Press Release: IMF Approves 24-month Stand-By Credit for Egypt

IMF News, October 11, 1996

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The International Monetary Fund (IMF) approved a 24-month stand-by credit for Egypt equivalent to SDR 271.4 million (about US$391 million).
In view of Egypt's present strong international reserve position, the Government does not intend to draw on the stand-by credit.
Egypt's quota in the IMF is SDR 678.4 million (about US$976 million); its outstanding use of IMF credit currently totals SDR 16.35 million (about US$24 million).

Since 1991, Egypt implemented wide-ranging macroeconomic stabilization and structural reform measures, supported by two successive IMF credits.
Real GDP growth accelerated to over 4 percent in 1995/96 from virtual stagnation in 1991/92.
The rate of inflation declined to 7 percent from over 21 percent.
The overall balance of payments remained in surplus, with net international reserves currently equivalent to about 17 months of imports.
External debt dynamics:
- Ratio of external debt to GDP fell to 47 percent in mid-1996 from about 75 percent in 1991/92.
- Debt service ratio declined to about 11 percent of current account receipts (excluding official transfers) from 14 percent in 1991/92.
Performance under the three-year program supported by the 1993 credit fell short of Egypt's potential, particularly on structural reforms.

Principal medium-term challenge: increase economic growth to create employment for a rapidly growing population and raise living standards.
Program focus: consolidate macroeconomic stabilization gains and broaden structural reform agenda (privatization, deregulation, trade liberalization, fiscal and financial sector reform).
Program targets for 1996-98:
- Real GDP growth: further increase to about 5 percent in 1997/98.
- Inflation: further decrease to about 6 percent.
- External position: maintain a viable external position; external current account projected to shift from approximate balance in 1995/96 to a deficit of about 1 percent of GDP in each program year.
- Employment: increase in growth rate expected to create some 400,000 new jobs a year.
- Investment and savings: rise of about 2.5 percentage points relative to GDP over the program period.
Fiscal target for 1996/97:
- Overall budget deficit will be reduced to 1.1 percent of GDP, excluding privatization receipts and any further debt relief.
Demand management: other demand management policy elements will continue to be restrained to reduce inflation and maintain a sound external position.

Central goal: fundamental change in ownership structure to expand the private sector (public enterprises account for about one-third of manufacturing, half of investment expenditure, and about 15 percent of total employment).
Planned measures over the next two years:
- Significant divesture of nonfinancial public sector enterprises.
- Further liberalization of international trade, including further tariff reductions and elimination of quantitative restrictions.
- Fiscal revenue reforms:
- Transformation of the general sales tax into a value-added tax (VAT).
- Rationalization of the income tax to make it simpler, broader based, more transparent and equitable.
- Medium-term program to improve the civil service.
- Acceleration of financial sector reform, including privatization of banks and insurance companies, and further strengthening of banking supervision.
- Administrative reforms to reduce bureaucracy and red tape, including preparation of a unified investment law to simplify investment regulations.

Government commitments:
- Improve health and education systems by increasing the number of qualified personnel such as nurses and teachers.
- Meet these needs within a comprehensive civil service reform program aimed at eliminating bureaucratic impediments, improving government service efficiency, and building a cadre of well-paid and efficient civil servants.
- Strengthen the social safety net while improving its targeting.
External support:
- Foreign donors are increasing support of the Social Fund for Development to facilitate assistance to displaced workers through compensation pay, retraining, and redeployment.

The juncture is seen as propitious for a reinvigorated economic reform program.
Continued structural reforms are necessary for Egypt to meet new international challenges and exploit its considerable potential.

*Preliminary. **Program. Sources: The Egyptian authorities; and IMF staff estimates.

Press Release No. 96/50 — IMF EXTERNAL RELATIONS DEPARTMENT, October 11, 1996.