Press Release: IMF Reaches Staff-Level Agreement with Egypt on a US$4.8 Billion Stand-By Arrangement

IMF News, November 20, 2012

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Canonical URL: Press Release: IMF Reaches Staff-Level Agreement with Egypt on a US$4.8 Billion Stand-By Arrangement

IMF staff mission, headed by Mr. Andreas Bauer, Division Chief in the Middle East and Central Asia Department, and the Egyptian authorities reached a staff-level agreement on a 22-month Stand-By Arrangement (SBA).
SBA amount: about US$4.8 billion (equivalent to about SDR 3.16 billion, or 335 percent of Egypt's quota in the IMF).
Purpose: to support the government's economic program through fiscal year 2013/14.
Next step: Egypt's request for an SBA is expected to be submitted to the IMF Executive Board for approval in a few weeks.
Mission statement emphasizes promotion of economic recovery, addressing fiscal and balance of payments deficits, and laying the foundation for rapid job creation and socially balanced growth in the medium term.

Fiscal reforms are described as a key pillar of the program, focusing on:
- Reducing wasteful expenditures, including by reforming energy subsidies and better targeting them to vulnerable groups.
- Raising revenues through tax reforms, including increasing the progressivity of income taxation and broadening the general sales tax (GST) to become a full-fledged value added tax (VAT).
Intended use of additional resources:
- Boost social spending and infrastructure investment.
- Gradually reduce the large budget sector deficit from almost 11 percent in 2011/12 to 8.5 percent of GDP in 2013/14.
- Budget sector primary deficit to decline from 4 percent in 2011/12 to 0.6 percent in 2013/14 and is projected to turn positive in the following fiscal year.
Expected outcomes:
- Alleviate the public debt burden.
- Free up financing to support social spending and private sector growth.

Measures to strengthen public financial management and transparency include:
- Broadening the coverage of the treasury single account.
- Regular publication of key budgetary and financial sector information.
These measures are intended to facilitate attainment of the fiscal objectives under the authorities' program.

Policy objectives:
- Ensure declining inflation over the medium term.
- Enhance Egypt's international competitiveness to stimulate trade and attract capital inflows.
- Increase international reserves to protect against external shocks.

Authorities aim to ensure a fair and competitive business environment with a level playing field among investors by:
- Enhancing the transparency of registration and licensing procedures.
- Facilitating the resolution of investment disputes.
- Supporting small and medium-size enterprises.
Rationale: Fair and unencumbered access to economic opportunities is important for socially balanced private sector growth and job creation.

The authorities' program will be supported by a financing package of $14.5 billion in loans and deposits on favorable terms from a range of bilateral and multilateral partners, including the IMF.
Role of external financing:
- Allow gradual adjustment of the economy.
- Substantially reduce Egypt's cost of borrowing, given the much higher interest rates on domestic loans.

Broad-based domestic and international support is deemed crucial for successful implementation.
Authorities intend to disseminate the contents of their economic program to a wide range of domestic stakeholders.
IMF support includes providing financial resources and technical assistance in the fiscal, financial, and statistical areas.

Source: Press Release No. 12/446, November 20, 2012 — IMF press statement by Mr. Andreas Bauer