Press Release: IMF Executive Board Concludes 2014 Article IV Consultation with the Arab Republic of Egypt

February 11, 2015

Press Release No. 15/44
February 11, 2015

On January 28, 2015, the Executive Board of the International Monetary Fund (IMF) concluded the Article IV consultation1 with the Arab Republic of Egypt.

Following four years of political uncertainty and economic slowdown, the authorities have started implementing policies to raise growth, create jobs and restore macroeconomic stability. To achieve inclusive growth and job creation, the authorities are pursuing structural reforms, promoting investment, and developing measures to protect the poor. To restore macroeconomic stability, they are designing an ambitious fiscal adjustment, supported by tight monetary policy to contain inflation.

The starting point is difficult. The political turmoil of 2011 triggered a sharp capital account reversal and left growth depressed, while policy accommodation widened fiscal and external imbalances. For the last four years, growth has been only 2 percent on average, and the unemployment rate has risen to over 13 percent. Poverty increased to 26.3 percent in 2012/13. Fiscal deficits have been above 10 percent of GDP since 2011, and have been largely financed domestically, thereby contributing to the relatively high level of inflation; general government debt reached 90.5 percent of GDP in mid-2014. Political uncertainties have weighed on both tourism and capital flows, leading to a decline in reserves from 6.8 months of imports in mid-2010 to 2½ months of imports in December 2014. Nevertheless, the banking system, starting from a relatively strong position, has been resilient to the shocks and has maintained profitability, low non-performing loans, and high liquidity.

The measures implemented so far, along with some recovery in confidence, are starting to produce a turnaround. As the authorities implement policy initiatives, prospects for growth, employment, and macroeconomic stability will improve. Growth is projected to reach 3.8 percent in 2014/15 and to rise steadily to 5 percent over the medium term, which would create jobs and reduce unemployment.

Fiscal consolidation will bring the budget deficit below 8 percent of GDP by 2018/19 and set government debt on a downward path. The adjustment is designed to preserve growth and inclusiveness: it accommodates the increase in spending on health, education, and scientific research mandated by the constitution, reforms subsidies to make them more efficient and equitable, raises taxes on high earners, and strengthens social safety nets through the development of cash transfer systems. Lower fiscal deficits will support the targeted reduction in inflation to 7 percent over the medium term. The authorities aim to increase reserves to the equivalent of 3 months of imports by the end of 2014/15 and 3½ months of imports over the medium term, although continued external financing will be needed to achieve these goals.

Egypt is vulnerable to adverse global economic developments, regional security risks, domestic shocks and possible policy slippages, but upside risks could also materialize from a successful implementation of the authorities’ policies and reforms.

Executive Board Assessment2

Executive Directors welcomed this first Article IV consultation since the events of 2011, noting the significance of economic developments and policies in Egypt for its people and for the region. Directors welcomed the improved economic outlook and supported the authorities’ plans to restore macroeconomic stability and spur inclusive growth and employment. They underscored the importance of policies to restore growth, create jobs, and protect the poor. They viewed reforms of the regulatory framework for businesses and investment and financial sector development as critical to encourage open competition and unlock private sector-led growth.

Directors welcomed the authorities’ focus on improving infrastructure and reforming the energy sector. They stressed that investment should be designed to create jobs in the short term and increase potential growth and exports in the long term. Directors agreed that limited public resources and an already high public debt call for a careful design and monitoring of projects to avoid actual or contingent liabilities.

Directors welcomed the authorities’ policies to protect the poor. They supported the launch of a new cash transfer scheme and the reform of food ration cards, together with the government’s commitment to further improve targeting and increase benefits. They considered that the increase in public spending on education, health, and research, if managed wisely, can improve the quality and availability of public services and support long-term inclusive growth.

Directors underscored that fiscal consolidation is essential for macroeconomic stability and medium-term sustainability. They commended the authorities for the recent measures to increase revenues and contain spending, especially the fuel subsidy reform that began in 2014. Directors stressed the importance of maintaining the pace of reforms to set the public debt-to-GDP ratio on a declining path. In this regard, they agreed on the need to broaden tax revenues and control current spending, including by enacting swiftly a modern VAT and continuing reforms of subsidies and of public sector wage-setting and hiring. For energy subsidies, Directors emphasized that the recent decline in oil prices provides an opportunity to accelerate reforms. Directors noted that fiscal consolidation would support the Central Bank of Egypt’s objective of bringing inflation down to single digits.

Directors considered that while the envisaged policy adjustment would strengthen the balance of payments, financing needs would remain in the medium term. Therefore, a combination of further adjustment and financing would be needed. Directors saw a more flexible exchange rate, reflecting supply and demand and consistent with an adequate level of reserves, as a way to improve the availability of foreign exchange for households and businesses, strengthen competitiveness, support the current account, and attract foreign direct investment. In this regard, they welcomed the recent movements in the exchange rate as an important step in the right direction.

Directors noted that the economic situation remains difficult given regional and domestic security risks. In view of these risks, Directors stressed the importance of building confidence and creating adequate buffers by implementing swiftly the reform agenda, strengthening international reserves, and preparing contingency plans for the budget.

Egypt: Selected Macroeconomic Indicators, 2009/10–2015/16 1/


2010/11 2011/12 2012/13 2013/14 2014/15 2015/16


(Annual percentage change)

Real GDP (market prices)

1.8 2.2 2.1 2.2 3.8 4.3

Consumer prices (end-of-period)

11.8 7.3 9.8 8.2 11.0 10.5

Consumer prices (period average)

11.1 8.6 6.9 10.1 10.4 10.1


(In percent of GDP at market prices)

Public finances


General government 2/


Revenue and grants

22.0 22.1 23.0 25.0 24.3 23.7

Expenditure (incl. net acquisition of financial assets)

31.8 32.7 37.1 38.6 35.2 32.2

Of which : Interest

5.6 5.9 7.7 8.0 7.9 7.5

Overall balance

-9.8 -10.5 -14.1 -13.6 -11.0 -8.5

Overall balance, excl. grants

-10.0 -11.2 -14.4 -17.4 -12.0 -8.6

Primary balance

-4.7 -5.1 -6.6 -6.1 -3.6 -1.4

Gross Debt

76.6 78.9 89.0 90.5 89.8 87.1


11.8 9.8 11.4 10.4 11.0 12.2


64.8 69.1 77.6 80.1 78.8 74.9

Budget sector 3/


Revenue and grants

19.3 19.3 20.0 21.8 21.3 20.9

Expenditure (incl. net acquisition of financial assets)

29.2 29.9 33.7 35.7 32.2 29.4

Of which: Fuel subsidies

4.9 6.1 6.8 6.3 3.1 1.2

Of which: Food subsidies

2.4 1.9 1.9 1.8 1.4 1.3

Overall balance

-9.8 -10.6 -13.7 -13.8 -11.0 -8.5

Overall balance, excl. grants

-10.0 -11.2 -14.0 -17.6 -12.0 -8.6

Primary balance

-3.7 -4.0 -5.3 -5.2 -2.5 -0.4


(Annual percentage change)

Monetary sector


Credit to the private sector

1.0 7.1 9.8 7.4 11.7 14.9

Reserve money

23.6 5.1 20.4 14.8 16.2 11.2

Broad money (M2)

10.1 8.3 18.4 17.1 15.2 11.8

Treasury bill rate, 3 month (average, in percent)

10.2 13.4 13.4 11.3 9.5 11.2


(In percent of GDP, unless otherwise indicated)

External sector


Exports of goods (in US$, percentage change)

13.1 -7.1 7.6 -3.2 -14.0 -5.9

Imports of goods (in US$, percentage change)

10.4 9.5 -2.6 3.7 -1.4 4.7

Merchandise trade balance

-11.5 -13.0 -11.3 -11.8 -11.4 -11.5

Current account

-2.6 -3.9 -2.4 -0.8 -3.4 -4.3

Capital and financial account (incl. errors and omissions)

-1.1 -2.8 2.1 1.6 3.1 3.2

Foreign direct investment (net, in billions of US$)

1.2 3.7 3.6 3.8 6.9 7.6

External debt 4/

14.8 13.1 15.9 16.1 16.4 17.3

Gross international reserves (in billions of US$)

26.4 15.2 14.5 16.3 18.7 21.2

In months of next year's imports of goods and services

4.7 2.7 2.5 2.8 3.1 3.2

In percent of short-term external debt 5/

542.4 308.8 138.1 191.9 116.9 115.2

Memorandum items:


Nominal GDP (in billions of Egyptian pounds)

1,371.1 1,575.5 1,753.3 1,997.6 2,295.4 2,631.3

Nominal GDP (in billions of US$)

235.6 262.3 271.4 286.4

GDP per capita (in US$)

2,930 3,183 3,205 3,304

Unemployment rate (period average, percent)

10.4 12.4 13.0 13.4 13.2 12.7

Poverty rate (percent)

25.2 n.a. 26.3

Population (in millions)

80.4 82.4 84.7 86.7 88.4 90.2

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

1/ Fiscal year ends June 30. 

2/ General government includes the budget sector, the National Investment Bank (NIB), and social insurance funds.  

3/ Budget sector comprises central government, local governments, and some public corporations. 

4/ Includes multilateral and bilateral public sector borrowing, private borrowing and prospective financing (in 2011/12). 

5/ Debt at remaining maturity and stock of foreign holding of T-bills.  

1 Under Article IV of the IMF's Articles of Agreement, the IMF holds bilateral discussions with members, usually every year. A staff team visits the country, collects economic and financial information, and discusses with officials the country’s economic developments and policies. On return to headquarters, the staff prepares a report, which forms the basis for discussion by the Executive Board.

2 At the conclusion of the discussion, the Managing Director, as Chairman of the Board, summarizes the views of Executive Directors, and this summary is transmitted to the country's authorities. An explanation of any qualifiers used in summings up can be found here:


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