Egypt: IMF Executive Board Completes Third Review under the Extended Fund Facility (EFF)

IMF News, July 2, 2018

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Egypt: IMF Executive Board Completes Third Review under the Extended Fund Facility (EFF)

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Bibliographic details

• Published: July 2, 2018

Overview and transaction summary

• On June 29, 2018, the IMF Executive Board completed the third review of Egypt’s economic reform program under the Extended Fund Facility (EFF).
• Completion of the review permits a purchase of SDR 1,432.76 million (about US$ 2.02 billion), bringing total purchases to SDR 5,731.05 million (about US$ 8.06 billion).
• The three-year EFF arrangement was approved on November 11, 2016, in the amount equivalent to SDR 8.597 billion (about US$12 billion or 422 percent of quota).
• In completing the review, the Executive Board approved the authorities’ requests for a waiver of non-observance and modification of performance criteria.

Key macroeconomic outcomes and outlook (as highlighted by IMF management)

• Program achievements and near-term outlook:
  • The authorities’ reform program has helped accelerate growth, reduce inflation and unemployment, and narrow external and fiscal deficits.
  • The near‑term growth outlook is favorable, supported by a recovery in tourism and rising natural gas production.
  • The current account deficit is expected to remain below 3 percent of GDP.
  • The public debt ratio is expected to decline markedly by 2023.
• Monetary policy and exchange rate guidance:
  • Monetary tightening in 2017 helped anchor inflation expectations after the devaluation and fuel price hikes in 2016.
  • The Central Bank of Egypt (CBE) should maintain a restrictive stance to contain second‑round effects of fuel and electricity price increases; future policy changes should be guided by inflation expectations and demand pressures.
  • Exchange rate flexibility is critical to safeguard competitiveness and help cushion against external shocks.
• Fiscal policy and subsidy reform:
  • The authorities’ fiscal consolidation plan remains on track, and this year’s surplus target appears likely to be met.
  • Continued fuel subsidy reform contributes to reducing the budget deficit and makes available more resources for social programs to support the most vulnerable.
  • Next year’s budget continues to replace poorly targeted energy subsidies with programs that support poor households.
  • The recently approved automatic fuel price indexation mechanism, once implemented, will help safeguard the budget from unexpected changes in the exchange rate and global oil prices, and ensure fiscal resources are available to support the most vulnerable.
• Structural and inclusiveness priorities:
  • A more inclusive private sector‑led growth model is essential to absorb the significant increase in the labor force expected over the next five years.
  • The expanded structural reform agenda aims to address impediments to private sector development, including:
  • enhance transparency in industrial land allocation;
  • strengthen competition and public procurement;
  • improve transparency and accountability of state‑owned enterprises;
  • tackle corruption.
• External risks:
  • External risks have increased with a shift to capital outflows as tightening global financial conditions have contributed to a pullback by investors from emerging markets.
  • Egypt’s healthy level of foreign reserves and flexible exchange rate leave the country well positioned to manage any acceleration in outflows, reinforcing the importance of a sound macroeconomic framework and consistent policy implementation.

Selected macroeconomic indicators (series values as presented)

• Real GDP (market prices) — (Annual percentage change): 4.4; 4.3; 4.2; 4.8; 5.2; 5.5
• Consumer prices (end of period): 11.4; 14.0; 29.8; 11.9; 12.6; 15.2; 13.1
• Consumer prices (period average): 11.0; 10.2; 23.5; 21.0; 20.8; 13.7; 14.4
• Gross Debt (In percent of GDP at market prices): 88.5; 96.9; 103.0; 91.3; 92.4; 86.7; 86.2
  • External (percent of GDP): 7.9; 7.8; 18.1; 16.7; 18.5; 17.7; 17.0
  • Domestic (percent of GDP): 80.5; 89.0; 84.9; 74.6; 73.9; 69.0; 69.2
• Budget sector (Revenue and grants, percent of GDP): 19.0; 18.8; 18.2; 18.7; 18.6
• Budget sector (Expenditure incl. net acquisition of financial assets, percent of GDP): 30.5; 30.7; 29.9; 28.0; 27.9; 26.1; 26.7
  • Of which: Energy subsidies (percent of GDP): 4.0; 3.0; 4.1; 3.1; 3.4; 1.2; 2.1
• Overall balance (percent of GDP): -11.4; -12.5; -10.9; -9.2; -9.7; -7.4; -8.1
• Primary balance: -3.5; -1.8; 0.2; 2.0
• Credit to the private sector (percent): 14.2; 38.0; 10.5; 7.5; 11.2
• Reserve money: 33.3; 29.3; -7.8; 39.4; 40.2; 17.8; 27.6
• Broad money (M2): 16.4; 39.3; 20.4; 23.4; 19.7; 19.8
• Exports of goods (in US$, percentage change): -14.7; -15.9; 15.9; 7.0; 13.8; 12.7; 16.5
• Imports of goods (in US$, percentage change): 1.9; -6.4; 1.5; -0.1; 4.5; 7.6; 10.0
• Merchandise trade balance (percent of GDP): -11.8; -11.6; -14.3; -13.5; -14.5
• Current account (percent of GDP): -3.7; -6.0; -4.5; -2.8; -4.0; -2.6
• Capital and financial account (incl. errors and omissions, percent of GDP): 5.1; 3.2; 5.0; 1.6; 1.8
• Foreign direct investment (net, in billions of US$): 6.2; 6.8; 7.7; 8.4; 9.9; 9.5
• External debt: 15.0; 18.3; 41.3; 34.6; 34.5; 30.3
• Gross international reserves (in billions of US$): 19.5; 17.1; 44.4; 33.0; 44.8
• Gross international reserves (in months of next year's imports of goods and services): 3.5; 5.7; 6.1
• In percent of short-term external debt: 280.6; 157.7; 121.3; 89.3; 146.2; 76.9; 191.4
• Nominal GDP (in billions of Egyptian pounds): 2,444; 2,709; 3,470; 4,418; 4,436; 5,292; 5,365
• Nominal GDP (in billions of US$): 332; 256
• GDP per capita (in US$): 3,731; 3,686; 2,704
• Unemployment rate (period average, percent): 12.9; 12.2; 11.1; 9.7
• Poverty rate (percent): 27.8
• Population (in millions): 90.2; 94.8; 97.0; 99.2

Policy recommendations and implementation priorities

• Maintain restrictive monetary stance until inflation expectations and demand pressures are firmly contained.
• Preserve exchange rate flexibility to protect competitiveness and absorb external shocks.
• Continue fiscal consolidation, with priority on replacing poorly targeted energy subsidies with targeted social programs.
• Implement the automatic fuel price indexation mechanism to shield the budget from exchange rate and oil price volatility.
• Advance structural reforms to promote private sector development and job creation:
  • improve transparency in industrial land allocation;
  • strengthen competition and public procurement frameworks;
  • enhance transparency and accountability of state‑owned enterprises;
  • intensify anti‑corruption measures.

Press Release No. 18/271 — International Monetary Fund, July 2, 2018.

References

• David Lipton
• Read the key questions on the IMF agreement with Egypt
• Arab Republic of Egypt and the IMF
• Special Drawing Rights (SDRs) -- A Factsheet
• Press Releases
• PRESS CENTER
• see Press Release No. 16/501
• https://www.imf.org/en/home