Key Questions on Egypt

Last Updated: July 24, 2019

In November 2016, The Executive Board of the IMF approved financial assistance for Egypt in the form of an Extended Fund Facility (EFF) arrangement for SDR 8.59 billion or about US$12 billion. The Executive Board approved the first review on July 13, 2017, the second review on December 20, 2017, the third review on June 29, 2018, the fourth review on February 4, 2019, and the fifth and final review on July 24, 2019.

The EFF supported the authorities' comprehensive economic reform program to restore macroeconomic stability and return Egypt to strong and sustainable growth. More specifically, the program aimed to improve the functioning of the foreign exchange markets, bring down the budget deficit and government debt, and raise growth to create jobs, especially for women and youth. It also aimed to protect the most vulnerable groups in the society during the process of adjustment.

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

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How much money was disbursed under the fifth review and what are the total disbursements under the program? Is this the final disbursement?

Completion of the fifth and final review allows the disbursements of SDR 1,432.76 million, or about US$2 billion, bringing total disbursements under the program to date to the full amount of around US$12 billion.

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The program is now complete. What did the program achieve over the past three years?

  • Egypt’s reform program supported by the IMF Extended Fund Facility (EFF) has made substantial progress as evident in the success achieved in macroeconomic stabilization and the recovery of growth.
  • Economic growth has been steadily improving since the beginning of the reforms, and at [5.5 percent] is among the highest in the region. At the same time, the budget for the 2018/19 fiscal year reached a primary surplus of 2 percent of GDP, which excludes interest payments; and inflation is on track to reach single digits by the end of 2019. Unemployment has declined to around [8 percent], which is the lowest in 20 years, and social protection measures have been expanded. These are considerable achievements.
  • Egypt needs to continue to press ahead with reforms to support private sector development and job creation. Significant steps have been taken to strengthen governance and competition, better integrate women and youth in the labor market, improve access to finance and land, and limit the role of the state in the economy. Continued efforts will be needed to deepen and broaden reforms to further improve the business climate, tackle corruption, reduce the role of the state, and enhance non-oil exports.
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    Why are prices still so high despite the decrease in inflation? When do we expect inflation to go into the single digits?

    The recent volatility in inflation is mainly attributable to developments in the prices of fruits and vegetables. These reflect issues on the supply side, including supply chain logistics and low yields in the production of some food items. Core inflation, which excludes volatile and regulated items, is contained at around 8 percent. The CBE’s monetary policy stance remains appropriate to ensure that second round effects of food price volatility do not spill over into broader measures of inflation. If supply-side constraints are duly addressed to ensure more efficient functioning of market mechanisms and prudent monetary policy maintained, inflation would be expected to reach single digits in 2020. But a decline in inflation does not mean lower prices, rather a slower pace of price increases.

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    Now that the IMF program with Egypt is over, what kind of engagement will you have with Egypt? Did the Egyptian authorities request a successor program?

  • Although the final tranche has been disbursed, the current arrangement runs through November 2019. The priority at the current juncture is to ensure that Egypt continues with implementing sound policies to maintain macro-economic stability and sustain the hard-earned successes.
  • As with all our member countries, we engage in macroeconomic surveillance of the economy—meaning performing health checks of the economy or what we call Article IV consultations [hyper link to the fact sheet]. We also support Egypt through offering technical assistance and capacity development in a number of areas. If and when the authorities decide to request a new Fund program to anchor their reforms, we stand ready to support Egypt and its people as they continue the process of transforming the economy to achieve high, sustained and inclusive growth and job creation.
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    One of the main pillars of the program was to protect the most vulnerable. What your assessment of such measures. Will these measures continue after the program?

    Social protection has been a cornerstone of the government's reform program. While job creation is seen as the main strategy to improving standards in the medium term, the authorities have put in place several initiatives, including: (i) more than doubling the value of cash transfer allowances offered through food smart cards – from 21 to 50 Egyptian pounds per person – and raising transfers for infant milk and children’s medicines; (ii) expanding the social solidarity pensions to include medical coverage, as well as expanding the coverage of the Takaful and Karama programs to 2.2 million households—around 9 million Egyptians--and increasing the amounts provided; (iii) raising pension benefits, especially for the lower pension categories; (iv) to complement Takafol and Karama and help low income families improve living standards, the government started in June 2017 a new program “Forsa”. Partnering with private sector, Forsa links the children of the Takafol and Karama recipient families and job seekers with employment opportunities which offers them steady income. (v) paying a one-time allowance to public employees to compensate for high inflation; (vi) providing free school meals and new gas connections in poor districts and (vii) increasing the exemption threshold for taxes on domestic salaries. . Part of the savings from the subsidy reform was used to mitigate the impact of the energy price reform on the most vulnerable. These efforts are expected to continue going forward.

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    Now that the government has implemented the last step of fuel prices increase, will there be further fuel price increases in the near future?

    The elimination of fuel subsidies and the introduction of fuel price indexation are important reforms that will yield substantial benefits for the Egyptian economy going forward. They will increase efficiency of fuel consumption, protect the budget from changes in the global price of fuels, provide space for well-targeted social programs, and generate more investment in sectors and industries that create more jobs. In future, retail prices of fuels will adjust up or down with the changes in underlying costs (e.g. oil prices, the exchange rate, etc) as is the practice in most modern economies around the world.

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    Did the program achieve its target to reduce unemployment, especially among youth and women?

    Unemployment has declined from 12 percent in 2016/17 to around 8 percent in December 2018, which is the lowest in 20 years. The Egyptian authorities implemented measures to increase job opportunities for youth and promote women’s labor force participation. These include specialized training programs for youth and job search schemes. To help women join the labor force, the 2016/17 budget included EGP 250 million to improve availability of public nurseries. The amount was increased to EGP 500 million in 2017/18 and to EGP 600 million in 2018/19. The authorities are also planning to implement gender budgeting starting in 2018/19. More reforms are needed to increase the dynamism of the private sector, and boost investment and growth, which are critical for sustaining the declining trend of unemployment.

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    Egypt’s debt levels are very high. What is your evaluation of the debt situation from the beginning of the program till it ended? Is the debt level sustainable?

    Placing public debt on a clearly declining path has been one of the main objectives of the authorities’ program. Recovery in GDP growth rates and significant reduction in fiscal deficits have helped to reduce gross government debt from more than 100 percent of GDP in 2016/17 to 85 percent of GDP in 2018/19. This is a significant accomplishment. However, the debt level remains high and needs to be reduced further to strengthen Egypt’s debt sustainability, reduce interest payments and thereby free up fiscal space for critical spending needs in health, education, infrastructure and social protection. The authorities’ intention to maintain primary fiscal surpluses (i.e. fiscal balances excluding interest payments) at 2 percent of GDP in the medium term would ensure a stable decline in public debt to sustainable levels.

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    Why are structural reforms so important for Egypt?

    Egypt has a young and growing population and more than 3.5 million Egyptians will join the labor market in the next five years. Significant progress has been achieved to restore macro-stability and confidence in the economy. But to create the needed jobs, Egypt needs to grow faster and increase the contribution of the private sector to growth and job creation. To this end, structural reforms need to be broadened and deepened to improve the business environment, improve access to land and finance, strengthen competition, improve accountability and transparency of state-owned enterprises, reduce the role of the state and tackle corruption. Removing the constraints that have weighed on higher investment and job creation in the past will help Egypt grow faster and improve the living standards of the population.

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    How is the IMF addressing the problem of corruption that is perceived as being widespread in Egypt?

    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 and reduce opportunities for and rewards from rent-seeking. Specific reforms include the publication of the SOE report, which includes about 300 SOEs with abridged financial statements, their governance structure and other important information pertaining to how the government exercises its ownership rights; strengthening independence of the Egyptian Competition Authority, a competition watch-dog, which is tasked to address non-competitive practices and thereby reduce the scope for rent-seeking activities and market manipulation; and modernizing practices for industrial land allocation and public procurement, both of which are prone to corruption if done in a non-transparent, non-competitive and non-inclusive manner.

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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 listening to the 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. We also 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.