Egypt—IMF Executive Board Completes Fourth Review under the Extended Fund Facility (EFF)
IMF News, February 5, 2019
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- Published: February 5, 2019
Macroeconomic outlook and recent developments
- Macroeconomic outlook remains favorable, supported by strong policy implementation.
- Robust growth and a narrowing of the current account deficit reflect a rebound in tourism and strong remittances.
- Unemployment has declined to its lowest level since 2011.
- Recent pick-up in headline inflation reflected temporary increases in food and energy prices; a restrictive monetary policy stance has helped to reverse the increase and keep core inflation well anchored.
- A more difficult external environment poses new challenges as global financial conditions have tightened; Egypt has successfully weathered recent capital outflows, but consistent policy implementation is essential to further strengthen policy buffers, including by containing inflation, enhancing exchange rate flexibility, and reducing public debt.
- Authorities have taken steps to deepen the foreign exchange market and allow greater exchange rate flexibility, including by eliminating the repatriation mechanism.
IMF decision, financing, and EFF arrangement
- On February 4, 2019, the Executive Board completed the fourth review of Egypt’s economic reform program supported by an arrangement under the Extended Fund Facility (EFF).
- Completion of the review allows the authorities to draw the equivalent of SDR 1,432.76 million (about US$2 billion), bringing total disbursements to SDR 7,163.81 million (about US$10 billion).
- The three-year EFF arrangement is in the amount equivalent to SDR 8.597 billion (about US$12 billion at the time of approval, or 422 percent of quota) and was approved on November 11, 2016.
Fiscal policy, targets, and priorities
- This year’s primary surplus target of 2 percent of GDP appears on track, which would achieve a cumulative fiscal adjustment of 5.5 percent of GDP in three years.
- Authorities remain committed to reaching cost recovery for most fuel products by mid-2019 and implementing automatic fuel price indexation; these measures are described as critical to encourage more efficient energy use and, combined with revenue enhancing reforms, to help create fiscal space for high-priority spending on health and education.
- Structural reform agenda targets long-standing constraints to private sector development, including reforms to improve competition policy, public procurement, management of SOEs, and land allocation.
- Sustained implementation of structural reforms is emphasized as essential to reduce opportunities for rent seeking and to support strong and inclusive medium-term growth and job creation.
Monetary policy and external sector
- Monetary policy remains anchored by the medium-term objective of bringing inflation to single digits.
- Reserve of steps to deepen the foreign exchange market and allow greater exchange rate flexibility have been taken.
- Key external sector points: Egypt has narrowed its current account deficit and maintained gross international reserves; foreign direct investment (net) and capital and financial account flows are notable contributors to external financing.
Key statistics and projections (Selections from Table 1: Egypt: Selected Macroeconomic Indicators, 2015/16–2019/20)
- Real GDP (market prices): 2015/16: 4.3; 2016/17: 4.2; 2017/18 Third Review Prel. Revised: 5.2; 2018/19 Proj.: 5.3; 2019/20 Proj.: 5.5; 5.9
- Consumer prices (end of period): 2015/16: 14.0; 2016/17: 29.8; 2017/18 Third Review Prel. Revised: 12.6; 2018/19 Proj.: 14.4; 2019/20 Proj.: 13.1; 14.5; 10.7
- Consumer prices (period average): 2015/16: 10.2; 2016/17: 23.5; 2017/18 Third Review Prel. Revised: 20.8; 2018/19 Proj.: 20.9; 2019/20 Proj.: 15.8; 12.8
- Gross Debt (percent of GDP): 2015/16: 96.9; 2016/17: 103.2; 2017/18 Third Review Prel. Revised: 92.4; 2018/19 Proj.: 92.6; 2019/20 Proj.: 86.2; 86.0; 83.3
- External: 7.8; 18.1; 18.5; 19.2; 17.0; 18.0; 17.6
- Domestic: 89.0; 85.0; 73.9; 73.4; 69.2; 68.0; 65.7
- Budget sector (percent of GDP):
- Revenue and grants: 19.0; 18.2; 18.6; 18.3; 17.8
- Expenditure (incl. net acquisition of financial assets): 30.7; 29.9; 27.9; 26.7; 26.6; 24.5
- Of which: Energy subsidies: 3.0; 4.1; 3.4; 2.1; 1.2
- Overall balance: -12.5; -10.9; -9.7; -9.8; -8.1; -8.3; -6.7
- Overall balance, excl. grants: -12.7; -11.4
- Primary balance: -3.5; -1.8; 0.2; 2.0
- Monetary sector:
- Credit to the private sector: 14.2; 38.0; 7.5; 10.1; 18.9
- Reserve money: 29.3; -7.8; 40.2; 28.3; 27.6; 34.2; 20.7
- Broad money (M2): 39.3; 23.4; 19.8; 20.5
- Treasury bill rate, 3 month (average, in percent): 11.8; 17.5; 18.8; …
- External sector:
- Exports of goods (in US$, percentage change): -15.9; 16.2; 13.8; 16.5
- Imports of goods (in US$, percentage change): -6.4; 2.8; 4.5; 6.9; 10.0; 6.4; 3.1
- Merchandise trade balance: -11.6; -14.5; -14.9; -12.4; -11.3
- Current account: -6.0; -5.6; -2.8; -2.4; -2.6; -2.5
- Capital and financial account (incl. errors and omissions): 5.1; 4.8; 5.0; 4.0; 1.8
- Foreign direct investment (net, in billions of US$): 6.8; 7.4; 9.5; 11.2
- External debt: 41.3; 34.5; 37.4; 34.4; 31.3
- Gross international reserves (in billions of US$): 17.1; 44.4; 43.5; 44.8; 44.9; 45.4
- In months of next year's imports of goods and services: 6.6; 6.1; 6.3
- In percent of short-term external debt: 173.7; 124.5; 146.2; 139.1; 191.4; 160.2; 147.7
- Financing gap (in billions of US$): 0.0; 1.1
- Memorandum items:
- Nominal GDP (in billions of Egyptian pounds): 2,709; 3,470; 4,436; 4,437; 5,365; 5,414; 6,458
- Nominal GDP (in billions of US$): 332; 256; 250; 306; 303; 336
- GDP per capita (in US$): 3,686; 2,704; 2,578; 2,573; 3,081; 3,052; 3,314
- Unemployment rate (period average, percent): 12.7; 12.2; 11.1; 10.9; 9.7; 9.6; 8.3
- Population (in millions): 90.2; 94.8; 97.0; 99.2; 101.5
Policy recommendations and priorities highlighted by IMF
- Contain inflation and keep core inflation well anchored through restrictive monetary policy until objectives are met.
- Enhance exchange rate flexibility and deepen the foreign exchange market.
- Reduce public debt through fiscal consolidation and high nominal GDP growth.
- Achieve cost recovery for most fuel products and implement automatic fuel price indexation by mid-2019 to encourage efficient energy use and create fiscal space.
- Implement structural reforms to improve competition policy, public procurement, management of SOEs, and land allocation to support private sector development, reduce rent seeking, and promote inclusive growth and job creation.
Press Release No. 19/33 — IMF Communications Department, February 5, 2019.