 quantitative performance criteria on central bank lending to public entities and the stock of privately-placed Ministry of Finance notes were met; remaining end-June criteria expected to have been met.
  - Four out of seven indicative targets were achieved for end-March.
  - Structural reform implementation continued, with most benchmarks met, including all recurring ones; progress underway on publication of comprehensive SOE portfolio information.
  - Updated State Ownership Policy and annual GFN reduction plan completed as prior actions.
- Financing and disbursement:
  - Agreement permits drawing of about US$1.8 billion equivalent under the two arrangements at completion of reviews (see drawings under Recent developments).

### Policy discussions and recommendations
- Monetary and exchange rate policy:
  - Recommendation: A tighter monetary policy stance is critical to complete disinflation.
  - Maintain exchange rate flexibility to support resilience to shocks and ease external pressures.
  - Maintaining exchange rate flexibility while continuing to build reserves remains important.
- Fiscal and debt policy:
  - Sustain revenue-based fiscal consolidation to reduce debt and create space for targeted social safety nets.
  - Strengthen debt management and accelerate implementation of strategy to reduce gross financing needs.
  - Priorities: reduce reliance on short-term and non-market financing; limit use of one-off measures; broaden investor base; mobilize concessional financing; strengthen debt management.
  - Sustained primary surpluses, voluntary liability management operations, and maturity extension highlighted as key to reducing gross financing needs and rollover risks.
- State-owned enterprises, divestment, and structural reforms:
  - Decisive implementation of the State Ownership Policy and acceleration of the divestment agenda are essential to reduce the state footprint and improve competitive neutrality.
  - Strengthen SOE and SOB governance; accelerate divestment to compensate for past delays.
  - Continue reforms to the business climate, trade facilitation, and competition policy to attract investment and boost productivity.
- Financial sector and contingency planning:
  - Continue vigilance to safeguard financial stability; banking sector remains sound.
  - Strengthen contingency planning and timely implementation of governance diagnostics of state-owned banks and corrective actions to enhance risk management.
- Energy pricing and fiscal risks:
  - Resumption of automatic fuel pricing mechanism important to reduce untargeted energy subsidies and advance toward energy cost recovery.
  - Strengthen public financial management and mitigate fiscal risks, including those from SOEs and EGPC.

### Program requests, waivers, and technical matters
- Staff supports authorities’ request for:
  - Completion of the seventh EFF review and second RSF review, including proposed rephasing of one reform measure.
  - Establishment of new end-September 2026 quantitative performance criteria (QPCs).
  - Completion of the MPCC consultation with the Executive Board.
  - Waivers of applicability of end-June quantitative performance criteria on NIR, tax revenue, primary balance, and overdraft because the Executive Board discussion takes place in July 2026 after the end-June 2026 test date and the data to assess performance are not available, while there is no indication they will not be met.
- Benchmarks and structural measures:
  - Two prior actions met; one remaining prior action on divestment expected to be met prior to the Executive Board meeting.
  - Three new structural benchmarks proposed to support implementation of the State Ownership Policy, EGPC’s viability plan, and adoption of the withholding tax.
- Program risks:
  - Implementation and enterprise risks remain significant despite program being on track.

*Source: IMF staff report: "2026. Discussions with the officials of the Arab Republic of Egypt on economic developments and policies," staff report completed on July 17, 2026; Executive Board completion announcements and Executive Summary content as provided in the report.*

### 22. Fiscal Sector _____________________________________________________________________________________ 37

### 22. Fiscal Sector

### Context
- Egypt entered the war in the Middle East from a stronger macroeconomic position than in previous periods of external stress.
- Prior to the war:
  - Growth had reached its highest H1 level since FY2021/22.
  - Inflation was on a downward trend.
  - Gross international reserves increased, reaching US$64 billion at end-January—about 119 percent of the ARA metric.
  - Commercial banks’ net foreign assets (NFA) had reached a record high.
  - The primary fiscal surplus continued to strengthen.
- Remaining vulnerabilities:
  - High public debt levels.
  - Elevated gross financing needs—largely short-term and reliant on foreign inflows.
  - Slow progress on reducing the role of the state in the economy and leveling the playing field.

### Policy Response to the War
- Authorities’ measures and effects:
  - Greater exchange rate flexibility.
  - Early increases in fuel and electricity prices.
  - Increased targeted on-off social payments.
  - Measures to reduce energy consumption: temporary early closure of commercial establishments, mandatory work from home, curtailed fuel use by government entities.
  - Delayed implementation of some mega projects.
  - Structural reform work continued, though some earlier divestment operations were delayed.

### Recent Developments — Growth and Labor Market
- Real GDP growth:
  - Reached 5.0 percent in the third quarter of FY2025/26.
  - Supported by expansion in the Suez Canal, tourism, construction, and positive but moderating non‑oil manufacturing growth.
- Labor market:
  - Unemployment rate fell to 6.0 percent in Q1 2026 (historic low).
  - Continued increases in employment and labor force participation.
- High-frequency indicators suggest a temporary post-shock dip followed by partial recovery and normalization (Suez Canal, flights).

### Recent Developments — Inflation and Monetary Policy
- Inflation:
  - Rose to 15.2 percent in March 2026—about 1.4 percentage points above staff expectations—mainly reflecting exchange rate pass‑through and domestic price increases following the war.
  - Headline inflation eased to 14.3 percent in June (supported by easing food inflation).
  - Core inflation increased from 13.8 percent in May 2026 to 14.3 percent in June.
  - Month-on-month core inflation declined to 0.3 percent in June from 1.6 percent in May; seasonally adjusted core inflation remained at 1.5 percent in June.
- Monetary Policy Committee (MPC) action:
  - Adopted a wait‑and‑see approach in May and July 2026, leaving policy rates unchanged.

### Recent Developments — External Sector and Capital Flows
- Current account and trade:
  - Current account came under pressure in March due to higher oil and gas prices and temporary suspension of gas imports from Israel (lifted in April), increasing LNG purchases and widening the hydrocarbon trade deficit.
  - Deterioration partly offset by:
    - Record-high remittances in March and April.
    - Robust tourism receipts.
    - Stronger petroleum export earnings driven by higher oil prices.
    - Gradual recovery in Suez Canal revenues.
  - Canal traffic averaged about 39 ships per day in FY2025/26 compared to 73 in 2023.
  - Monthly Suez Canal receipts around US$390 million this fiscal year, up from US$310 million in FY2024/25; less than half of the 2023 level of US$850 million.
- Capital flows and reserves:
  - Non-resident holdings of local-currency government debt reached a record high of US$39.1 billion on February 18, 2026, then fell to US$22.2 billion by April 8, before recovering modestly to $36.4 billion by June 24.
  - Gross international reserves still exceeded 114 percent of the ARA metric at end-March; reserves remained strong including through recent FX purchases by the central bank.
- Exchange rate:
  - Capital outflows triggered a sharp exchange rate depreciation of about 14–17 percent from peak to trough in March.
  - As portfolio inflows resumed, the exchange rate appreciated, leaving it about 2.5 percent weaker than before the conflict.
  - The spread between the official market rate and market-clearing measures remained closed throughout; no reported FX demand backlogs at banks and no CBE FX intervention.

### Recent Developments — Fiscal Performance
- End-March primary balance and tax revenue targets were met.
  - Supported by strong performance in direct taxes (PIT and CIT) and tax administration efforts.
  - Modest increases in investment and interest spending and higher one-off targeted cash transfers associated with the Eid holidays were more than offset.
- Budget sector fiscal outturns (July–March), percent of full year GDP:
  - Revenues: 9.3 (2024/2025 actual), 9.9 (2025/2026 actual), 8.6 (5th & 6th Review)
  - Taxes: 7.9, 8.7, 7.5
  - Grants: 0.0, 0.1, ...
  - Other revenue: 1.3, 1.1, ...
  - Expenditures: 15.4, 15.8, 14.4
  - Wages and compensation of employees: 2.4, 2.3, ...
  - Purchases of goods and services: 0.7, 0.7, ...
  - Interest: 8.6, 8.8, ...
  - Subsidies, grants, and social benefits: 2.3, 2.3, ...
  - Other expenditures: 0.6, 0.6, ...
  - Purchase of non financial assets: 0.9, 1.1, ...
  - Deficit-Financed: 0.8, 1.0, ...
  - Cash Deficit: 6.1, 5.8, 5.8
  - Net Acquisition of Financial Assets: 0.1, 0.2, ...
  - Divestment: -0.8, 0.8
  - Overall Deficit: 6.2, 5.2, 5.3
  - Primary Balance (including NAFA): 2.4, 3.5, 3.0

### Recent Developments — Domestic Financing
- Treasury bill yields:
  - Remain around 500 basis points above the policy rate.
  - Issuance concentrated at the short end of the curve; inverted yield curve discourages appetite for duration risk.
- MoF notes and issuance patterns:
  - Immediate aftermath of the crisis: greater reliance on short-term MoF notes.
  - Issuance has shifted toward publicly auctioned instruments; stock of privately placed MoF notes gradually declined.
  - Share of one-week notes declined to 6.2 percent by June from 83.9 percent in March.
  - 2-month MoF notes issued through public and private placements.
  - Share of MoF notes held by public banks fell to 32 percent (from 51 percent in March).
  - T-bond issuance recovered in May; government issued 10-year bonds in June.
  - Average time to maturity (ATM) of new issuances increased to 1.1 years by end-June—the highest level in three years—though still below program target.

### Recent Developments — External Financing and Market Access
- Sovereign spreads and issuance:
  - Sovereign spreads narrowed steadily after an initial widening following the war, and fell below pre-war levels by June.
  - Authorities issued a US$1 billion 8-year Social Eurobond in May (five-times oversubscribed).
  - Authorities issued a $500 million Samurai Bond in June.

### Recent Developments — Financial Sector and Liquidity
- Banking sector:
  - Remains well capitalized and profitable, with low nonperforming loans and no immediate signs of stress following the war.
  - Banks’ net foreign assets declined from a peak of US$14.5 billion in January to US$5.8 billion at end-March, before partially recovering to US$7.7 billion in May.
  - Banks’ exposure to the central government remains high at 35 percent of assets as of end-2025—the second largest in the region—and remains a source of vulnerability.
  - Total exposure to the public sector is higher: as of end-2025, banks’ credit to Local Governments and to SOEs stood at 16.9 percent and 2.1 percent, respectively.
- Money market and liquidity:
  - Money market conditions tightened modestly after the conflict; overnight interbank rate moved slightly toward the upper bound of the policy corridor.
  - Degree of tightening remained well below levels observed during past stress episodes—pressures temporary and contained.

### Outlook and Risks
- Near-term outlook (based on the July 2026 WEO Update assumptions) is weaker than pre-war projections set at the 5th and 6th reviews (Tables 1–9).
- Output:
  - Real GDP growth is projected at 4.6 percent in FY2025/26, around 0.1 percentage points lower than at the time of the 5th and 6th reviews.
  - While stronger-than-expected growth in the third quarter has largely offset the immediate impact of the war, growth is projected to moderate to

*Source: IMF staff summary of "22. Fiscal Sector" (content unit 1egyea2026002).*

### 4.4 percent in FY2026/27, as the lagged effects of the war weigh on activity, including through

### 1egyea2026002 - 4.4 percent in FY2026/27, as the lagged effects of the war weigh on activity, including through

### Growth outlook and sectoral dynamics
- Real GDP growth projections (selected years from Text Table 2):
  - 2022/23: 3.8
  - 2023/24 (Est., 5th & 6th review): 2.4
  - 2024/25 (Proj., 5th & 6th review): 4.4
  - 2025/26 (Proj.): 4.7
  - 2026/27 (Proj.): 4.6
  - 2027/28 (Proj.): 5.4
  - 2028/29 (Proj.): 4.4
  - 2029/30 (Proj.): 5.0
  - 2030/31 (Proj.): 5.5
- Key drivers and constraints:
  - Growth projected at 4.4 percent in FY2026/27, as the lagged effects of the war weigh on activity through weaker investment, higher input and financing costs, and continued uncertainty.
  - These factors are expected to dampen growth in industry, manufacturing, and services, and to slow the pace of structural reforms and improvements in the business environment and private sector development.
  - Private consumption is projected to soften amid elevated inflation and weakened purchasing power, with weaker investment assessed as the dominant drag.

### Inflation outlook
- Inflation projections and dynamics:
  - Inflation (%, end of period) from Text Table 2:
    - 2022/23: 35.7
    - 2023/24: 27.5
    - 2024/25: 14.9
    - 2025/26: 11.7
    - 2026/27: 14.3
    - 2027/28: 8.7
    - 2028/29: 13.2
    - 2029/30: 7.3
    - 2030/31: 5.9
    - (subsequent year): 5.6
    - (subsequent year): 5.3
  - Inflation is projected to rise in H2 2026 to an average of 16.7 percent, reflecting higher energy prices, unfavorable base effects and exchange rate depreciation.
  - The resumption of inflows, reversal of the depreciation, and tight monetary policy are expected to help moderate inflation thereafter.
  - The gradual convergence of inflation to the CBE’s target range is expected to be delayed by one year due to lingering transitory conflict-related inflationary pressures and energy price adjustments linked to implementation of the automatic fuel price mechanism.

### Balance of payments and external sector
- Current account and reserves (Text Table 2 and narrative):
  - Current account (% GDP) series:
    - 2022/23: -1.2
    - 2023/24: -5.4
    - 2024/25: -4.2
    - 2025/26: -3.9
    - 2026/27: -4.5
    - 2027/28: -3.9
    - 2028/29: -4.3
    - 2029/30: -3.9
    - 2030/31: -3.3
    - later: -3.0
    - later: -2.8
  - Gross International Reserves (USD billion):
    - 2022/23: 37.2
    - 2023/24: 53.8
    - 2024/25: 56.8
    - 2025/26: 62.0
    - 2026/27: 58.6
    - 2027/28: 64.3
    - 2028/29: 67.5
    - 2029/30: 66.3
    - 2030/31: 68.2
    - later: 70.8
    - later: 72.9
  - In percent of ARA metric (floating):
    - 2022/23: 79.6
    - 2023/24: 119.1
    - 2024/25: 114.5
    - 2025/26: 114.4
    - 2026/27: 109.9
    - 2027/28: 110.5
    - 2028/29: 115.2
    - 2029/30: 106.4
    - 2030/31: 102.8
    - later: 100.7
    - later: 98.1
- Narrative drivers and projections:
  - The current account deficit is projected to narrow, driven by gradual improvement in the trade balance—particularly in oil and gas—as prices normalize, alongside a growing services surplus.
  - Remittances are expected to remain strong after recent record inflows.
  - Higher oil prices’ impact is partly mitigated by oil hedging contracts for imports and long-term gas contracts—notably with Israel—which help cap prices.
  - With sovereign spreads normalized, external issuances are expected to proceed as programmed; foreign holdings of local currency debt are projected to gradually recover and stabilize.
  - FDI is projected to decline by about 13 percent relative to pre-war projections next fiscal year—reflecting remaining exposure to war-affected countries—before recovering thereafter.
  - Reserves are expected to remain broadly in line with previous projections and well above the 100 percent of the ARA metric throughout the program horizon formula.

### Public debt, financing needs, and fiscal stance
- Fiscal and debt indicators (Text Table 2 and narrative):
  - Primary balance (% GDP) series:
    - 2022/23: 1.6
    - 2023/24: 6.2
    - 2024/25: 3.8
    - 2025/26: 4.8
    - 2026/27: 4.8
    - 2027/28: 4.8
    - 2028/29: 4.8
    - 2029/30: 5.0
    - 2030/31: 5.0
    - later: 5.0
    - later: 5.0
  - Gross debt, general government (% GDP):
    - 2022/23: 95.9
    - 2023/24: 90.9
    - 2024/25: 86.8
    - 2025/26: 87.0
    - 2026/27: 85.6
    - 2027/28: 84.4
    - 2028/29: 82.8
    - 2029/30: 80.9
    - 2030/31: 77.6
    - later: 74.4
    - later: 70.8
- Projections and policy measures:
  - Public debt is projected to be slightly lower than under the 5th and 6th reviews, reflecting stronger nominal growth in the near term.
  - Debt remains sustainable in the medium term, but not with high probability, with high risks of sovereign stress (Annex II).
  - Public debt is projected to decline gradually from 91.1 percent of GDP in FY2025/26 to below 75 percent by 2031, mainly driven by the sustained primary surplus.
  - Gross financing needs (GFN) are expected to peak at about 42.0 percent of GDP in FY2025/26, alongside high debt, interest, and rollover risks.
  - The authorities’ GFN reduction measures, estimated at about 5 percent of GDP in FY2025/26, with a further 5 percent of GDP effort projected in FY2026/27, are expected to gradually reduce GFN to below 30 percent of GDP by 2030.
  - Note on measurement: maturity-lengthening operations within the one-year horizon (amounting to 4.5 percent of GDP) are not reflected in the DSA’s annual GFN projections, given aggregation rules.

### Downside risks and adverse scenario
- Key risk channels highlighted:
  - Energy imports: From March to June, the import bill expanded by approximately US$3.5 billion, with natural gas accounting for roughly half of the increase.
  - Suez Canal receipts: Generated fiscal and BoP receipts of about 0.6 and 1.0 percent of GDP, respectively, in the current fiscal year; recovery in traffic remains about 50 percent below pre-2023 levels.
  - Remittances: Estimated at close to 10 percent of GDP in FY2024/25, with roughly 74 percent originating from GCC countries.
  - Tourism: Accounted for about 4.6 percent of GDP in BoP receipts and contributed around 0.5 percentage points to growth in 2025.
  - Capital flows: Higher international oil prices could prompt investor repositioning and capital outflows.
- Adverse scenario assumptions and impacts:
  - Adverse scenario assumptions include international oil prices rising to US$103 per barrel; strait of Hormuz reopens; Suez Canal traffic unchanged at current levels; tourism receipts 5 percent below baseline projections; reduction in portfolio inflows equivalent to about half of that experienced in Q3–Q4 FY2025/26; and a 150 basis point increase in spreads.
  - Under this scenario, staff estimates that:
    - Growth would decelerate to 3.0 percent in FY2026/27 and 4.4 percent in FY2027/28, compared to 4.4 percent and 5.0 percent in the baseline.
    - The current account deficit would widen by 0.6 percentage points of GDP to 4.9 percent in FY2026/27 relative to the baseline.
    - Reserves would decline to $58 billion (98 percent of the ARA metric) in the absence of additional policy measures.
  - Additional downside pressures described include larger external imbalances, capital outflows, more pronounced exchange rate depreciation, and stronger passthrough to inflation—raising average inflation by 4 percentage points.

### Policy recommendations and preparedness
- Fiscal and financing measures:
  - Continue implementing GFN reduction measures, including maturity lengthening and asset sales, to reduce GFN toward below 30 percent of GDP by 2030.
  - Identify sources of external financing and stand ready to deploy contingency measures should downside risks materialize.
- Monetary and external sector measures:
  - Maintain tight monetary policy to help moderate inflation while supporting the resumption of inflows and stabilization of the exchange rate.
  - Leverage oil hedging contracts and long-term gas contracts to help cap import price pressures.
- Structural reforms:
  - Sustain progress on structural reforms to improve the business environment and support private sector development, recognizing that war-related uncertainty has slowed reforms.

*Source: IMF staff estimates and projections as presented in the supplied content.*

### 19.9 percent in FY2026/27.

### 19.9 percent in FY2026/27.

### Baseline and Downside Scenarios
- Fiscal deficit would increase by 0.8 percentage points of GDP, with public sector debt rising to 84.3 percent of GDP.
- While higher domestic fuel retail prices would help ease pressures from elevated energy prices, higher international oil prices could still raise other subsidy costs (e.g., electricity) or trigger the materialization of contingent liabilities.
- Weaker growth and external activity would weigh on revenues, while higher borrowing costs would raise interest expenditures.
- Additional policy adjustment would be needed under an adverse scenario.
- Key policy guidance:
  - Exchange rate flexibility should remain the first line of defense.
  - Support exchange rate policy with tighter monetary and fiscal policies to contain inflationary pressures, facilitate external adjustment, and preserve reserve buffers.
  - Fiscal policy should prioritize targeted support to vulnerable households while remaining consistent with debt sustainability objectives, including through additional revenue mobilization measures.
  - Maintain an open foreign exchange system; consider capital flow management measures only in the event of an imminent crisis and as a last resort.
  - Accelerate structural reforms and divestment efforts and mobilize additional concessional and multilateral financing to contain financing pressures and support macroeconomic stability.

### Program Performance
- End-June quantitative performance targets (QPCs) are expected to have been met; all end-March 2026 QPCs were met except one.
- Controlling QPCs for the 7th review are the end-June 2026 QPCs.
- End-March QPC targets met on:
  - NIR, overdrafts, the primary balance, tax revenues, the ceiling on the outstanding stock of privately placed MoF notes, and the continuous PC on the non-accumulation of external arrears.
- QPC on CBE lending to public agencies was missed but repayments were made in early June to correct the March deviation and ensure the end-June QPC is met; all end-June 2026 QPCs are expected to be met based on available information.
- Indicative targets (ITs) performance:
  - Four of seven end-March ITs met: floor on social spending, CBE’s FX intervention rule and budget, ceiling for public investment, ceiling on net change in government guarantees.
  - Missed targets include: the inflation clause (annual urban inflation exceeded program upper outer band at end-March and end-June 2026), breach of end-December budget sector debt ceiling, and end-June ATM issuance target (missed three consecutive quarters).
  - Authorities agreed to reach an ATM at issuance of 1.25 by end-September and to reduce the stock of privately placed MoF notes to EGP 375 billion.
- Structural benchmarks:
  - Of end-March and end-June non-recurrent SBs, two were met (CBE supervisory response shared; action plan for simplifying business procedures published).
  - Two measures completed with delay (CBAM supervisory reporting upload in April; legislative mandatory advanced customs clearance sent to Parliament in March).
  - Recurring six SBs: all met or in progress.
  - Not met: adoption of the FY2026/27 tax package withholding tax on free zones; publication of updated State Ownership Policy; reduction of gross financing needs (these are prior actions for completing the 7th Review).
- RSF reform agenda:
  - RM3 met for this Review, including emission impact assessment at project appraisal stage.
  - RM4 (availability date November 15, 2026) implemented early; climate risk assessment integrated into fiscal risk statement by end-June 2026. Proposal to rephase RM4 and associated disbursement to current review.

### Exchange Rate and Monetary Policies
- A tight monetary policy is necessary to contain inflation and keep expectations anchored.
- Recent dynamics and projections:
  - Month-on-month core inflation is 1.5 percent (seasonally adjusted) in June 2026.
  - Headline inflation is projected to rise to about 17 percent by September 2026.
  - Short-term inflation expectations are at 12 percent (above the inflation target band).
  - With policy rate currently below the estimated neutral level and inflation outside the outer band in March and June 2026, increases in interest rates are needed to advance disinflation.
  - Even with such a path, the central bank’s target would be reached with a one-year delay, by December 2027.
  - Monetary policy should be guided by domestic inflation dynamics and supported by clear, consistent communication to ensure inflation converges to within the 7 ±2 percent target band within the new horizon.
- Monetary financing and central bank operations:
  - Authorities have reduced monetary financing; observance of the overdraft ceiling has been maintained.
  - Stock of CBE lending to public sector agencies is being reduced; objective to reduce this stock by EGP 100 billion per year, with a view to eliminating it by end-June 2029.
- Exchange rate flexibility:
  - Exchange rate acted as primary shock absorber during recent outflow episode.
  - Authorities’ accumulation of reserves through market-based purchases helped maintain buffers above standard reserve adequacy metrics; reserves placed in a strong position vis-à-vis NIR targets following overperformance in March.
  - Maintaining foreign exchange flexibility remains first line of defense; deepen FX risk management markets (onshore forward and swap markets, greater use of hedging instruments).

### Fiscal Policy
- Authorities’ actions and outcomes:
  - Timely increases in gasoline, diesel and mazut (above 10 percent cap implied by pricing mechanism), increases in natural gas prices, and electricity tariffs, together with energy conservation measures, helped limit deviation from cost recovery and associated fiscal cost.
  - Revenue performance through April 2026 remained broadly on track to meet annual targets, aided by administration efforts (digitalization, dispute resolution mechanisms).
  - Spending rationalization: under-execution of contingency spending by around 0.6 percent of GDP to meet the primary balance target given lower divestment proceeds.
- FY2026/27 budget:
  - Targets a primary balance of 5 percent of GDP.
  - Revenue measures:
    - A tax package approved by Parliament in June 2026 expected to support an increase in the tax-to-GDP ratio of about 2 percent of GDP between June 2025 and June 2027.
    - Text Table 4 revenue mobilization measures (EGP billion, % GDP):
      - FY2025/26: Removal of exemption on crude oil, with VAT rate of 10% — 42.4 EGP billion, 0.2% GDP; Removal of exemptions on construction — 54.8 EGP billion, 0.3% GDP; 4% withholding tax on freezone companies' exports to local market — 13.8 EGP billion, 0.1% GDP; Informal Economy Policy Reforms — 28.5 EGP billion, 0.1% GDP; Other — 152.9 EGP billion, 0.7% GDP; Total — 195.2 EGP billion, 0.9% GDP.
      - FY2026/27: VAT on rental of non-residential units — 41.0 EGP billion, 0.2% GDP; Dividend tax on distributable profits for SOEs — 46.0 EGP billion, 0.2% GDP; Transfer Pricing and International Taxation — 44.0 EGP billion, 0.2% GDP; Excise on natural gas — 40.6 EGP billion, 0.2% GDP; Other — 128.6 EGP billion, 0.5% GDP; Total — 300.2 EGP billion, 1.2% GDP.
    - Staff regrets withholding tax on free zones (estimated yield 0.1 percent of GDP) was not adopted; authorities to pursue adoption and identified offsetting measures (intraday stock exchange transaction tax; unify duties on departure travel to EGP 100 per person; increase duties/excises on cement sales; transfers by GAFI of fees on turnover from free-zone companies to budget).
  - Revenue administration:
    - Complementary tax facilitation package to improve taxpayer services and strengthen compliance.
    - Staff encourages continued improvements in compliance, automated risk-based audit selection, and structured risk management for tax compliance.
  - Spending prioritization:
    - Budget incorporates priority investments in health, education, energy, water and sanitation alongside targeted support programs, including cash transfers (Takaful and Karama) and in-kind transfers of around 0.24 percent of GDP.
    - Increase in the minimum wage with limited impact on public wage bill (around 0.1 percent of GDP).
    - Prime Minister announced automatic fuel pricing mechanism to resume in July—critical to reduce untargeted energy subsidy spending.
    - Accelerating transition to renewable energy would help reduce import and subsidy bill.
    - Staff supports prioritization of key social spending and transition towards cash transfers; encourages impact assessment to refine targeting within available fiscal space.
  - Contingency reserves:
    - Budget allocates about 1.1 percent of GDP to contingency reserves.
    - Reserves provide flexibility to reprioritize or streamline spending while remaining within the overall expenditure envelope and primary balance target.
    - Budget assumes around $75 a barrel for oil and programs divestment and asset sale proceeds to be transferred to the budget.
    - Authorities should prioritize revenue-based measures, including further streamlining of VAT exemptions, to address any revenue underperformance.
- Fiscal risks and public investment management:
  - EGPC remains main source of fiscal risk; guarantees to EGPC continued to increase despite total government guarantees remaining below end-March target.
  - Clearance of US$6.2 billion in arrears to international oil companies in early June 2026 expected to support production and ease financial pressures.
  - EGPC remains highly leveraged with large interest expenses; staff welcomes implementation of EGPC viability plan—progress report expected by end-September (new structural benchmark)—aims to achieve cash-flow surplus in FY2025/26, reduce government guarantees by 25 percent by FY2026/27, and accelerate receivables collection.
  - Public investment containment:
    - Total outlays in first half of FY2025/26: EGP 440.9 billion.
    - Budget entities, economic authorities, and public companies accounted for 45, 34, and 21 percent of spending, respectively.
    - Public investment ceiling for FY2025/26 set at EGP 1,158 billion; public investment-to-GDP ratio currently at 5.4 percent of GDP.
    - Priority for projects financed on concessional terms; evaluation and prioritization of projects and PPPs to be strengthened; World Bank’s Public Finance Review to include public investment management assessment.
  - Public financial management:
    - Progress toward consolidating EAs into general government fiscal reporting in line with GFSM 2014.
    - Forthcoming budget sector arrears report planned semi-annually; coverage to expand to critical SOEs and EAs and expected to be published by September 2026 (structural benchmark).
    - Improvements to consolidated debt statistics and expanded SOE reporting planned for next publication (November 2026).
    - Full digitalization of procurement across budget entities advanced; pilot of e‑procurement expected to begin in July 2026.

### Debt Management
- Tight market conditions constrained efforts to reduce gross financing needs (GFNs) and extend debt maturities.
- Actions and developments:
  - Maturities lengthened in first two months of 2026, but the onset of the war in March heightened market volatility, triggered nonresident outflows, and weakened demand for longer-term instruments.
  - ATM fell below program target by April; authorities relied on very short-term MoF notes to meet financing needs, shortening maturity profile and delaying GFN reduction measures.
  - Authorities modestly backloaded implementation of GFN reduction plan in response to conditions.
- Specific targets and corrective measures:
  - ATM issuance target missed; authorities agreed to reach an ATM at issuance of 1.25 by end-September.
  - Reduce stock of privately placed MoF notes to EGP 375 billion.

*Source: ARAB REPUBLIC OF EGYPT — INTERNATIONAL MONETARY FUND (content unit 1egyea2026002).*

### 15. Nevertheless, the efforts to achieve a cumulative reduction of 10 percent of GDP during

### 15. Nevertheless, the efforts to achieve a cumulative reduction of 10 percent of GDP during

### Debt-reduction plan and financing strategy
- Program objective: achieve a cumulative reduction of 10 percent of GDP during FY2025/26–FY2026/27.
- Updated projection: GFNs now projected to decline by 5 percent of GDP in FY2025/26, compared with 6 percent envisaged at the time of the 5th and 6th reviews.
- FY2025/26 measures (bulk of effort):
  - Market-based maturity extension, primarily very short-term instruments, including three-month T-bills and MoF notes.
  - Proceeds from the Qatar land sales and divestment.
- FY2026/27 measures (additional 5 percent of GDP reduction expected):
  - Further maturity lengthening.
  - Voluntary and market-based liability management operations that exchange shorter-term securities for longer-dated instruments.
- Policy constraints:
  - Any maturity extension achieved through privately placed or publicly auctioned MoF notes is excluded from the FY2026/27 GFN reduction plan.
  - Strategy includes gradual unwinding of the stock of short-term MoF notes—with zero issuance of weekly notes by end-September—and a shift toward tradable instruments.
- Complementary actions needed: strengthening institutional framework for debt management, diversifying investor base, and promoting policies to develop the domestic market to underpin effort durability.

### Text Table 5 — Egypt: GFN Reduction Efforts (FY2025/26) and Potential Measures (FY2026/27)
- Measures and contribution to GFN/GDP reduction (%):
  - Qatar land sales (US$3.5 billiion)0.86
  - Divestment proceeds (US$100mn)0.03
  - Maturity extension of 3m T-bills1.65
  - Maturity extension of privately placed MOF notes2.04
  - Voluntary liability management operations0.46
  - Overall effort, FY25/265.0
  - Divestment (US$920 million)0.2
  - Maturity extension of T-bills2.5
  - Voluntary liability management operations2.3
  - Overall effort, FY26/275.0
- Note: * for FY26/27, numbers are estimates.

### Strengthening debt-management institutions and processes
- Objective: establish a fully-fledged debt management office (DMO) to strengthen macroeconomic resilience.
- Progress welcomed:
  - Publication of the Medium-Term Debt Strategy (MTDS) and Annual Borrowing Plan (ABP).
  - Establishment of a dedicated DMO and recruitment of additional staff to strengthen middle-office functions, with World Bank technical assistance.
- Priority reforms:
  - Completing the DMO structure: adopt a standard functional structure with clear separation of front-, middle-, and back-office responsibilities and a strong legal mandate.
  - Strengthening institutional arrangements: address fragmentation in responsibilities, data gaps, and weak IT systems; establish debt recording systems under DMO responsibility to provide accurate, comprehensive, and timely information on both external and domestic debt; consolidate debt recording, debt statistics, and related systems within the DMO.
  - Improving coordination between cash and debt management: strengthen cash forecasting and liquidity management; enhance coordination between units responsible for cash and debt management to align funding decisions with government liquidity needs, reduce ad hoc borrowing, support strategic funding operations, lower refinancing risks, and facilitate extension of debt maturities.
  - Enhancing interagency coordination: broaden mandate of existing committee that coordinates external debt to oversee all public debt; strengthen coordination among MoF, CBE, Ministry of Planning, and other relevant institutions.
  - Strengthening the Annual Borrowing Plan (ABP): publish alongside the budget and monitor regularly against borrowing outcomes and budget execution; systematically assess deviations between planned and actual borrowing.
  - Promoting development of the domestic debt market: DMO to champion liquid benchmark securities, market-based price formation in auctions, strengthen primary dealer framework, and support secondary market development.
  - Strengthening investor relations: enhance communication with market participants and transparency regarding the government's financing strategy.

### Financial sector policies and resilience
- Banking system metrics and risks:
  - System-wide capital adequacy ratio: 19.3 percent at end-2025.
  - Profitability: return on assets above 2½ percent and high returns on equity; elevated net interest margins.
  - Risk: banks’ exposure to the sovereign remains elevated, creating potential valuation, liquidity, and rollover risks in the event of market stress.
- Policy toolkit and contingency:
  - Existing capital and liquidity buffers provide resilience to absorb temporary funding and market shocks without extraordinary support measures.
  - Release of macroprudential tools not warranted at this stage, but could be considered if significant deterioration in banks’ liquidity or capital positions occurs.
  - Capital flow management measures (CFMs) are measures of last resort to be deployed only in acute stress and should not substitute for warranted macroeconomic adjustment.
  - Authorities encouraged to identify, operationalize, and regularly test contingency measures to strengthen crisis preparedness and financial-sector resilience.
- State-owned banks (SOBs):
  - Strengthening governance remains a priority.
  - Central bank agreed with the two large SOBs on corrective action plans following diagnostic studies.
  - Measures to address identified gaps to be shared with staff in an interim report in August and detailed in a final action report (end-September structural benchmark).
- Digital financial sector development:
  - Initiatives: expansion of digital banking services, implementation of e-KYC frameworks, strengthening fintech regulation, and enhancements to cyber resilience.
  - Ongoing efforts to strengthen supervisory and regulatory frameworks to support innovation while safeguarding financial stability, operational resilience, and financial integrity.
- Nonbank financial sector (NBFS):
  - Size and growth: mutual fund assets reached EGP 316 billion in 2025; insurance sector total assets rose by about 15 percent to EGP 420 billion.
  - Composition: growth concentrated in money market funds, limiting contribution to extending public debt maturity profile.
  - Risk: NBFS balance sheets significantly exposed to government securities, reinforcing sovereign-financial sector nexus and potential channel for broader financial spillovers.
  - Recommendation: promote longer-term institutional investors—particularly pension and life insurance funds—to diversify investor base, deepen domestic markets, and support maturity extension; continue close monitoring of NBFS developments, asset allocation, and risk exposures.

### Structural reform policies and state-ownership reforms
- Importance: structural reforms critical to raising medium-term growth potential and reducing vulnerabilities; aim to reallocate capital and labor toward more productive private-sector firms, boost investment, productivity, exports, and employment.
- State Ownership Policy (SOP) 2026–30:
  - Represents a significant upgrade from the 2022 SOP; shifts from sectoral approach to comprehensive ownership management framework.
  - Key elements:
    - Updates sectoral priority matrix in line with IFC recommendations, identifying priority sectors for state withdrawal.
    - Establishes a portfolio management framework based on selective ownership, company-specific decision-making, periodic portfolio reviews, and commercial risk-return considerations.
    - Introduces a unified legal and institutional architecture and creation of the State-Owned Enterprises (SOE) Unit to oversee SOP implementation, conduct portfolio triage, manage transfers to the Sovereign Fund of Egypt (FSE), and monitor implementation timelines.
    - Strengthens competitive neutrality by separating ownership and regulatory functions, enhancing ECA enforcement capacity, and clarifying criteria for state market intervention.
    - Enhances corporate governance in line with OECD standards, including stronger and more independent boards, improved selection criteria, and more transparent dividend policies.
    - Expands coverage to include economic authorities with ongoing reviews of legal status and restructuring options, including conversion into joint-stock companies.
    - Introduces a Cabinet-approved execution plan with time-bound actions, updated annually.
    - Reinforces monitoring and transparency through a composite SOP implementation indicator and an annual implementation report.
- Operationalization: authorities to prepare and secure Cabinet approval of an executive plan specifying clear actions and timelines (MEFP ¶29, new structural benchmark).

### Divestment agenda and proceeds
- Original EFF objective: divestment expected to generate US$8.7 billion in proceeds, with half allocated to debt reduction.
- Progress to end-FY2023/24: proceeds reached US$2.2 billion; sale of a land to Qatar for US$3.5 billion undertaken to address shortfall.
- Additional programming: US$1.5 billion in proceeds—programmed at the 5th and 6th reviews for FY2025/26—is now expected in FY2026/27.
- Under the scenario described, total proceeds allocated to debt reduction during the program would reach about US$4.7 billion.
- Planned transactions and allocations:
  - By July 2026, at least US$500 million in proceeds to be collected from key transactions, including sale of a 100 percent stake in Gabal El Zeit and some Ministry of Finance shareholdings, alongside an agreement ensuring the irreversibility of the sale of a 20 percent stake in Misr Life Insurance (Prior Action).
  - Proceeds from the Misr Life transaction are expected by end‑August; proceeds will be fully allocated to debt reduction.
  - To achieve total proceeds of about US$1.5 billion by program end, authorities committed to advance the divestment program and shift toward IPOs to deepen capital markets and broaden investor participation; at least 50 percent of proceeds will be allocated to debt reduction.
  - Preparations underway for management concessions of 11 airports, with initial progress on one transaction supported by IFC.
- Policy guidance: prioritize attracting foreign direct investment; where assets are sold domestically, transactions should support effective private-sector participation, avoid dominance by SOEs or connected domestic parties; prioritize majority sales to foster private sector development and avoid reliance on land sales as stop-gap measures.

### Business environment reforms and implementation status
- Overall: reforms progressing more slowly than envisaged; acceleration needed.
- Trade facilitation:
  - Customs clearance times fell from 16 days in 2021 to 5.8 days, though momentum toward the 2-day target has stalled.
  - Amendments to the custom laws—submitted to Parliament in March (end-February 2026 structural benchmark) and adopted in June—are expected to help further accelerate customs clearance.
- Streamlining business procedures:
  - Development of the digital Integrated Economic Entities Platform to streamline business registration, licensing, and operations and reduce nuisance fees.
  - Authorities published an action plan to re-engineer procedures at end-June 2026 (structural benchmark), covering 90 licensing authorities and 468 economic activities for detailed licensing assessment.
- Improving competition:
  - April 2026: Parliament approved amendments to the Competition Law expected to strengthen institutional independence of the Egyptian Competition Authority (ECA) and enable it to impose direct administrative sanctions, expanding the ECA’s enforcement toolkit.

*IMF staff summary based on provided chapter content.*

### 26. Performance under the RSF continues to be strong:

### 26. Performance under the RSF continues to be strong:

### Implementation highlights
- RM3 was successfully implemented. It introduced climate considerations for national investment planning, now applied to major projects, strengthening alignment with the National Climate Change Strategy 2050 (MEFP, ¶36).
- Two RSF reform measures were completed ahead of schedule.
- Work is completed on expanding the asset registry and integrating climate risk analysis, with assessments of major new completed projects informing the draft FY2026/27 fiscal risk statement already published (RM4).
- Quantitative analysis of long-term climate-related fiscal risks and contingent liabilities—focusing on PPPs and SOEs—has been incorporated into the draft budget, and published in a separate statement in June 2026 (RM5). 4, 5

### Proposed modifications and targets
- It is proposed to modify RM9 to improve PPP monitoring and transparency. The measure includes:
  - preparing pre-feasibility studies for two climate-related PPP projects (one on adaptation and one on mitigation);
  - conducting and publishing a stock-take of PPP procurement methods;
  - expanding the Ministry of Finance’s ability to collect and report PPP information across legal frameworks;
  - publishing annual PPP procurement indicators beginning in FY2025/26.
- It is proposed to modify the target date from end-June 2026 to end-August 2026.

### Progress on remaining RSF reform measures
- Regulatory and institutional reforms are progressing, including through:
  - publishing an environmental and social risk management framework for banks (RM6);
  - developing a national disaster risk financing strategy (RM7);
  - establishing a measurement, reporting, and verification framework for emissions from hydrocarbon production (RM8);
  - operationalizing the National Water Council and developing a national water allocation framework (RM10).

*Source: 26. Performance under the RSF continues to be strong:*

### 27. Given the Board timing after the availability of some of the end-June QPCs,

### 27. Given the Board timing after the availability of some of the end-June QPCs,

### Conditionality, timing, and data reporting
- For end-June:
  - QPCs are unchanged.
  - Two new structural benchmarks track implementation of the State-Ownership Policy and the EGPC’s viability plan.
  - A new structural benchmark was introduced for adoption of the withholding tax on free zones.
  - Measures on gross financing needs reduction, divestment, and SOP publication are prior actions for completing the Review (MEFP Table 1 & 2).
  - A new monthly data requirement on reporting redemption and issuance-profile of all public domestic debt on a monthly basis was added to monitor GFN reduction targets.
- For end-September:
  - Authorities proposed and staff agreed to set new quantitative performance criteria (QPCs) for end-September 2026 to be assessed for completion of the 8th Review.
  - End-September MPCC consultation bands have been revised relative to the 5th and 6th reviews to reflect the impact of the regional conflict on the inflation outlook.
- Staff supports:
  - Waivers of applicability of end-June 2026 QPCs on NIR, tax revenue, primary balance, and overdraft because the data to assess these QPCs would not be available by the time of the Board meeting in July and there is no evidence they would not be met.
  - Establishment of new end-September 2026 QPCs.
  - Proposed rephasing of RM4 and modification of RM9 under the RSF arrangement.

### Financing assumptions and projections
- Program remains fully financed.
- Assumptions and assurances:
  - GCC official deposits at the CBE will not be withdrawn before the end of the EFF in December 2026, except in the case of equity purchases, with the associated FX proceeds retained in the CBE’s foreign exchange reserves.
  - Baseline assumes foreign inflows resume in the second half of FY2026/27 at a slower pace than prior to the war; Eurobond issuance assumptions unchanged; reserves continue to increase in line with program targets.
- Expected financing (excluding the IMF) and revised divestment profile:
  - Projected to amount to US$4.7 billion in FY2025/26.
  - Projected to amount to $6.7 billion in FY2026/27.
- Text Table 6 (selected lines, exact values preserved):
  - External financing needs: 35.6 (5th/6th review), 32.7 (Proj.), 32.6 (Proj.).
  - Current account deficit: 16.6, 19.6, 20.6.
  - Public and private loan amortization: 15.8, 9.9, 10.2.
  - IMF repayments: 3.1, 3.1, 1.8.
  - External financing sources total: 28.6, 25.2, 30.5.
  - Identified Official Financing: 12.9, 6.7, 9.7.
  - IMF, Extended Fund Facility: 3.5, 2.0, 3.0.
  - World Bank: 0.7, 0.0, 1.0.
  - European Commission: 2.8, 1.2, 3.5.
  - Sales of state-owned assets: 5.0, 3.5, 0.4.

### Resilience and Sustainability Facility (RSF)
- Concurrent RSF arrangement to be monitored through agreed reform measures.
- One reform measure proposed for rephasing:
  - Staff supports authorities’ request to bring forward completion date and disbursement for RM4 to second RSF review, reflecting implementation progress.
  - Authorities expanded the pilot asset registry to additional ministries, undertook climate risk analysis of large new assets, and published a summary.
  - RM9 was revised to strengthen monitoring and transparency of PPPs while preserving RSF ambition and objectives.
  - World Bank provided an updated assessment letter on the authorities’ climate policies in support of the second RSF review (Supplement 1, WB Assessment Letter).
- Staff view: proposed adjustments improve sequencing without weakening the reform package.

### Enterprise, macro-financial, and policy risks
- Enterprise risks remain significant and would increase if downside risks materialize.
- Key upside/downside risk channels and vulnerabilities:
  - Higher inflation, tighter financing conditions, rising social pressures could increase business and reputational risks and make reforms harder to sustain.
  - Risk that authorities’ monetary policy stance proves less restrictive than staff considers necessary to contain inflationary pressures and anchor expectations.
  - Risks from reliance on short-term domestic financing, remaining structural reform gaps, data quality and non-standard accounting practices, and potential spillovers from geopolitical shocks.
- Mitigants:
  - Exchange rate flexibility as shock absorber.
  - Net international reserves in excess of Fund debt service obligations.
  - Continued improvements in fiscal and external positions expected to mitigate financial credit risks.
- Staff advice:
  - Continued monitoring and readiness to respond swiftly to evolving global environment and risks.

### Capacity to repay the IMF and safeguards
- Capacity to repay is adequate but subject to risks and contingent on full program implementation and materialization of projected financing.
- Egypt is the Fund’s fifth largest exposure in the GRA as of July 1, 2026.
- Fund repurchases and charges projected to decline in FY2026/27 from 4.7 to 2.8 percent of exports and from 6.2 to 3.4 percent of gross reserves, and to continue declining before rising again beginning FY2030/31 as EFF repurchases fall due (Table 10 referenced).
- Egypt’s stock of gross and net international reserves exceeds obligations to the Fund, providing a repayment buffer.
- CBE safeguards progress: mixed
  - Strengthened foreign reserves management; efforts to reduce legacy claims on public sector agencies.
  - Limited progress toward full compliance with Egyptian Accounting Standards/IFRS; staff encourages concrete actions to address remaining gaps.

### Staff appraisal — principal findings and policy recommendations
- Macroeconomic position and response:
  - Egypt entered the war in the Middle East from a stronger macroeconomic position, increasing resilience to external shocks.
  - Proactive, timely, and well-coordinated policy response—including exchange rate flexibility, energy price adjustment, and expanded targeted support—helped contain fiscal and external pressures.
- Monetary policy:
  - A tighter monetary policy is needed to keep inflation expectations anchored and bring inflation back to target.
  - Monetary policy should be supported by clear communication committing to bring inflation back within the target band within a reasonable time-frame.
  - Maintain exchange rate flexibility and continue accumulating reserves through market-based purchases during strong inflows.
- Fiscal policy and revenue mobilization:
  - Authorities’ commitment to prudent fiscal policy amidst the war is commendable.
  - Continued fiscal consolidation essential to strengthen debt sustainability and rebuild buffers.
  - Adoption of tax measures yielding 2 percent of GDP over two years is welcome; sustained efforts needed to raise revenue from its low level and meet program targets, including adoption of the withholding tax on free zones.
  - Revenue mobilization priorities: rationalize VAT exemptions, streamline corporate tax incentives, strengthen compliance, advance tax administration (digitalization and risk-based compliance).
  - Resumption of the automatic fuel pricing mechanism and continued energy cost recovery are important to reduce untargeted energy subsidies and create fiscal space.
- PFM, SOE, and EGPC risks:
  - Continued strengthening of PFM practices and fiscal risk management—including from SOEs and EGPC—remain critical.
  - FY2026/27 budget includes a fiscal risk statement; further efforts should expand analysis of SOE-related risks and PPP contingent liabilities.
  - Full and timely implementation of EGPC’s viability plan to strengthen cash flows and address cross-arrears is critical.
- Debt management and gross financing needs:
  - Sustained primary surpluses, successful liability management, and extending debt maturities essential to reduce gross financing needs and reliance on short-term debt.
  - Miss of the average time-to-maturity target underscores need to accelerate unwinding of short-term instruments (including one-week MOF notes) and shift to tradable securities.
  - Actions in the GFN reduction plan needed to lengthen maturities, broaden/diversify investor base, and reduce reliance on privately placed and non-marketable instruments.
  - Establish a fully-fledged debt management office with a clear legal mandate, modern data and risk-management systems, and coordination across debt, cash, and fiscal management functions.
- Financial sector vigilance:
  - Banking sector remains sound but has significant exposure to the sovereign; monitor valuation, liquidity, and rollover risks.
  - Strengthen contingency planning and implement governance diagnostics and corrective action plans for state-owned banks.
- Structural reforms and private sector growth:
  - Progress on structural reforms remains uneven; faster implementation required to support private sector-led growth and resilience.
  - State Ownership Policy (SOP) adoption is a key step; accelerate divestment and timely implementation of SOP executive plan.
  - Continue reforms of economic authorities (EAs), improve SOE governance and transparency, and enhance business climate, trade facilitation, and competition reforms.

### Key statistics and exact figures cited in the text
- Expected non-IMF financing and revised divestment profile:
  - US$4.7 billion in FY2025/26.
  - $6.7 billion in FY2026/27.
- Text Table 6 (select exact figures):
  - External financing needs: 35.6; 32.7; 32.6.
  - Current account deficit: 16.6; 19.6; 20.6.
  - Public and private loan amortization: 15.8; 9.9; 10.2.
  - IMF repayments: 3.1; 3.1; 1.8.
  - External financing sources total: 28.6; 25.2; 30.5.
  - Identified Official Financing: 12.9; 6.7; 9.7.
  - IMF, Extended Fund Facility: 3.5; 2.0; 3.0.
  - World Bank: 0.7; 0.0; 1.0.
  - European Commission: 2.8; 1.2; 3.5.
  - Sales of state-owned assets: 5.0; 3.5; 0.4.
- Program phasing and obligations:
  - Egypt is the Fund’s fifth largest exposure in the GRA, as of July 1, 2026 (statement retained as presented).
- Inflation and growth signals referenced for policy stance:
  - Headline inflation is above the outer band; sequential increases in seasonally-adjusted core inflation and headline inflation projected to rise further (qualitative as in source).

*Source: IMF staff report text excerpt (MEFP Tables 1 & 2 and accompanying analysis).*

### Annex I. Risk Assessment Matrix

### Annex I. Risk Assessment Matrix

### Overview and methodology
- The Risk Assessment Matrix (RAM) shows events that could materially alter the baseline path (the scenario most likely to materialize in the view of IMF staff).
- Relative likelihood categories are staff’s subjective assessments: "low" is meant to indicate a probability below 10 percent, "medium" a probability between 10 and 30 percent, and "high" a probability between 30 and 50 percent.
- The RAM reflects staff views on the source of risks and overall level of concern as of the time of discussions with the authorities.
- Non-mutually exclusive risks may interact and materialize jointly.

### Global Risks
- Geopolitical Tensions and Intensification of Conflicts
  - Relative Likelihood: High
  - Impact if Realized: High
  - Key transmission channels and effects:
    - Intensification of conflicts leads to higher trade barriers or sanctions, reduce external trade, increase energy prices, disrupt FDI and supply chains.
    - Higher interest rates amplified by sovereign-bank feedback result in capital outflows, rising risk premia, loss of market access, expenditure cuts, and lower growth.
  - Recommended Policy Response:
    - Allow the exchange rate to act as a shock absorber.
    - Proceed with structural reforms to diversify economy and increase exports to add sources of FX revenue.
    - Improve inclusiveness of government policies, via well-targeted measures and strengthened social safety net.

- Fiscal Vulnerabilities and Higher Interest Rates
  - Relative Likelihood: Medium
  - Impact if Realized: High
  - Key transmission channels and effects:
    - Higher interest rates, stronger U.S. dollar, and shrinking development aid amplified by sovereign-bank feedback result in capital outflows, rising risk premia, loss of market access, abrupt expenditure cuts, and lower growth.
  - Recommended Policy Response:
    - Implement the MTDS and MTRS to reduce GFN and 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.

- Policy Uncertainty
  - Relative Likelihood: High
  - Impact if Realized: High
  - Key transmission channels and effects:
    - Elevated policy uncertainty could weigh on investor sentiment in Egypt, dampening FDI and portfolio inflows, and constraining private investment.
    - Reduced confidence may also increase market volatility and complicate external financing conditions.
  - Recommended Policy Response:
    - Allow the exchange rate to act as a shock absorber.
    - Proceed with structural reforms to diversify economy and increase exports to add sources of FX revenue.
    - Improve inclusiveness of government policies, via well-targeted measures and strengthened social safety net.

- Protectionism and Trade Disruptions
  - Relative Likelihood: High
  - Impact if Realized: Medium
  - Key transmission channels and effects:
    - Higher trade barriers or sanctions reduce external trade, disrupt FDI and supply chains, and trigger further U.S. dollar appreciation, tighter financial conditions, and higher inflation.
  - 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 FX revenue.
    - Improve transparency, governance, and financial reporting of EAs and SOEs, level the playing field.

- Commodity price volatility
  - Relative Likelihood: Medium
  - Impact if Realized: High
  - Key transmission channels and effects:
    - Supply and demand volatility (due to conflicts, trade restrictions, OPEC+ decisions, AE energy policies, or green transition) increases commodity price volatility, external and fiscal pressures, social discontent, and economic instability causes recurrent commodity price volatility.
  - Recommended Policy Response:
    - Allow the exchange rate to act as a shock absorber.
    - Allow energy prices pass-through, improve inclusiveness of government policies via well-targeted measures and strengthened social safety net.

- Social discontent
  - Relative Likelihood: Medium
  - Impact if Realized: High
  - Key transmission channels and effects:
    - Real income loss, spillovers from conflicts, dissatisfaction with migration, and worsening inequality ignite social unrest, populism, polarization, and resistance to reforms or suboptimal policies weakens 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
  - Key transmission channels and effects:
    - 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.

- Inflation risks
  - Relative Likelihood: Medium
  - Impact if Realized: Medium/High
  - Key transmission channels and effects:
    - Volatile global commodity prices, greater pass-through from administrative price adjustments, and/or unanchored expectations could add upward pressure to inflation and complicate the disinflation path.
  - Recommended Policy Response:
    - Continue to anchor inflation expectations through timely interest rate adjustments, clear communication, and a credible commitment to its inflation-targeting framework and exchange rate flexibility.
    - Improve fiscal-monetary coordination and strengthen social safety nets, continue with structural reforms to diversify the economy.

- Slower-than-expected structural reform implementation, including divestment
  - Relative Likelihood: Medium
  - Impact if Realized: Medium/High
  - Key transmission channels and effects:
    - 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 constraints to growth.

- Materialization of fiscal contingent liabilities
  - Relative Likelihood: Medium
  - Impact if Realized: Medium/High
  - Key transmission channels and effects:
    - 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 SOP. Clearly define and separate commercial and non-commercial activities of EAs and SOEs.
    - Prohibit CBE lending to public sector agencies excluding the MoF.

*Source: Annex I. Risk Assessment Matrix (as provided).*

### 5. De bt cons olidation acros s  s e ctors :

### 5. De bt cons olidation acros s  s e ctors :

### Coverage and consolidation basis
- Coverage in this analysis is for the general government, which is comprised of the 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.
- Comments: Includes GCC deposits at CBE.

### Public debt structure indicators (summary commentary)
- 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: 3.7 years.

### Baseline scenario (percent of GDP unless indicated otherwise)
- Public debt: 91.8 (Actual 2025); 91.1 (2025); 84.6 (2026); 82.4 (2027); 78.9 (2028); 75.3 (2029); 71.6 (2030); 67.6 (2031); 63.6 (2032); 59.7 (2033); 55.5 (2034); 51.3 (2035).
- Change in public debt: -5.4 (2025); -0.8 (2026); -6.4 (2027); -2.3 (2028); -3.5 (2029); -3.5 (2030); -3.7 (2031); -4.0 (2032); -4.0 (2033); -4.0 (2034); -4.2 (2035); -4.1 (2036).
- Contribution of identified flows: 1.0 (2025); -0.3 (2026); -2.4 (2027); -1.3 (2028); -3.1 (2029); -3.2 (2030); -3.5 (2031); -3.7 (2032); -3.7 (2033); -3.7 (2034); -4.0 (2035); -3.9 (2036).

Key fiscal and macro variables in baseline
- Primary deficit (general government) 2/: -3.3 (2025); -2.7 (2026); -3.6 (2027); -3.5 (2028); -3.5 (2029); -3.5 (2030); -3.5 (2031); -3.5 (2032); -3.5 (2033); -3.5 (2034); -3.5 (2035); -3.5 (2036).
- Noninterest revenues: 15.8 (2025); 16.3 (2026); 17.6 (2027); 17.6 (2028); 17.3 (2029); 17.2 (2030); 17.2 (2031); 17.2 (2032); 17.2 (2033); 17.2 (2034); 17.2 (2035); 17.2 (2036).
- Noninterest expenditures: 12.6 (2025); 13.6 (2026); 13.9 (2027); 14.1 (2028); 13.8 (2029); 13.7 (2030); 13.7 (2031); 13.7 (2032); 13.7 (2033); 13.7 (2034); 13.7 (2035); 13.7 (2036).
- Automatic debt dynamics: -0.4 (2025); 3.2 (2026); 1.2 (2027); 2.1 (2028); 0.4 (2029); 0.3 (2030); 0.0 (2031); -0.1 (2032); -0.2 (2033); -0.2 (2034); -0.5 (2035); -0.5 (2036).
- Real interest rate and relative inflation: -1.4 (2025); 7.3 (2026); 5.0 (2027); 6.1 (2028); 4.7 (2029); 3.9 (2030); 3.5 (2031); 3.1 (2032); 2.9 (2033); 2.7 (2034); 2.2 (2035); 2.1 (2036).
- Real interest rate: -8.5 (2025); 4.3 (2026); 1.9 (2027); 4.7 (2028); 4.0 (2029); 3.4 (2030); 3.0 (2031); 2.7 (2032); 2.5 (2033); 2.3 (2034); 1.9 (2035); 1.7 (2036).
- Relative inflation: 7.1 (2025); 3.0 (2026); 3.0 (2027); 1.4 (2028); 0.7 (2029); 0.5 (2030); 0.5 (2031); 0.5 (2032); 0.4 (2033); 0.4 (2034); 0.4 (2035); 0.3 (2036).
- Real growth rate: -4.1 (2025); -4.1 (2026); -3.8 (2027); -4.0 (2028); -4.3 (2029); -3.6 (2030); -3.4 (2031); n.a. (2032); -3.3 (2033); -3.1 (2034); -2.9 (2035); -2.7 (2036); -2.5 (2037) [note: table formatting indicates continuation across years].
- Real exchange rate: 5.1 (2025).
- Other identified flows: 4.7 (2025); -0.9 (2026); 0.1 (2027); 0.1 (2028); 0.0 (2029); 0.0 (2030); 0.0 (2031); 0.0 (2032); 0.0 (2033); 0.0 (2034); 0.0 (2035); 0.0 (2036).
- Contingent liabilities: 0.0 across projection years in the table.
- Other transactions: 4.7 (2025); -0.9 (2026); 0.1 (2027); 0.1 (2028); 0.0 (2029); 0.0 (2030); 0.0 (2031); 0.0 (2032); 0.0 (2033); 0.0 (2034); 0.0 (2035); 0.0 (2036).
- Contribution of residual: -6.4 (2025); -0.4 (2026); -4.0 (2027); -1.0 (2028); -0.4 (2029); -0.3 (2030); -0.3 (2031); -0.3 (2032); -0.3 (2033); -0.3 (2034); -0.2 (2035); -0.2 (2036).

Gross financing needs and debt service
- Gross financing needs: 35.3 (2025); 42.0 (2026); 36.2 (2027); 37.9 (2028); 33.3 (2029); 29.0 (2030); 27.2 (2031); 27.0 (2032); 24.6 (2033); 22.8 (2034); 21.1 (2035); 19.8 (2036).
- Of which: debt service: 38.9 (2025); 45.0 (2026); 40.1 (2027); 41.7 (2028); 37.0 (2029); 32.7 (2030); 30.9 (2031); 30.7 (2032); 28.3 (2033); 26.5 (2034); 24.8 (2035); 23.4 (2036).
- Local currency: 28.7 (2025); 38.2 (2026); 34.2 (2027); 35.6 (2028); 31.7 (2029); 28.5 (2030); 26.9 (2031); 26.9 (2032); 24.9 (2033); 23.2 (2034); 21.8 (2035); 20.5 (2036).
- Foreign currency: 10.2 (2025); 6.8 (2026); 5.9 (2027); 6.0 (2028); 5.3 (2029); 4.2 (2030); 4.0 (2031); 3.8 (2032); 3.5 (2033); 3.3 (2034); 3.0 (2035); 2.9 (2036).

Memo
- Real GDP growth (percent): 4.4 (2025); 4.6 (2026); 4.4 (2027); 5.0 (2028); 5.5 (2029); 4.8 (2030); 4.8 (2031); 4.8 (2032); 4.8 (2033); 4.8 (2034); 4.8 (2035); 4.8 (2036).
- Inflation (GDP deflator; percent): 25.0 (2025); 12.8 (2026); 13.6 (2027); 8.3 (2028); 5.5 (2029); 5.0 (2030); 5.0 (2031); 5.1 (2032); 5.2 (2033); 5.2 (2034); 5.2 (2035); 5.2 (2036).
- Nominal GDP growth (percent): 30.5 (2025); 18.0 (2026); 18.5 (2027); 13.7 (2028); 11.3 (2029); 10.1 (2030); 10.0 (2031); 10.2 (2032); 10.2 (2033); 10.2 (2034); 10.2 (2035); 10.2 (2036).
- Effective interest rate (percent): 13.5 (2025); 18.3 (2026); 16.1 (2027); 14.7 (2028); 10.9 (2029); 9.7 (2030); 9.4 (2031); 9.2 (2032); 9.2 (2033); 9.1 (2034); 8.6 (2035); 8.6 (2036).

Policy-relevant assumptions and notes
- The baseline assumes that all proceeds from the Qatari investment deal and the US$100 million divestment in FY2025/26, as well as two-thirds of the US$1.4 billion in divestments in FY2026/27, are used for debt reduction.
- The baseline incorporates the authorities’ planned GFN reduction measures of 10 percent of GDP to a varying degree.
- Footnotes explain treatment of GFN reduction measures: (i) debt reduction measures treated as permanent effect on financing needs; (ii) liability management treated as one-off; (iii) maturity extension incorporated only to extent it shifts obligations beyond one-year horizon.
- Authorities’ maturity-lengthening operations within the one-year horizon amount to 4.5 percent of GDP over FY25/26 and FY26/27 but are not reflected in the DSA’s annual GFN projections.

### Projection commentary and risks
- After declining in FY2024/25 (2025 in the chart), public debt is projected to decrease modestly in FY2025/26 as robust nominal GDP growth more than offsets higher domestic borrowing costs arising from tighter market conditions at the onset of the war and delays in the divestment program.
- Debt expected to remain on a downward trajectory over the medium term, supported by sustained primary surpluses, improving interest rate–growth differential, eventual realization of delayed divestment proceeds, and waning impact of past below-the-line operations.
- Risks: further delays in divestments, potential shortfalls in sustaining primary surpluses, or implementing the GFN reduction plan could result in higher debt and financing needs.
- Upside: faster-than-expected decline in the interest-growth differential could reduce domestic borrowing costs and ease near-term GFN pressures.

### Medium-term risk assessment (summary)
- Medium-term risks are assessed as high, given risk signals from the debt fanchart and GFN modules.
- Contingent liability related to publicly-guaranteed debt: EGP 5,635.5 billion as of December 2025 adds to medium-term risks.
- Value and index metrics (selected):
  - Fanchart width: 53.4 (percent of GDP) and 0.8 (percent of GDP) in module outputs.
  - Probability of debt non-stabilization: 3.8 (percent).
  - Terminal debt-to-GDP x5: 1.2 and 1.1 (institution index entries).
  - Debt fanchart index (DFI): 1.9 (Risk signal: Moderate).
  - Average baseline GFN: 34.2 and 11.7 (percent of GDP) shown in module.
  - Banks' claims on the gen. govt (pct bank assets): 50.8 and 16.5.
  - Change in banks' claims in stress (pct banks' assets): 4.5 and 1.5.
  - GFN financeability index (GFI): 29.7 (Risk signal: High).
- Final assessment: Prob. of missed crisis, 2026-2031, if stress not predicted: 72.7 pct. Prob. of false alarms, 2026-2031, if stress predicted: 3.4 pct.

### Long-term risk analysis (summary)
- Long-term risks are assessed as moderate: debt ratio and gross financing needs projected to trend downwards with sustained primary surpluses and favorable interest-growth differentials.
- Long-run risks arise from pension and health costs and climate adaptation and mitigation costs.
- Pension financing needs (custom scenarios): permanent adjustment needed in the pension system:
  - 2.0% of GDP per year to keep pension assets positive for 50 years.
  - 2.9% of GDP per year to keep pension assets positive until 2100.
  - 4.4% of GDP per year to keep pension assets positive for 30 years.
- Climate scenarios (notes):
  - Customized adaptation scenario assumes adaptation cost of around 0.9% of GDP in each year until 2050 based on Egypt Climate Change Strategy 2050 (sectors: agriculture, transport, civil aviation, irrigation and water resources, biodiversity).
  - Customized mitigation scenario assumes mitigation cost of around 3.5% of GDP in each year until 2035 based on Egypt Climate Change Strategy 2050 (sectors: industry, electricity, petroleum, transport, civil aviation, housing and utilities, waste).
  - Egypt adopted a plan to implement renewable-energy projects to reach the 30 percent renewable-energy target by 2030; most projects are privately financed or PPPs, with government guarantees or support.

### Annex III — The Passthrough of Exchange Rate Depreciation in Egypt (key findings)
- Context: Since 2016, the Egyptian pound depreciated by more than 80 percent against the U.S. dollar across five major episodes; since 2023, two-sided exchange rate movements occurred. During the recent war in the Middle East, the exchange rate depreciated by about 13 percent in the weeks succeeding February 2026, and then appreciated subsequently when external conditions improved.
- Empirical approach: Uses monthly data from 2010–26 and local projections; framework follows Jordà (2005); impulse responses scaled to a 1 percent depreciation.
- Identification: Two strategies — (i) “unexpected” depreciation shock as residual from forecasting regression for monthly exchange rate changes; (ii) narrative shock assigning depreciations to months with explicit exchange rate decisions between 2016 and 2024. Results robust across approaches and to alternative exchange rate measures (bilateral and effective).
- Inflation:
  - Pass-through is sizable and delayed to both headline and core inflation.
  - Peak about 6–10 months after the shock at roughly 0.3–0.4 percentage points per 1 percent depreciation.
  - Averaged over the first 12 months, pass-through ≈ 0.23 percentage points per 1 percent depreciation for both headline and core inflation.
  - Illustrative scaling: following a 10 percent depreciation, headline inflation would run about 2.3 percentage points above baseline over the first year and dissipate thereafter.
- External sector:
  - Depreciation associated with temporary compression of real imports; real exports and the current account do not respond in a statistically significant manner.
  - Import volumes deepest about two quarters after the shock at roughly 0.4 percent per 1 percent depreciation and averaging about 0.2 percent over the first year.
  - First-year average current account response: −0.02 percentage points of GDP.
  - First-year average export volume response: about −0.1 percent (statistically insignificant).
  - Muted expenditure-switching due to Egypt’s export composition (hydrocarbons, Suez Canal receipts, tourism, remittances) and high FX invoicing of imports.
- Reserves and fiscal outcomes:
  - International reserves show at most a small and statistically insignificant response to depreciation.
  - Fiscal revenues and expenditures do not respond significantly in the short run; depreciation affects public finances mainly indirectly through inflation and activity.
- Banking sector (partial summary line present in source): "Banking Sector: Resilient Banks, Reallocated Credit" (full empirical detail truncated in source excerpt).

*Source: IMF staff estimates and projections as presented in the chapter "5. De bt cons olidation acros s  s e ctors :" of the provided PDF content.*

### 10. The banking sector shows limited vulnerability to depreciation.Empirically, bank

### 10. The banking sector shows limited vulnerability to depreciation.Empirically, bank

### Banking-sector vulnerability to exchange rate depreciation
- Bank balance-sheet indicators do not show statistically significant deterioration following depreciation shocks, consistent with the system’s limited net open foreign exchange position.
- Central Bank of Egypt requirement: 100 percent coverage of foreign-currency positions.
- In practice:
  - FX lending is largely extended to borrowers with natural FX earnings.
  - Residual FX exposures are hedged.
- Financial-condition effects at the margin:
  - Sovereign spreads widen and portfolio inflows weaken.
  - Little evidence of systemic balance-sheet stress.
- Caveat: corporate exposures would merit closer examination; primary macro transmission does not appear to operate through the banking system.

### Bank-level empirical evidence
- Panel analysis: 23 Egyptian banks over 2013–25, using quarterly bank fundamentals and identified depreciation shocks.
- Estimated average effects (averaged over the first year per 1 percent depreciation):
  - Gross loans decline by about 0.5 percent.
  - Customer deposits decline by about 0.6 percent.
  - Recovery within six quarters (Annex Figure 1).
- Net interest margins:
  - Compress sharply on impact—about 8 basis points (annualized) per 1 percent depreciation.
  - Some evidence of subsequent recovery, leaving full-year profitability minimally lower.
- Note: confidence intervals are wide.

### Real activity: modest short-run contraction
- Quarterly GDP growth responds only weakly and transiently following depreciation shocks; estimated effects are small and insignificant.
- Interpretation caveats:
  - Results capture partial first-round effects of exchange rate adjustment, abstracting from subsequent policy responses and broader second-round transmission.
  - More pronounced activity effects may materialize over time as tighter macroeconomic policies and inflation pass-through weigh on real incomes, demand, and production.

### Macroeconomic impulse-response estimation (methods and notes)
- Impulse responses estimated via local projections (Jordà, 2005) at:
  - Monthly frequency (inflation, policy rate).
  - Quarterly frequency (imports).
  - Quarterly panel of 23 banks with bank fixed effects and Driscoll–Kraay standard errors (gross loans, net interest margin).
- Confidence bands:
  - Shaded bands show 68 percent and 90 percent confidence intervals (90 percent and 95 percent for the imports) based on Newey–West standard errors (Driscoll–Kraay for the bank panels).
- Coefficients scaled to give the response per 1 percent depreciation.

### Key referenced quantitative relationships and findings elsewhere in the document (related context)
- CBE’s estimate of exchange rate pass-through (ERPT): a 1.0 percent depreciation of the exchange rate increases annual headline inflation by approximately 0.15–0.20 percentage points, on average, over a one-year horizon.
- Observed exchange rate movement: currency depreciated by 10.2 percent against the U.S. dollar in March 2026 (calculated as average of period for March 2026 compared to February 2026).
- Bank panel estimates (reiterated): gross loans and customer deposits decline by about 0.5 and 0.6 percent per 1 percent depreciation, respectively; net interest margin compresses by about 8 basis points (annualized) per 1 percent depreciation.
- Estimation period for ERPT VAR: quarterly data from 2005Q1 to 2026Q1 (with robustness checks and alternative specifications noted).

*Source: IMF staff calculations and analysis in the cited content unit.*

### 15.5 percent. Accordingly, the inflation outlook was revised downward supported by favorable

### 1egyea2026002 - 15.5 percent. Accordingly, the inflation outlook was revised downward supported by favorable

### Inflation outlook and projected path
- Annual headline inflation is expected to accelerate through Q3 2026 on average, partially due to unfavorable base effects, albeit at a more moderate pace than previously projected.
- Starting Q4 2026, inflation is expected to gradually decline and reach single- digit territory thereafter, aligning with the targeted level of 7 percent (± 2 p.p.) in H2 2027.
- The disinflation path will be sustained by an adequately tight monetary stance, which will keep medium-term inflation expectations anchored and restore the disinflation path toward its announced targets.
- The disinflation path is supported by an estimated negative output gap projection, limiting demand side-inflationary pressures till H1 2027.
- The inflation outlook remains subject to upside risks, notably the resurgence of conflict, which could reverse recent improvements in macro-economic developments and intensify uncertainty.
- Baseline scenario assumption change: now assumes two fuel price increases over the remainder of CY 2026 as opposed to the previous assumption incorporating three fuel increases throughout the remainder of CY 2026.
- In the macroeconomic baseline scenario (summary figures):
  - Real GDP growth: about 4.5-5.0 percent in FY2025/26; growth accelerates to 5.5 percent by FY2028/29.
  - Headline inflation: expected to rise to 16 percent by December 2026.
  - Current account deficit: projected to widen slightly to 4.5 percent of GDP.
  - Recent statistics: Headline urban inflation reached 14.6 percent in May 2026, with a month-on-month increase of 1.6 percent.
  - Current account recorded an estimated deficit of about 4.3 percent of GDP during June 2025–March 2026.
  - Gross international reserves: remained broadly stable at 114 percent of the IMF’s reserve adequacy metric.

### Monetary policy stance and MPC decisions
- At its meeting on July 9, 2026, the MPC decided to keep key policy rates unchanged to maintain an adequately positive real interest margin on average over the forecast horizon.
- The Committee will continue to evaluate its monetary stance based on a data dependent approach, reviewed on a meeting-by-meeting basis through assessing drivers of inflationary pressures, the forecasted inflation trajectory, and the prevailing balance of risks.
- The MPC remains firmly committed to price stability and will not hesitate to tighten policy to ensure inflationary pressures are contained and inflation returns to target in the near term.
- The CBE’s recent past actions and commitments:
  - Cumulative reductions in the key policy rate of 825 basis points between April 2025 and February 2026.
  - After the conflict onset, the CBE adopted a wait-and-see approach in April, May, and July 2026, leaving policy rates unchanged.
  - The CBE stands ready to adjust policy instruments to ensure real interest rates remain sufficiently positive, aiming to bring inflation to the CBE’s target of 7 percent (±2 percentage points) by H2 2027.
  - The CBE will continue to strengthen communication, reaffirm commitment to the inflation target, restore the disinflation path, maintain a flexible exchange rate regime, enhance monitoring of inflation expectations, and publish quarterly Monetary Policy Reports.

### Exchange rate policy, reserves, and FX framework
- Exchange rate flexibility is a central pillar: the exchange rate appreciated by about 10 percent preceding the Middle East war and subsequently depreciated by close to 17 percent at the peak of the crisis.
- Movements described as consistent with a market-determined exchange rate, with two-way volatility reflecting short-term capital flows.
- No reported foreign exchange demand backlogs at banks and no CBE interventions in the foreign exchange market during the period described; CBE will limit FX interventions to smoothing excessive volatility.
- Commitment to continued reporting on daily bank-by-bank FX transaction level data to enhance interbank market monitoring.
- The CBE has not introduced nor intensified exchange restrictions, multiple currency practices inconsistent with IMF Article VIII, or capital flow management measures since program inception.
- The CBE managed to meet its end-March target by proactively purchasing from the market during the first quarter, supporting reserve objectives.

### Program performance, structural reforms, and fiscal framework
- Performance under the EFF:
  - At end-March 2026, all quantitative performance criteria were met, except for the ceiling on the outstanding stock of CBE lending to public entities, missed by a small margin but since corrected.
  - Four out of seven indicative targets (ITs) were met for end-March.
  - Missed indicative targets on the maturity of new domestic debt issuances at both end-March and end-June 2026.
  - Budget sector debt ceiling at end-December exceeded the target amid elevated gross financing needs.
- Structural benchmarks:
  - Met: preparation of a corrective action plan to strengthen governance in state-owned banks; publication of an action plan for streamlining business procedures.
  - The structural benchmark on additional supervisory information related to the CBAM directive was completed with a one month delay.
  - Updated State Ownership Policy (SOP) document published in June (prior action).
  - Of six recurring structural benchmarks, all have either been met or remain on track.
  - The structural benchmark on the FY2026/27 tax package was not met (withholding tax on free zones not approved), but alternative measures in the tax package are expected to allow the Ministry of Finance to achieve its FY2026/27 tax target.
- Fiscal anchor and debt management:
  - Fiscal anchor centers on a primary surplus target of 5 percent of GDP.
  - Commitment to raise the tax-to-GDP ratio and step up efforts to contain fiscal risks, including those from guarantees to economic authorities (including EGPC).
  - Commitment to automatic fuel pricing mechanism and prioritizing well-targeted social spending.
  - Commitment to reduce the outstanding stock of CBE lending to public entities by EGP 100 billion annually.
  - Debt management: plan adopted to reduce gross financing needs by 5 percent of GDP by end-FY2025/26 and planning a cumulative reduction of around 10 percent of GDP by end-FY2026/27 (prior action).
  - Committed to adhere to the public investment ceiling.

### Financial sector, divestment, and private sector orientation
- Financial sector actions:
  - Strengthening contingency planning, risk-based supervision, and robust governance practices across banks while preserving market-based monetary policy transmission and avoiding quasi-fiscal operations.
- State ownership and divestment:
  - Updated State Ownership Policy, establishment of supporting institutional arrangements, and accelerated divestment to attract FDI and increase private sector opportunities.
  - By July 2026, expected to receive $500 million from a major divestment and sale of selected Ministry of Finance shareholdings; divestment of another large state stake is well advanced (prior action).
  - All proceeds will be dedicated to debt reduction.
- Business environment reforms: continue efforts to improve business environment, streamline licensing and customs procedures, strengthen competition policy, enhance transparency in procurement and debt reporting, and level the playing field between public and private firms.

### Risks, requests to the IMF, and program financing
- Risks to outlook:
  - Downside: renewed regional tensions could weaken remittances and FDI, disrupt trade and supply chains, trigger capital outflows, and increase borrowing costs.
  - Domestic risk: elevated domestic financing needs.
  - Upside: significant de-escalation of regional conflicts and accelerated implementation of structural reforms could boost growth and attract investment.
- Requests and program status:
  - Request Executive Board approval of waivers of applicability of the end-June 2026 PCs on NIR, tax revenue, primary balance, and overdraft.
  - Request setting new quantitative performance criteria for end-September 2026 for the eighth review.
  - Request completion of the seventh review under the Extended Fund Facility arrangement and the associated purchase of SDR 1,113.01 million.
  - Program remains fully financed.
  - With completion of RM3 and RM4, request conclusion of the second review under the RSF arrangement.
  - Request rephasing of RM4 and associated disbursement of SDR 100 million from the third review to the second review.
  - Request modification of RM9 to strengthen monitoring and transparency of PPPs while preserving RSF reform ambition and objectives.
  - Request completion of the second review under the RSF arrangement.
- Data and transparency commitment:
  - Commitment to provide timely and accurate data needed for program monitoring and consent to IMF publication of the letter, MEFP, TMU, and accompanying Executive Board documents.

*Source: Excerpt from the IMF program documents and Letter of Intent and Memorandum of Economic and Financial Policies (July 17, 2026).*

### 2026. As strong inflows resumed, following the U.S.-Iran agreement, the CBE purchased in June,

### 2026. As strong inflows resumed, following the U.S.-Iran agreement, the CBE purchased in June,

### Reserves and Central Bank of Egypt (CBE) operations
- Following the U.S.-Iran agreement, strong inflows resumed and the CBE purchased in June, placing reserves in a strong position to meet end-June targets.
- CBE will continue accumulating official reserves in line with the definition agreed in the TMU (performance criterion), subject to favorable market conditions and program commitments under the 5th and 6th reviews.
- Reserve accumulation program characteristics:
  - Market-based implementation through regular auctions with preannounced targets and a published calendar, and/or through direct market purchases or other market instruments.
  - Timing and volumes calibrated to prevailing market conditions.
  - Primary mechanism for building high-quality reserves.
- To limit foreign currency mismatches on banks’ balance sheets:
  - CBE will not grant exemptions to commercial banks that breach net foreign exchange open position limits and will apply sanctions in accordance with regulations.
  - Continued consultation on commercial banks’ NFA balances in line with program commitments (consultation clause).
- Continuous performance criterion: No accumulation of general government external debt payment arrears.

### Fiscal outturn and near-term fiscal targets
- End-March 2026 fiscal performance:
  - Primary balance reached a primary surplus of 3.52 percent of GDP—about 0.5 percent of GDP higher than programmed.
  - Tax revenues overperformed by more than 1 percentage point of GDP.
  - VAT yields grew by around 20 percent (0.2 percent of GDP) over the period.
- Revenue collection July–April this fiscal year reached 79 percent of the full-year projections.
- Government contingency reserves: about 0.6 percent of GDP available to support fiscal targets in case of unexpected shortfalls.
- FY2026/27 budget:
  - Submitted to Parliament in March (well ahead of the end-June structural benchmark).
  - Targets a primary surplus of 5 percent of GDP.
  - Expected adoption by Parliament by end-June.

### Revenue mobilization measures
- Tax package approved by Parliament as part of the FY2026/27 budget expected to yield about 1.2 percent of GDP. Main measures include:
  - Streamlining VAT exemptions, including introduction of VAT on nonresidential rentals.
  - An excise on gas of 20 EGP per cubic feet.
  - A 5 percent surcharge on net profits of all fully publicly owned SOEs and 4 percent on net profits of SOEs in which public ownership is above 30 percent.
  - Strengthening transfer pricing and taxation regimes.
- Withholding tax on free zones (estimated yield of 0.1 percent of GDP) was not adopted; interim offsetting measures introduced:
  - Introduction of an intraday stock exchange transaction tax.
  - Unifying duties on departure travel to EGP 100 per person.
  - Increasing duties/excises on all levels of cement sales to EGP 35.
  - Transfers by GAFI on turnover collected from companies in free-zones to the budget, if needed.
- Structural benchmark: pursue the withholding tax measure with publication in the official gazette expected by end-November.
- Revenue administration measures:
  - Expanded registered taxpayers: around 196,324 taxpayers registered under the simplified tax regime Law 6 of 2025 with filings amounting to EGP 11.2 billion from February 2025 to May 2026.
  - By comparison, 8,623 taxpayers registered under Law 152 of 2020 with filings amounting to EGP 205.8 million for the year ending in December 2024.
  - SME Center now covers 194,000 taxpayers.
  - Cleared/completed dispute cases have increased to 162,000.
  - Ongoing digitalization: real-estate tax mobile application, e-invoicing and e-receipts.

### Spending priorities, contingency and social protection
- Expenditure contained; higher investment spending and marginal increase in cash transfers associated with Eid holidays and the crisis remain in line with budget allocations.
- FY2026/27 spending measures:
  - Increase in the minimum wage with limited impact on the public wage bill (around 0.1 percent of GDP).
  - Continued targeted support programs, including cash (Takaful and Karama) and in-kind transfers (about 0.24 percent of GDP).
  - Priority investments in health, education, energy and water and sanitation set to increase by 31 percent y-o-y, on average remaining within FY2026/27 public investment ceiling of EGP 1,500 billion (or 6 percent of GDP).
- Contingency reserves and shortfall mitigation:
  - Contingency reserves equivalent to 5 percent of spending ceilings (about 1.1 percent of GDP) identified to reprioritize spending within the overall expenditure envelope.
  - Draft FY2026/27 budget oil price assumption: around $75 a barrel.
  - Divestment and asset sale proceeds to be fully transferred to the budget.
  - Priority on revenue-based options to offset revenue underperformance while safeguarding essential spending and preventing arrear accumulation.
- Social protection package announced February 2026:
  - Comprehensive EGP 40.3 billion support package including temporary cash transfers during Ramadan and Eid al-Fitr, accelerated “Hayah Karima” projects, expanded access to healthcare services and state-funded treatment, and measures to strengthen local wheat procurement.
  - Commitment to protect and scale up targeted support within overall budget envelope if conditions deteriorate.

### EGPC viability, energy measures, and fiscal risks
- EGPC objectives under the viability plan approved March 2025:
  - Restore EGPC to a cash flow surplus in FY2025/26.
  - Reduce government guarantees by 25 percent by FY2026/27.
  - Accelerate collection of receivables.
- Structural benchmark: progress report on the EGPC viability plan to be provided to the Ministry of Finance by end-September 2026. Report to include:
  - Cash flows;
  - Breakdown of operating revenues and costs (volumes and prices by product type, domestic purchase versus imports);
  - Debt, new borrowing, borrowing costs and guarantees;
  - Overall arrears, payables to international suppliers, and cross-arrears among EGPC, EEHC, and the budget sector;
  - Standard liquidity, solvency and profitability indicators.
- Energy price adjustments and related measures:
  - Cost recovery for products covered under retail fuel indexation (gasoline 95, 92, and 80; diesel; and mazut) reached in December 2025.
  - Recent increases: gasoline, diesel and mazut (15-20 percent); natural gas (22-30 percent); electricity tariffs (16 to 91 percent, depending on user category).
  - Energy conservation measures: remote work arrangements, closure of administrative capital buildings at 6pm, cabinet directives to public agencies to reduce energy consumption by 30 percent in Q4 of FY2025/26.
  - Increase in energy subsidies in government budget contained to EGP 15 billion 0.07 percent of GDP in FY2025/26.
  - July resumption of automatic fuel indexation mechanism under 5th and 6th reviews to help ensure return to cost recovery for FY2026/27.
  - Readiness to implement earlier-than-planned adjustments if international oil prices increase, while strengthening targeted social safety nets.
- Clearance of arrears:
  - By June 2026, EGPC cleared all outstanding arrears to international oil companies.
  - Arrears stood at US$6.2 billion in October 2024.
  - Clearance supported by EGPC’s external borrowing backed by government guarantee and budgetary transfers (EGP 167 billion through March 2026) to EGPC and EEHC.
  - EEHC transfers helped reduce outstanding obligations to EGPC.
- Diversification of the energy mix:
  - By end-2026, installed renewable capacity projected to reach 9.6 GW comprising about 3.0 GW of wind, 3.6 GW of solar, and 3.0 GW of hydro power.
  - Agreements signed or under preparation to add 17.4 GW in 2027 and 2028, together with 13.8 GWh of battery storage.
  - By end-2028, renewables projected to account for about 45 percent of electricity generation capacity.
  - Investments planned to strengthen the national grid.

### Public financial management, reporting, and transparency
- Medium-term budget and fiscal risk disclosure:
  - FY2026/27 budget statement accompanied by a medium-term budget setting out envisaged fiscal consolidation path and a fiscal risk statement with quantitative analysis and disclosure of contingent liabilities related to government guarantees, PPPs, SOEs, and climate risk analysis.
  - Fiscal risk statement assesses and quantifies potential budgetary impact of the war in the Middle East.
- Consolidation and reporting improvements:
  - Progress toward consolidating Economic Authorities (EAs) into general government fiscal reporting in line with GFSM 2014 standards; training expanded to 63 EAs and compilation guide published in December.
- Budget sector arrears reporting:
  - Next report to expand coverage to critical SOEs and EAs and produced by September-2026; move toward semi-annual reporting in line with the TMU.
- Public debt reporting:
  - Quarterly debt statistical bulletins for the budget sector began April 2025.
  - Semi-annual consolidated general government debt statistics released in November 2025 and April 2026 (recurring structural benchmark).
  - Commitment to deepen reporting scope and quality by providing additional details on institutional perimeter, included/excluded entities and instruments, consolidation adjustments, and valuation methodologies by November 2026 based on June 2026 data.
- Public investment execution:
  - End-December 2025 indicative ceiling on public investment met; total execution EGP 440.9 billion, execution rate 38.1 percent.
  - Share of execution: budget sector entities 44.9 percent, Economic Authorities 33.8 percent, public companies 21.3 percent.
  - FY2026/27 commitment to contain public investment while keeping it broadly constant in real terms; priority to concessional financing and strengthened project evaluation and prioritization.
- Stock of guarantees:
  - Exceeded programmed level at end-December 2025 due to acceleration of EGPC borrowing to clear arrears.
  - Pace of new guarantees slowed in Q1 2026 and end-March target met.
  - On track to meet end-June target, consistent with cumulative reduction of 5 percent of GDP since June-2024.
- SOE annual reporting:
  - Responsibility for SOE reporting transferred from IDSC to the SOE Unit; new database covers public companies under Law 203 of 1991.
  - Objective to expand coverage to full reporting on 230 SOEs covered under updated SOP—including military owned companies and companies transferred to TSFE—by end-November 2026.
  - The 2026 annual SOE report—to be published by end-October—will include comprehensive indicators for FY2024/25 of profitability, solvency, and liquidity, together with information on debt, arrears, and subsidies, at both company and sectoral levels.
- Budget transparency improvements:
  - Open Budget Index Score increased to 59 in 2025 from 49 in 2023.
  - Public participation score improved from 15 in 2019 to 35 in 2025.
  - Egypt placed 14th among 31 assessed countries as announced on April 15th 2026, reflecting improved availability of budgetary information and core fiscal data in semi-annual report and revised debt and revenue estimates.

### CBE claims on government and monetary policy effectiveness
- Treasury Single Account (TSA) developments:
  - Treasury now has full and permanent legal control over Economic Authority (EA) legacy deposits under the TSA framework, following transfer of relevant EA deposits to the central government Treasury sub-account at the CBE; implemented and reflected in the CBE’s end-December 2025 accounts.
- CBE lending to public sector agencies:
  - CBE has not increased lending to public sector agencies excluding the Ministry of Finance and will continue to refrain from doing so (performance criterion).
  - Commitment to reduce such lending by EGP 100 billion annually to zero by end-June.

*Source: IMF staff report content provided in the supplied document.*

### 2029. Following a temporary deviation, corrective actions—including a payment of about EGP 36

### 1egyea2026002 - 2029. Following a temporary deviation, corrective actions—including a payment of about EGP 36

### Procurement digitalization and compliance
- Corrective actions—including a payment of about EGP 36 billion in June 2026—brought balances back in line with the March 2026 QPC and ensured compliance with the end-June target ahead of schedule.
- Commitment to maintain the government's overdraft balance within the program ceiling; end-March quantitative performance criterion was met and weekly monitoring indicates the overdraft balance remained within the ceiling through end-June 2026.
- Digitalization progress:
  - Publishing monthly GAGS on-site post-procurement audits of budget units and top 50 SOEs procurement awards.
  - Procurement reporting brought into compliance with the SBs from November 2025.
  - July 2026 pilot phase of procurement digitalization to cover five budget entities: the Ministries of Finance, Housing, and Health, Cairo Governorate, and Cairo University.
  - By end-2026, e-procurement platform will support the full process from tender planning and announcement through bid submission; bidder selection to be integrated subsequently.
  - By end-2027, all budget entities, including Economic Authorities, are expected to be integrated into the platform.

### Debt management strategy, issuances, and GFNs
- MTDS published at end-January 2026 aims to place public debt on a firm downward trajectory, reduce GFNs, and contain interest costs.
- Issuances raised despite conditions:
  - $2.5 billion total raised through: $1 billion via external private placements in late March and early April; US$1 billion via an 8-year Social Eurobond in mid-May (oversubscribed by 5 times at peak orderbook); US$500 million Samurai bond in late June with an average tenor of 6.7 years.
- FY2026/27 Annual Borrowing Plan (ABP) to be published by end-July 2026; will support longer maturities and maximize concessional financing, including engagement with DPOs and prospective MFA.
- GFN reduction targets and outcomes:
  - Cumulative reduction of 10 percent of GDP remains as programmed.
  - GFNs have declined by 5 percent of GDP in FY2025/26, compared to 6 percent of GDP envisaged at the time of the 5th and 6th reviews.
- Quantified package of measures (monitored quarterly):
  - For FY2025/26, GFNs reduced by 5 percent of GDP through:
    - US$3.5 billion Qatari land sales in December 2025 (0.9 percent of GDP).
    - Reduction in accepted share of 3-month T-bills from 20 percent to 12 percent in Q1 2026 (1.7 percent).
    - Use of divestment proceeds of US$100 million to amortize debt (0.02 percent).
    - Issuance of longer-term instruments to finance redemptions of May-June 2026 MoF Notes and T-bills (2.5 percent of GDP).
  - For FY2026/27, further reduction in GFN of 5 percent of GDP through continued rebalancing toward longer-term instruments; divestment proceeds of US$920 million to be used for debt reduction.
  - Commitment that liability management operations will be voluntary, market-consistent, and open to a broad set of investors.
- Average Time to Maturity (ATM):
  - ATM fell to 1.04 years by end-March 2026.
  - ATM increased to 1.1 years by end-June 2026, the highest in the last three years, but below 1.18-year target.
  - Expectation to increase ATM of new issuances to 1.25 years by end-September 2026, subject to market conditions.
- Private placements and MoF notes:
  - Outstanding stock of privately placed MoF notes reduced from EGP 752 billion to 475 billion over the last twelve months, meeting the end-June QPC target.
  - By end-September 2026, discontinue issuance of one-week MoF notes and increase average time to maturity of privately placed MoF notes to one month.
  - Interim target: reduce outstanding stock of privately placed MoF notes to EGP 375 billion by end-September 2026.
  - Provide Fund staff monthly issuance data for all domestic debt instruments—with issuance date, volume, price, and maturity—on a monthly basis with a maximum lag of one week.

### Strengthening public debt management institutional capacity
- Creation of a fully-fledged debt management office (DMO) with legal mandate and alignment to international best practices.
- Strengthening middle office: four additional hires focused on debt strategy and reporting; World Bank collaboration to finalize DMO structure and mandate.
- FY2026/27 priorities: strengthen front and middle office functions, expand staff capacity, enhance information systems, establish dedicated unit for reporting and new product development.
- Upgrade debt management information systems to produce comprehensive external and domestic debt data and integrate a fully operational back office within the DMO.
- Strengthen investor engagement via coordinated framework involving debt management, fiscal and macroeconomic teams, and a dedicated investor relations function.
- Continued coordination through debt management and external borrowing committees including the Ministry of Finance and the Central Bank of Egypt.

### Financial sector soundness, risks, and contingency planning
- Banking system soundness indicators (end of 2025):
  - System-wide capital adequacy ratio of about 19.3 percent.
  - Liquidity Coverage Ratio (LCR): 640.9 percent for local currency and 219.2 percent for foreign currency.
  - Total Net Stable Funding Ratio (NSFR) for local and foreign currencies: 169.9 percent.
  - Return on assets above 2½ percent.
- Risk reporting and supervision enhancements:
  - Strengthening risk reporting frameworks and data infrastructure, improved reporting and advanced analytics.
  - Reinforcing risk culture with focus on emerging risks: climate-related and cybersecurity risks.
  - Enhancing scenario-based stress testing incorporating exchange rate pressures, commodity price volatility, tighter external financing conditions, sovereign-bank linkages, and interconnectedness with non-banking sector.
- Contingency planning:
  - Liquidity buffers and strong capital positions provide capacity to absorb short-term shocks.
  - Capital flow management measures (CFMs) and macroprudential tools to remain last-resort measures, not substitutes for macroeconomic policy adjustments.
  - Readiness to take additional measures and strengthen coordination across supervisory and policy authorities under severe stress scenarios.
- Governance and state-owned banks:
  - Governance diagnostic studies for NBE and Bank Misr completed; gaps identified in risk policies and procedures.
  - Corrective time-bound action plan (end-March structural benchmark) finalized; interim report to IMF staff by August 5; comprehensive final status report by end-September 2026 (structural benchmark).
  - CBE supervision to ensure state-owned banks operate on a commercial basis and at arm’s-length from the government.

### Digital financial development and fintech oversight
- Progress and timelines:
  - Digital bank licensing framework issued July 2023; first fully licensed digital bank expected before end-2026; additional applications under review.
  - Finalizing e-KYC regulations in 2026 and assessing banks’ readiness for secure digital onboarding.
  - Fintech regulatory sandbox operational; strengthened licensing framework for payment service providers.
  - Supervisory enhancements: dedicated IT inspections, risk-based supervision, strengthened cyber resilience frameworks, including EG FinCIRT for threat monitoring and response.
  - Ongoing strengthening of supervisory tools, data analytics, and coordination frameworks to support digital innovation while safeguarding financial stability and operational resilience.

### Structural reforms: divestment, SOEs, and business environment
- Divestment program:
  - Divestment remains a key pillar of state ownership policy under the EFF to mobilize financing, reduce public debt, and rebalance toward private sector participation.
  - By July 2026, expect to secure at least US$500 million in proceeds from key transactions, including sale of 100 percent stake in Gabal El Zeit and small Ministry of Finance shareholdings; ensure irreversibility of sale of a 20 percent stake in Misr Life Insurance (Prior Action).
  - Proceeds from Misr Life transaction expected by end-August. All proceeds to be fully allocated to debt reduction.
  - Total proceeds target about US$7.2 billion over program lifetime; at least 50 percent of remaining divestment proceeds allocated to debt reduction.
  - Pipeline as of May 2026 includes around 20 additional transactions; preparation of management concessions for 11 airports with initial progress on one transaction with IFC support.
  - Strategy prioritizes attracting FDI, selling majority stakes, and avoiding reliance on land sales.
- Economic authorities reform:
  - Reform of 59 economic authorities to review legal classification, operational and financial models, separation of commercial/non-commercial activities, and transparent PSO financing.
  - Plans to convert 7 entities into public service authorities, merge 7 with other entities, and dissolve 2 over next months.
  - Remaining entities to undergo deeper legal and organizational reforms expected completed by end-2026.
  - Priority sectors: mass media, tunnels and railways, new urban communities, supply chains, and agricultural projects.
- SOE policy and SOP:
  - Updated SOP published to guide implementation of the new SOE law (Prior Action); emphasizes private sector–led growth, competitive neutrality, and enhanced governance.
  - By end-September 2026 will prepare and secure Cabinet approval of an executive plan specifying actions and timelines (new structural benchmark).
  - Executive plan outline shared with staff at end-June 2026; plan to set timelines for divestment from non-strategic sectors, completion of triage by SOE Unit, legislative actions for SOP implementation, dividend policy implementation, and improving audited SOE financial information availability.
  - Continue publishing semi-annual SOP indicator, updated in line with revised policy and executive plan.
- Business environment and trade facilitation:
  - Amendments to Article 39 of the Customs Law submitted to Parliament in March 2026 to make advance customs clearance mandatory (end-February structural benchmark); adopted in June.
  - Advancing fully digitalized Integrated Economic Entities Platform to streamline business registration and licensing.
  - Engaged consultant to reengineer establishment and licensing procedures across 400 economic activities (up from 275 planned).
  - Cabinet approval and publication in June 2026 of an action plan based on consultant’s inception report (structural benchmark); quarterly progress updates to follow, including number of activities reengineered.
- Competition and SOE taxation:
  - Removal of tax exemptions and privileges for SOEs led to collection of EGP 67 billion in tax revenues last year, expected to increase this year.
  - April 2026 amendments to the Competition Law approved by Parliament to align institutional independence of the Egyptian Competition Authority (ECA) with comparable regulators and empower the ECA to impose direct administrative sanctions.

### Financing, program monitoring, and RSF climate agenda
- Financing and external buffers:
  - Program fully financed for the next 12 months based on existing financing commitments from bilateral and multilateral partners.
  - Firm assurances that US$18.3 billion in GCC official deposits at the CBE will not be withdrawn before the EFF ends in December 2026, except for equity purchases, with FX proceeds staying in CBE’s foreign reserves.
  - Authorities will adjust policies if needed to ensure the program remains fully financed.
- Program monitoring:
  - Program monitored through prior actions, quantitative performance criteria, indicative targets, and structural benchmarks as listed in Table 1 and Table 2; TMU defines metrics, consultation clauses, and data provision.
  - Commitment to report CBE’s net international reserves and components with a submission lag of no more than 15 calendar days after each month-end; working to shorten this lag.
  - New quantitative performance criteria proposed for end-September 2026 in line with revised program timeline.
- RSF and climate reform priorities:
  - Fully committed to RSF reform agenda to advance climate adaptation and mitigation consistent with NDC priorities.
  - Reform priorities: (i) accelerating decarbonization via renewable energy and emissions reduction frameworks; (ii) enhancing climate adaptation and resilience; (iii) increasing financial sector resilience to climate shocks; (iv) mainstreaming climate into public financial management and investment planning.
  - Continued close work with Fund staff for timely and effective implementation of RSF-supported reform agenda.

*IMF staff summary based on provided content.*

### 36. RM3, due under the Second RSF Review, is met. We have updated and published new

### 36. RM3, due under the Second RSF Review, is met.

### Climate integration in public investment planning (RM3)
- New procedures for the preparation of the national investment plan were updated and published to ensure that climate considerations are integrated into the design and selection of new projects.
- The new framework:
  - Ensures that transparent climate-related criteria are used for selecting projects for inclusion in the budget.
  - Includes updated project appraisal requirements and guidance for assessing the greenhouse gas emission impacts and climate vulnerabilities of new projects.
- Application and evidence:
  - The updated selection criteria were applied to all new major projects above the EGP 500 million threshold in FY2025/26, including two new projects focused on mitigation and adaptation.
  - A sample of relevant project documentation demonstrating the application of environmental and climate impact assessments to new projects were shared with Fund staff.
- Impact:
  - This reform embeds climate considerations into Egypt’s public investment management processes and strengthens alignment with the National Climate Change Strategy 2050.

### Asset registry expansion and climate risk assessment (RM4)
- RM4 was completed ahead of schedule (originally planned for the Third RSF Review).
- Actions taken by MPED:
  - Expanded the pilot asset registry for large fixed public assets to key Ministries—including Transportation, Housing, Utilities and Urban Communities—covering large new assets from 2025.
  - Strengthened the registry by integrating geographic location and climate risk information into the investment planning and monitoring system.
  - Conducted climate-related risk assessments for large fixed assets, including detailed analysis of six major projects with a total cost of EGP 27 billion.
- Reporting:
  - A summary of the findings is included in the fiscal risk chapter of the draft FY2026/27 Budget Statement.
  - A more comprehensive report on climate risk was published including assessment of the projects’ exposure to climate change and summary of mitigation measures.
- Timeline:
  - (RM4, end-June 2026).

### Modification of RM9 and enhanced PPP transparency
- Proposed modification:
  - It is proposed to modify the formulation of RM9 and to modify the target completion date from end‑June 2026 to end‑August 2026 to allow additional implementation steps.
- Context:
  - Consistent with Egypt’s Country Platform for the Nexus of Water, Food and Energy (NWFE) and the National Climate Change Strategy 2050, two sub projects—one on adaptation and one on mitigation—have been incorporated and pre-feasibility studies developed to facilitate private sector participation and financing.
  - Given the significant role of PPPs in supporting climate mitigation and adaptation investments in Egypt—particularly in the energy, water, and waste management sectors—additional steps will be taken to enhance transparency of PPP procurement practices to support private sector confidence, broader participation, stronger competition, and better value for money.
- Required actions and outputs (to be implemented by the Ministry of Finance unless otherwise noted):
  - Undertake a stock-take of PPP procurement practices covering fiscal years 2020/21 to 2024/25 and publish a summary of the results.
    - The stock-take will assess trends in procurement methods and initially cover PPP projects tendered or contracted by ministries, agencies, and economic authorities under the PPP Law.
    - The summary report will include aggregate and sector-level data on the share of PPP projects tendered or awarded by procurement method (open competitive tender, limited tender, direct agreement) measured by both the number and value of projects; the average number of bidders per tender; and key project-level information such as basic project description, sector, value, duration, and contracting authority.
  - Introduce either a Prime Ministerial Decree or Circular to require timely reporting of PPP projects tendered and contracted under sector and other applicable laws—including those by public entities and state-owned enterprises—to the Ministry of Finance.
    - This will ensure annual reports, going forward, cover all PPP projects regardless of the legal basis under which they were contracted, particularly PPPs in key climate-relevant sectors such as energy, where state-owned enterprises often act as the public counterpart.
  - Begin publishing annual summary reports on PPP procurement practices on the Ministry of Finance website, starting with information from fiscal year 2025/26.
    - The annual reports will cover project details (name, location, sector, value, duration, and contracting department or authority), procurement information (method, justification, status, including whether the project was solicited or unsolicited) as well as any government financial commitments and support.

*Source: 1egyea2026002*

### 39. Progress towards future RMs is also advancing:

### Progress towards future RMs is also advancing

### Climate-related fiscal risk analysis and fiscal policy implications
- Analysis of long-term climate-related fiscal risks and climate-sensitive contingent liabilities was undertaken and published in the fiscal risk chapter of the draft 2026/27 Budget and in the Report on Fiscal Risks Related to Climate Change Annex to the 2026/27 Budget.
- The impacts of three different climate pathways on long-term fiscal projections were assessed, along with the vulnerability of SOEs and PPPs in the main climate exposed sectors.
- Under the severe climate scenario modelled, the primary balance is projected to be around 0.4 percentage points of GDP lower than the baseline scenario by 2075.
- A climate fiscal risk registry is being developed and includes in-depth analysis of a targeted number of large SOEs and PPPs (RM5, end-June 2026).
- Authorities published the analysis in June 2026 (RM5).

### Progress on specific reform measures and institutional actions
- RM6: The CBE issued on June 30 a binding regulatory framework on environmental and social risk management with a climate related financial risk pillar along with implementation guidelines; this framework is currently being assessed by IMF staff (RM6, end-June 2026).
- RM7: Preparation of a national disaster risk financing strategy is ongoing (RM7, end-August 2026), following technical assistance from the Fund already delivered and World Bank TA. Status: In progress; authorities receiving ongoing technical assistance from FAD.
- RM8: Technical work is in progress on the measurement, reporting and verification (MRV) system and the accompanying decree to reduce greenhouse gas emissions from hydrocarbon production (RM8, end-August 2026). Follow-up ongoing with the authorities, in coordination with the World Bank Environment team, with support from FADCP.
- RM10: The National Water Council has been established and has begun its work, with progress underway on the supporting circular clarifying data-sharing roles and responsibilities and on the National Water Allocation Framework (RM10, end-August 2026). The council was established and a circular was endorsed; follow-up ongoing with the authorities, in coordination with the World Bank Water team, with support from FADCP.

### Financial sector resilience and supervisory measures
- RM2: CBE issued a directive mandating the banking sector to monitor and report data on exposures to firms that may have material transition risks related to CBAM adoption (completed, end-June 2025).
- RM6 (see above) — binding ESRMS regulatory framework issued June 2026; under IMF assessment.
- RM9: Under Egypt's Country Platform for the Nexus of Water, Food, and Energy (NWFE), authorities will add two new sub-projects (one adaptation, one mitigation) and undertake a stock-take of procurement methods for PPP projects tendered or contracted during fiscal years 2020/21 to 2024/25. Needs to be delayed to end-August 2026; in progress. RM was changed to reflect the stock-take of procurement methods for PPP projects.
- CBE commitments and supervisory follow-up: CBE to formulate and implement corrective action plans addressing gaps in NBE’s and Bank Misr’s risk management practices (end-March 2026—Met; final status report by end-September 2026—Not applicable for 7th review).

### Public investment, asset management and public‑investment related reforms
- RM3: MoPEDIC to publish climate-change related criteria and processes for project selection and update and publish project appraisal procedures with standardized climate mitigation and adaptation assumptions; demonstrate application to all new projects exceeding 500 million EGP (end-December 2025). Assessed by staff as met.
- RM4: MoPEDIC to expand asset registry pilot to include Ministries of Transportation, Housing, Utilities and Urban Communities; conduct internal analyses of location-specific climate risks and publish consolidated overview of climate risks across asset portfolio (end-June 2026). Assessed by staff as met.
- RM1: Cabinet adopted and published a schedule for implementation of renewable energy until 2030 consistent with the 30 percent target for wind, solar, and hydropower generation capacity by 2030 (end-June 2025). Completed.

### Key fiscal and reserve metrics cited in the TMU and program monitoring
- Foreign reserve assets (as defined) amounted to US$61,477 million as of end-May 2026.
- Foreign reserve-related liabilities (as defined) amounted to US$20,303 million as of end-May 2026.
- Primary balance of the budget sector (cumulative, as defined) was EGP 897 billion as of April 2026.
- Tax revenues totaled EGP 2,209 billion as of April 2026 since the start of FY2025/26.
- Net foreign assets (NFA) of commercial banks at end-May 2026 was US$7.7 billion.
- Loans utilized under CBE subsidized lending schemes were EGP 96.9 billion as of June 30, 2026.

### Program adjustors and financing projections referenced
- Projections for cumulative program disbursements (excluding the IMF) are 2,446 as of end-September 2026 for FY2026/27.
- Projections for cumulative net external commercial borrowing from private creditors (from the beginning of the fiscal year) are 1,000 as of end-September 2026.
- The NIR floor adjustor for deviations in the flow of government T-bills and T-bonds held by nonresidents: the NIR floor will be adjusted up by 50 percent of any excess in this flow relative to program assumptions; program assumptions for the cumulative flows (from the beginning of each fiscal year) of local currency T-bills and T-bonds held by nonresidents are nil as of end-September 2026.

*Source: Excerpts from the IMF staff report and Technical Memorandum of Understanding (TMU) for Egypt (July 2026).*

### 1. No material changes since the last assessment letter.

### 1. No material changes since the last assessment letter.

### B. Government Policies and Commitments in Terms of Climate Change Adaptation and Priority Areas to Strengthen Resilience
- Strategic anchoring and planning:
  - Adaptation priorities anchored in the National Climate Change Strategy 2050 (NCCS 2050) and Sustainable Development Strategy: Vision 2030 Egypt.
  - National Adaptation Plan (NAP) work advancing under the Adaptation Taskforce of the National Council for Climate Change.
- Legal and regulatory advances for water resilience:
  - Enacted Water and Sanitation Services Law (Law No. 172 of 2025).
  - Law strengthens regulatory framework for water and wastewater services, including role of the Egyptian Water Regulatory Agency, introduces principles to improve efficiency, cost recovery, and service sustainability.
  - Government preparing Executive Regulations, expected to be issued within six months of enactment; regulations will operationalize tariff structures, service standards, and regulatory oversight and are expected to help attract private capital.
- Financial sector climate risk regulation:
  - Central Bank of Egypt (CBE) issued binding regulations in July 2026 requiring financial institutions to adopt Environmental and Social Risk Management Systems (ESRMS), moving beyond voluntary guidelines.
  - Authorities have requested support to develop regulation on climate-related financial risks and implementation support.
- Institutional coordination and public financial management (PFM) gaps:
  - Climate governance strengthened via National Council for Climate Change, Adaptation Taskforce, and climate focal points across line ministries.
  - Ministry of Finance advanced analytical work in 2025 to identify and assess long-term climate-related fiscal risks, including climate-sensitive contingent liabilities.
  - Climate priorities not yet systematically integrated into medium-term expenditure frameworks, budget circulars, or performance-based budgeting systems; no consolidated climate budget tagging or reporting mechanism.
  - This limits translation of strategic objectives into prioritized, costed, and monitored expenditures and constrains alignment of sector investment plans with national climate targets.
- PFM reform priorities:
  - Continued progress integrating climate considerations into PFM systems, addressing gaps in climate budget integration and climate budget tagging, would help operationalize climate objectives through strategic resource allocation, expenditure tracking, and investment planning.
  - Advancing these reforms would help create a prioritized and monitorable investment pipeline for adaptation and mitigation.

### C. Government Policies and Commitments in Terms of Climate Change Mitigation and Priority Areas to Reduce Greenhouse Gas Emissions
- Clean energy and market measures:
  - Regulation issued defining the Egyptian Electric Utility & Consumer Protection Regulatory Agency as issuer of green certificates for renewable energy; executive regulations of the Financial Regulatory Authority amended to recognize such certificates as a tradable financial tool.
  - Measures could strengthen corporate clean energy procurement, ensure credibility of renewable energy claims, support CBAM readiness, and enable carbon trading.
  - Major investments in solar, wind, and battery storage to enable higher share of renewables.
  - Target for renewable energy share of generation to reach 42 percent advanced to 2028 instead of 2030.
  - On March 11, authorities adopted a financial viability plan for the electricity sector envisaging tariff adjustments and optimization of operating costs, including reducing distribution losses and shifting towards more efficient power plants and gas instead of liquid fuel.
  - IBRD supporting Ministry of Petroleum in prefeasibility studies for methane abatement and emission reduction projects (flare and fugitive emissions).
  - Electricity transmission company (EETC) being unbundled from the holding company to become an independent transmission system operator (TSO).
- GHG MRV and carbon market readiness:
  - Progress on digitalized national MRV system covering electricity, oil and gas, transport, waste, and agriculture; focus on improving data standards and inter-ministerial coordination (advance during 2025 with World Bank and partners).
  - Publication of Egypt’s First Biennial Transparency Report (BTR1) in late 2025 reinforced institutional basis for emissions tracking.
  - Selected to receive Climate Investment Fund financing for industrial decarbonization; developing an investment plan to mobilize financing and leverage IBRD, IFC, EBRD, and AfDB resources.
  - World Bank Group supporting government in establishing an Article 6 framework with EEAA and Ministry of Investment to develop institutional and regulatory framework for international carbon market transactions under Article 6 of the Paris Agreement.
- Long-term strategy gap:
  - Egypt has not adopted a Long-Term Low-Emissions Development Strategy (LTS) or an explicit economy-wide net-zero emissions target.
  - Mitigation policy anchored in sector-specific targets under the updated Nationally Determined Contribution (June 2023): 2030 mitigation objectives of 37 percent emissions reduction in electricity, 65 percent in oil and gas, and 7 percent in transport relative to a 2015 baseline and a 2030 business-as-usual scenario.
  - Recommendation: Articulate a national long-term net-zero pathway supported by clear, sequenced, and practical sectoral transition plans to provide stronger policy signals, improve investment predictability, and facilitate scaling-up of public and private financing.

### D. Other Challenges and Opportunities
- Recent tariff and price adjustments in response to regional developments:
  - Electricity tariffs for industrial and commercial users increased by 17–31 percent across all voltage levels.
  - Lowest commercial consumption bracket (less than 100 kWh per month) saw an increase of 91 percent.
  - Residential tariff adjustments limited to highest consumption bracket (those exceeding 1,000 kWh per month).
  - Gas and fuel price increases: industry 16–35 percent; gasoline and diesel for transport 15–17 percent; compressed natural gas for vehicles 30 percent; LPG and household gas for residential and commercial use 22 percent and 60 percent, respectively.
  - Gas and fuel prices for electricity generation left unchanged.
  - Authorities approved temporary measures to boost energy savings.
  - Crisis expected to further accelerate the shift towards renewables in the medium term.
- Labor market, productivity, and competitiveness implications of green transition:
  - Accelerating renewable investments, industrial decarbonization, CBAM readiness, and development of carbon market and MRV systems likely to cause job reallocation away from emissions- or climate-exposed activities and increase demand for new skills.
  - Need to align workforce development, technical and vocational education, employment services, and social protection to facilitate labor mobility and support affected workers.
  - Over time, these measures can strengthen productivity, improve competitiveness of Egyptian firms in global markets, and enable the private sector to capitalize on low-carbon opportunities.

### E. World Bank Engagement in the Area of Climate Change
- GROWTH II Development Policy Financing (P514501):
  - Second GROWTH (GROWTH II) approved on May 8, 2026, provides US$1 billion in financing and builds on GROWTH I (approved June 24, 2024).
  - Under green transition pillar, GROWTH II supports prior actions to:
    - establish a cross-government management and reporting system for climate change mitigation and adaptation;
    - enable development of Egypt's carbon credit market;
    - increase share of renewable energy in generation mix and private sector participation;
    - improve financial viability of electricity and water and sanitation sectors.

### Supplementary Program and Fiscal/Financial Updates
- Divestment proceeds and IPO progress:
  - By July 26, 2026, divestment proceeds totaling US$526.3 million transferred to the budget.
    - US$420 million from sale of 100 percent stake in the Gabal El-Zeit wind farm to Alcazar Energy; transaction closed and ownership transferred; remaining post-closing formalities expected by mid-September 2026.
    - US$106.3 million from Ministry of Finance's sale of portions of holdings in several listed SOEs.
  - IPO of Misr Life Insurance progressing: listing approval obtained; 2025 IFRS financial statements finalized; transaction adviser selected; investment discussions with EBRD advanced, with NDA signed for potential pre-IPO acquisition of a 5 percent stake.
  - All divestment proceeds to be fully allocated to debt reduction.
- Program quantitative performance and preliminary fiscal outturns:
  - NIR: End-June preliminary outturn reached US$41.6 billion (at program exchange rate), exceeding adjusted target of around US$37.3 billion after accounting for lower-than-programmed official external disbursements. Gross reserves stood at US$63 billion, equivalent to about 119 percent of the IMF’s reserve adequacy metric.
  - Overdraft: End-June net CBE overdraft to the government was EGP 170.9 billion.
  - Fiscal: Preliminary tax revenue and primary balance data, including net acquisition of financial assets, reached around 89 and 96 percent of the full year targets, respectively; staff requests waivers of applicability for the end-June 2026 QPCs on the primary fiscal balance of the budget sector and the floor on tax revenues.
- Financial market and exchange rate developments:
  - Exchange rate: After appreciating to a post-conflict high of EGP 48.81 per dollar in early July, depreciated to around EGP 50.7 per dollar by July 27.
  - Sovereign bond spread: J.P. Morgan EMBIG Diversified spread widened by about 20 basis points to about 350 bps following renewed tensions.
  - Non-resident holdings of domestic government securities: almost fully recovered by end-June, reaching US$37.2 billion (compared with recent peak of US$39.1 billion on February 18).
  - CBE continued to accumulate reserves by purchasing in the first week of July; modest outflows reported following renewed tensions absorbed through exchange rate adjustments.

*From 1egyea2026002 - 1. No material changes since the last assessment letter.*

### 1. On  behalf of the Egyptian authorities, we thank the Board, Management, and staff

### 1. On  behalf of the Egyptian authorities, we thank the Board, Management, and staff 

### Recent economic developments, program performance, and outlook
- Real GDP grew by an estimated 5.2 percent over the first three quarters of the year, its highest level since FY2021/22, supported by non-petroleum manufacturing, wholesale and retail trade, the information and communication technology, tourism, and a recovery in Suez Canal activity.
- Unemployment rate fell to a historic low of 6.0 percent in Q1 2026.
- Annual headline urban inflation declined to 14.3 percent in June 2026, from 24 percent in January 2025.
- CBE foreign exchange buffers reached US$63.7 billion at end-January 2026—about 119 percent of the ARA metric.
- Primary fiscal balance strengthened to 3.52 percent of GDP at end-March 2026 compared to 2.4 percent of GDP at end-March 2025 (nominal primary balance grew by around 72 percent y-o-y to reach EGP 749 billion compared to EGP 435 billion).
- Overall deficit at end-March increased by around 2 percent y-o-y (a nominal increase of EGP 21 billion) to around 5.2 percent of GDP by end-March 2026 compared to 6.0 percent during the same period last fiscal year.
- Tax collection increased by 29 percent y-o-y, with a 1.4 percent of GDP increase in the tax-to-GDP ratio.
- Remittances witnessed record high levels in March and April 2026.
- Average time to maturity of new domestic issuances rose to 1.1 years by end-June 2026—the highest level in three years.
- Central government debt-to-GDP reached 83 percent of GDP by end-June 2025, a decrease of 13 percent of GDP from over three years ago.
- External debt of budget entities reduced by around U.S.$1-2 billion annually.
- Successful international capital market access included a US$1 billion eight-year Social Eurobond (five times oversubscribed) and a US$500 million Samurai bond.
- Under the EFF arrangement, all end-March 2026 quantitative performance criteria were met except for a temporary breach of the ceiling on central bank lending to public entities, which was corrected. End-June 2026 quantitative performance criteria on central bank lending to public entities and the stock of privately placed Ministry of Finance notes were met.
- Under the RSF arrangement, RM3 was completed, introducing climate considerations for national investment planning and aligning with the National Climate Change Strategy 2050; RM4 work (expanding the asset registry and integrating climate risk analysis) is completed ahead of time.

### Six-pillar strategy response to the war and policy actions
- a. Central Crisis Management Committee activated, ensuring coordination across fiscal, monetary, and energy policies; strengthened disclosure and transparency with business community and investors.
- b. Energy supply actions: secured alternative fuel imports, strengthened strategic reserves, reallocated gas toward domestic needs, and introduced temporary electricity-saving measures.
- c. Expenditure and pricing measures:
  - raised domestic fuel prices;
  - increased natural gas tariffs for vehicles and households;
  - increased electricity tariffs by 25 percent for commercial and industrial users and by 16 percent for high-consumption residential users;
  - raised train and metro fares;
  - applied a pricing formula to fertilizer companies from April 2026 to reflect higher gas and global commodity prices;
  - completed electricity interconnection with Saudi Arabia to facilitate power exchanges;
  - executed oil hedging contracts covering around 50 percent of import needs for FY2025/26;
  - rationalized non-priority expenditures through end-June 2026;
  - increased contingency reserves in the FY2026/27 budget to 1.1 percent of GDP.
- d. Flexible exchange rate: Egyptian pound depreciated by about 17 percent at the height of the Middle East war; spread between official and market-clearing exchange rate remains closed; no FX intervention by the CBE; interbank foreign exchange market functioning in an orderly manner.
- e. Social protection and income support:
  - extended support to beneficiaries of Takaful and Karama and low-income households holding ration cards for an additional two months through May 2026, including an increase of EGP 400 in cash transfers benefiting 15 million families (5 million covered under Takaful and Karama);
  - targeted increase of 10 percent in total wages and salaries for government employees in FY2026/27 and a 15 percent increase for pensioners.

### Risks and outlook
- Downside risks: renewed regional tensions could weaken remittances and FDI, disrupt trade and supply chains, trigger capital outflows, put pressure on prices, and increase borrowing costs.
- Domestic risk: elevated domestic financing needs.
- Upside: de-escalation of the Middle East war could support recovery in Suez Canal activity; accelerated implementation of structural reforms and improved sentiment could boost growth, attract investment, induce capital inflows, and foster private sector development.
- Authorities express confidence that the economy will remain resilient given policy commitment and implementation track record.

### Fiscal policy, revenues, and social protection
- Fiscal policy aims to safeguard debt sustainability while creating space for priority social and development spending; commitment to maintaining sizable primary surpluses, reducing gross financing needs, broadening the tax base, and placing public debt on a downward trajectory.
- End-March 2026 fiscal targets were exceeded despite global uncertainty: tax revenues overperformed by more than 1 percent of GDP, driven by stronger direct tax receipts and revenue administration measures.
- VAT revenue growth of around 20 percent (0.2 percent of GDP) over the period.
- Primary balance outperformed end-March program target, reaching a surplus of 3.52 percent of GDP—about 0.5 percent of GDP above target.
- Revenue collection during July–April reached 79 percent of full-year projections.
- Amendments to the property tax law (Law No. 3 of 2026) support revenue momentum.
- Available contingency reserves of about 0.6 percent of GDP to address unexpected revenue shortfalls.
- FY2026/27 budget targets a primary surplus of 5 percent of GDP, prioritizing social protection, health, and education.
- Comprehensive revenue package expected to yield about 1.2 percent of GDP through VAT reforms, new excises, a surcharge on SOE profits, and strengthened transfer-pricing rules.
- Publication of the withholding tax expected by end-November (structural benchmark); temporary measures will offset delayed adoption.
- Expenditure: budget accommodates a minimum wage increase and continued targeted support through Takaful and Karama cash transfer programs and other in-kind programs.
- Priority investment in health, education, energy, water, and sanitation to increase by 31 percent on average while remaining within the agreed public investment ceiling.
- Contingency reserves equivalent to 1.1 percent of GDP identified to absorb oil-price shocks and shortfalls in divestment proceeds.

### EGPC viability and energy sector measures
- Cost recovery for fuel products covered by the indexation mechanism was achieved in December 2025.
- Fuel, gas, and electricity tariffs adjusted following rise in global oil prices.
- Energy subsidies limited to an increase of EGP 15 billion (0.07 percent of GDP) in FY2025/26.
- Prime Minister announced resumption of automatic fuel indexation in July 2026.
- By June 2026, EGPC had fully cleared its arrears to international oil companies, supported by government-guaranteed external borrowing and budgetary transfers to EGPC and EEHC.
- Installed renewable capacity projected to reach 9.6 GW by end-2026 and about 45 percent of total generation capacity by end-2028.
- Progress report on the EGPC viability plan to be submitted to the Ministry of Finance by end-September 2026 (new structural benchmark); will assess progress toward restoring a cash-flow surplus, reducing government guarantees, improving collections, and identify additional measures.

### Debt management agenda and projections
- Under the Medium-Term Debt Management Strategy (MTDS), US$2.5 billion was raised through private placements, an oversubscribed 8-year Social Eurobond, and a Samurai bond.
- Gross financing needs (GFNs) declined by 5 percent of GDP in FY2025/26—close to the 6 percent of GDP originally envisaged.
- Authorities committed to a cumulative reduction in GFNs of 10 percent of GDP over FY2025/26–FY2026/27.
- Measures supporting debt reduction include proceeds from the U.S. dollar 3.5 billion Qatari investment deal, over U.S. dollar 500 million divestment from Gabal El Zeit and other transactions, reduced reliance on short-term Treasury bills, increased issuance of longer-term instruments, and voluntary liability-management operations.
- Average time to maturity of new issuances improved to 1.1 years by end-June 2026 and expected to rise further as market conditions permit.
- Outstanding stock of privately placed Ministry of Finance notes reduced from EGP 752 billion to EGP 475 billion over the past year; further reductions planned alongside discontinuation of one-week notes.
- Institutional strengthening measures: establishment of a fully-fledged Debt Management Office; enhanced staffing and analytical capacity; upgraded debt-management systems; stronger coordination between investor relations unit and macro-fiscal policy unit; closer coordination among key public-sector stakeholders; deepening domestic debt markets and diversifying financing instruments.
- General government debt projected to decline from about 96% of GDP in FY2022/23 to an estimated 85.6 percent of GDP in FY2025/26 and 84.4 percent in FY2026/27.

*Document: On behalf of the Egyptian authorities — statement to the IMF Board, Management, and staff.*

### 80.9 percentin FY2027/28.

### 80.9 percentin FY2027/28.

### Fiscal reforms and transparency
- The MOF continues wide-ranging fiscal reforms to strengthen monitoring and control of public sector activity and fiscal risks, including:
  - Publication of a fiscal strategy paper, a medium-term budget and a comprehensive fiscal risk statement covering macro-fiscal, climate, SOE, PPP, and contingent liability risks, including the budgetary impact of the Middle East war.
  - Continued integration of Economic Authorities into general government reporting in line with GFSM 2014 standards.
  - Expanded arrears reporting to cover critical SOEs and Economic Authorities.
  - Strengthened debt transparency through quarterly budget-sector debt bulletins and semi-annual consolidated general government debt statistics.
- Commitment to containing public investment while improving project selection and prioritization, including through a forthcoming World Bank Public Finance Review assessment.
- Following a temporary breach related to EGPC borrowing, the stock of government guarantees returned within program limits, and the authorities remain on track to meet end-June targets.
- SOE reporting to be significantly expanded through a new SOE database with the objective of achieving comprehensive coverage of all 230 SOEs under the updated State Ownership Policy by end-November 2026.
- Fiscal transparency and budget openness gains reflected in Egypt’s Open Budget Index score rising from 49 in 2023 to 59 in 2025, just two points short of the 61-point threshold for substantial budget information sharing.

### Monetary and exchange rate policies
- Monetary stance remained sufficiently restrictive before the war and supported disinflation despite cumulative policy rate cuts of 825 basis points between April 2025 and February 2026.
- Inflation expectations remained anchored, with CBE surveys indicating expectations below or in line with projected inflation.
- Following the onset of the war, rising inflationary pressures from higher domestic energy prices and exchange rate depreciation led the CBE to maintain policy rates unchanged in April, May, and July 2026.
- Annual headline inflation declined to 14.3 percent in June 2026, supported by favorable monthly inflation dynamics and limited demand-side pressures.
- The CBE remains committed to a tight, data-dependent monetary policy stance consistent with returning inflation to its target of 7 percent (±2 percentage points) in the near term.
- The Monetary Policy Committee will not hesitate to tighten policy to ensure inflationary pressures are contained and inflation returns to its target.
- The CBE will strengthen its monetary policy framework through enhanced communication, regular publication of its quarterly Monetary Policy Report, enhanced monitoring of inflation expectations, and continued progress toward the adoption of a fully-fledged inflation-targeting framework.
- Exchange rate policy:
  - The CBE remains committed to exchange rate flexibility as a key pillar of the macroeconomic policy framework.
  - The exchange rate appreciated by about 10 percent prior to the Middle East war and subsequently depreciated by nearly 17 percent at the height of the crisis.
  - Movements were consistent with a market-determined exchange rate; the spread between the official and market-clearing rates remained closed, with no foreign exchange demand backlogs at banks and no CBE intervention in the FX market.
  - The CBE will continue to limit FX interventions to address excessive volatility and will continue reporting daily bank-by-bank FX transaction-level data.
- Reserve policy:
  - The end-March target was met, supported by improved market conditions and positive net foreign exchange inflows.
  - As inflows strengthened following the ceasefire agreement, the CBE made further purchases, placing reserves in a strong position to meet end-June targets.
  - The CBE will continue accumulating official reserves, implemented through pre-announced auctions, direct market purchases, and other market instruments, calibrated to prevailing conditions.
  - To limit foreign currency mismatches, the CBE will not grant exemptions to banks breaching net open position limits and will apply sanctions in accordance with regulations.
  - The CBE will maintain the continuous performance criterion on the non-accumulation of external debt arrears.

### Financial sector policies
- Strengthening financial sector resilience remains a key priority.
- Egypt’s banking sector is described as resilient, profitable, liquid, and well capitalized, with capital adequacy ratios comfortably above regulatory requirements, exceptionally strong liquidity buffers, and profitability indicators that compare favorably with international benchmarks.
- Authorities are strengthening supervisory frameworks through enhanced risk reporting, improved data infrastructure, expanded scenario-based stress testing, and closer monitoring of sovereign-bank linkages, climate, cybersecurity, and other emerging vulnerabilities.
- Governance in state-owned banks:
  - Independent diagnostic assessments of the National Bank of Egypt and Banque Misr identified areas for improvement in governance and risk-management practices.
  - Corrective action plans have been finalized, with continued reporting to IMF staff and a final status report due by end-September 2026.
  - Authorities remain committed to ensuring that all banks operate on a fully commercial basis and at arm’s length from the government.
- Digital financial development:
  - Reforms in digital banking, e-KYC frameworks, fintech regulation, payment systems, cybersecurity, and supervisory technology are underway.
  - Authorities expect the launch of the first fully licensed digital bank before end-2026.
  - Continued strengthening of oversight, cyber resilience, data analytics, and supervisory tools to support innovation while safeguarding financial stability and operational resilience.

### Structural reforms
- Divestment program:
  - Divestment remains a key pillar of the reform agenda.
  - Despite a challenging external environment, the authorities have accelerated the divestment program and expect to secure significant proceeds from transactions already underway, including key asset sales and the completion of the U.S. $420 million Gabal el Zeit transaction, with all proceeds directed toward debt reduction.
  - A pipeline of additional transactions and IPOs is expected to deepen capital markets, mobilize private investment, and support debt reduction, with at least 50 percent of future proceeds allocated to lowering public debt.
- Reform of 59 Economic Authorities:
  - Reform focuses on (i) reviewing the Economic Authorities’ legal status—including conversion into holding companies governed by corporate law; (ii) strengthening their operational and financial models; (iii) separating commercial from non-commercial activities; and (iv) establishing transparent budget financing for public service obligations.
  - Near-term plans: convert seven Economic Authorities into public service economic organizations to be included in the government budget, merge seven, and dissolve two, while undertaking deeper legal and organizational reforms for the remaining economic authorities by end-2026.
  - Priority sectors include mass media, railways and tunnels, new urban communities, supply chains, and agricultural projects.
- State Ownership Policy (SOP) update:
  - Updated SOP promotes private sector-led growth, competitive neutrality, and stronger governance.
  - Authorities will adopt a Cabinet-approved executive plan by end-September 2026, setting timelines for divestment from non-strategic sectors, completion of the SOE triage exercise, legislative reforms and governance enhancements, implementation of the dividend policy, and improved availability of audited SOE financial information.
  - Progress to be monitored through the publication of updated semi-annual SOP indicators.
- Business environment improvements:
  - Continued customs reforms, mandatory advance customs clearance, and rollout of a fully digital platform for business registration and licensing covering 400 economic activities.
  - Commitment to strengthening competitive neutrality and economic competition, building on the removal of SOE and other public entities’ tax privileges and recent amendments to the Competition Law enhancing the independence and enforcement powers of the Egyptian Competition Authority.

### Conclusion and program status
- Authorities have continued to deliver strong policy implementation despite an exceptionally challenging regional environment.
- Decisive actions have preserved macroeconomic stability, strengthened resilience, protected the most vulnerable, and maintained momentum on a broad structural reform agenda.
- Authorities remain firmly committed to the objectives of the EFF and RSF and will continue implementing prudent macroeconomic policies and ambitious reforms to support sustainable, private-sector-led growth.
- In light of the authorities’ strong policy commitment and continued progress under the program, staff respectfully request Executive Directors’ support for the completion of the Seventh Review under the EFF and the Second Review under the RSF, and related decisions.

*Source: 1egyea2026002 - 80.9 percentin FY2027/28.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2026/english/1egyea2026002.pdf_