Key Questions on Egypt

Last Updated: June 28, 2021

On June 23, 2021, the Executive Board of the International Monetary Fund (IMF) completed the second and final review of Egypt’s economic reform program supported by a 12-month Stand-By Arrangement (SBA). The completion of the review allows the authorities to draw the equivalent of SDR 1,158.04 million (about US$ 1.7 billion), bringing total disbursements under the SBA to SDR 3,763.64 million (about US$ 5.4 billion, 184.8 percent of quota). The arrangement was approved by the Executive Board on June 26, 2020 (Press Release No. 20/248) to support the authorities’ economic reform program during the COVID-19 crisis.

The authorities’ program supported by the SBA aimed to help Egypt cope with challenges posed by the COVID-19 pandemic by providing balance of payments and budget support. The program also helped the authorities safeguard the macroeconomic stability achieved over the previous three years, support health and social spending to protect vulnerable groups, and advance a set of key structural reforms to put Egypt on a strong footing for sustained recovery with higher and more inclusive growth and job creation over the medium term.

On the same day, the Executive Board also concluded the 2021 Article IV consultation with Egypt.

Read on for the key questions regarding the IMF agreement with Egypt

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What is the size of this arrangement? How much is the second disbursement? What are the terms of payment of this loan?

The Executive Board of the International Monetary Fund (IMF) approved on June 24, 2020 a 12-month Stand-By Arrangement for Egypt, with access equivalent to SDR 3.76 billion (about US$ [5.4] billion or 184.8 percent of quota). The approval allowed for an immediate disbursement of SDR 1.4 billion (about US$2 billion). The remainder was phased over two reviews, which took place on December 18, 2020 and June 23, 2021. Each with a disbursement of SDR 1,158.04 million (about US$ 1.7 billion). The first and second review have been completed with the full amount of the arrangement disbursed.

Each disbursement will be repaid in eight equal quarterly installments beginning 3¼ years after the disbursement takes place. Repayment of the first disbursement will begin in September 2023. The interest rate on borrowing under an SBA is set at 100 basis points over the SDR interest rate (currently at 0.082%). As Egypt’s total borrowing from the Fund is above 187.5 percent of quota, a surcharge of 200 basis points is applied in accordance with IMF rules on exceptional access to Fund resources. This surcharge would rise to 300 basis points if credit remained above 187.5 percent of quota after three years.

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What are the changes to monetary and exchange rate policy?

The Central Bank of Egypt (CBE) continues to pursue a data-driven monetary policy based on anchoring inflation expectations within a medium-term target range. Twelve-month inflation has remained well-anchored between 4-5 percent during 2021, slightly below the CBE’s target of 7 percent (±2 percent) for average inflation in Q4 of 2022. A flexible market-driven exchange rate remains an important part of the policy framework to help absorb external shocks and maintain competitiveness, with intervention limited to address disorderly market conditions.

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Did the program meet its objectives? Did it help address the effects of COVID-19?

The Stand-By Arrangement has achieved its main objectives of maintaining macroeconomic stability during the pandemic while advancing key structural reforms such as improving the fiscal framework and the business environment. Timely and prudent fiscal and monetary easing alleviated the health and social impact of the pandemic and shielded the economy from the full brunt of the crisis, while balancing the need to safeguard debt sustainability and preserving investor confidence. In addition, the authorities have successfully rebuilt international reserves to restore buffers that were drawdown in response to the crisis. 

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Was the program successful in addressing some of the structural reforms that were proposed?

Structural reforms undertaken during the Stand-By Arrangement included measures to strengthen public finances, further fiscal transparency and governance, and advance laws to improve the business climate. This included the publication of an updated State-Owned Enterprises (SOE) report to include detailed financial information for FY2018/19 on all SOEs and Economic Authorities, to enhance transparency of Egypt’s large SOE sector. The authorities’ structural reform agenda also focuses on developing a greener and more sustainable economy by ramping up green investments and integrating environmental considerations into government policies.

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What about social protection measures?

The authorities have scaled up social support during the crisis to protect vulnerable groups and those most impacted by the pandemic, with the coverage of the main cash transfer program Takaful and Karama expanded to more than 3.6 million households. In addition, the authorities have undertaken a public expenditure review supported by the World Bank to assess the effectiveness of social protection programs and identify any remaining gaps under the current framework.

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Were the fiscal targets met?

All the fiscal targets under the program have been met, and the budget appears on track to overperform the FY2020/21 primary surplus target (fiscal balance excluding interest payments). This has provided space for a more gradual consolidation in FY2021/22 to support the recovery, in particular through higher investment spending on health, education, and rural infrastructure. The authorities aim to return to the pre-crisis primary surplus of 2 percent of GDP starting from FY2022/23 to put public debt back on a firmly downward trajectory.

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Egypt’s debt levels are very high. Did the program help address the high to GDP debt ratio?

Economic policies under the program struck a balance between prudent fiscal easing to help shield the economy from the COVID-19 shock and safeguarding debt sustainability. A modest increase in public debt to 92 percent of GDP is projected in FY2020/21, reflecting slower growth and the needed fiscal response to the crisis. Achieving and maintaining primary surpluses of about 2 percent of GDP would anchor a reduction to around 75 percent by FY2025/26.

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How is the IMF addressing the problem of corruption that is perceived as being widespread in Egypt? How can you ensure the IMF loan money is used for intended purposes?

Strengthening governance and reducing corruption has been an important objective of the authorities’ reform program, supported by the IMF. The measures to this end are aimed to improve transparency and accountability in public finances as well as to reduce opportunities for and rewards from rent-seeking. Specific reforms under the Stand-By Arrangement included the publication of detailed financial information on all SOEs and Economic Authorities for FY2018/19 and revisions to the public financial management law to strengthen the budget process, including improved accounting rules for all public entities. The authorities also introduced amendments to the previously submitted Egyptian Competition Law to support competitive neutrality and empower the Egyptian Competition Authority to regulate mergers and acquisitions and act as needed to curb anti-competitive economic behavior.

In addition, the authorities have published detailed information on COVID-19 crisis-related spending and procurement contracts, including the names of the awarded companies and information on their legal ownership for contracts awarded from January 2021 until May 2021, which in most cases corresponds to beneficial ownership. They have further adjusted the executive regulation to allow for the collection and publication of beneficial ownership information for all companies going forward. The authorities have also started publishing 3-month ahead procurement plans for COVID-19-related spending on a quarterly basis and have published an audit report of COVID-19-related spending, with a special focus on health spending.

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Will Egypt have another program with the Fund? What kind of relation will the Fund have with Egypt in the future?

The IMF will remain closely engaged with the Egyptian authorities and continue to support their reform agenda to help deliver strong and inclusive medium-term growth. The Egyptian authorities will decide what form of engagement with the Fund would be most suitable after the completion of the Stand-By Arrangement.

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How can the people of Egypt share their views on an IMF engagement with the country?

The IMF is committed to being transparent about its work, to explaining itself, and to engaging with people whom it affects. IMF staff, including the IMF’s Senior Resident Representative office in Cairo, is available to engage with representatives of civil society groups, parliamentarians, academics and youth leaders through information sharing, dialogue, and consultation at both the global and national level. You can find more information here. Also, the IMF has policies in place to ensure that meaningful and accurate information—both about its own role in the global economy and the economies of its member countries—is provided to its global audiences. We are committed to this approach in Egypt as in other countries. As a matter of principle, we aim in our financial support for our members to improve people's living standards and protect the poor and vulnerable. Any program in support of Egypt would be guided by these principles.