IMF Executive Board Completes First Review under the Stand-By Arrangement (SBA) for the Arab Republic of Egypt
IMF News, December 18, 2020
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- Published: December 18, 2020
Review outcome and disbursements
- The Executive Board completed the first review of Egypt’s economic reform program supported by a 12-month Stand-By Arrangement (SBA).
- The completion of the review allows the authorities to draw SDR 1,158.04 million (about US$1.67 billion).
- Total disbursements under the SBA following this review amount to SDR 2,605.6 million (about US$3.6 billion).
- The 12-month SBA was approved in the amount equivalent to SDR 3,763.64 million (about US$5.2 billion at the time of approval, or 184.8 percent of quota) on June 26, 2020.
Economic context and COVID-19 response
- Egypt “has managed well the COVID-19 pandemic and the related disruption to economic activity,” according to the IMF.
- Proactive measures were taken to address health and social needs and to support sectors most directly affected by the crisis.
- The growth slowdown “has so far been less severe than expected with Egypt expected to be among the few countries with positive growth rate this year.”
- External market conditions improved with a strong return of portfolio inflows.
Risks and fiscal/monetary/financial policy assessment
- Key risks:
- A second wave of the pandemic increases uncertainty about the pace of the domestic and global recovery.
- The high level of public debt and gross financing needs leave Egypt vulnerable to volatility in global financial conditions.
- Fiscal position and outlook:
- “Budget execution is on track to achieve the program target for FY2020/21.”
- The existing budget envelope “provides sufficient flexibility to accommodate any additional support for vulnerable groups in the event of a second wave of COVID-19, while maintaining the program’s fiscal objectives.”
- The envisaged economic recovery should allow public debt to resume its downward trajectory from FY2021/22.
- Continued shift toward longer-term debt issuance could mitigate rollover risks.
- Continued progress on fiscal structural reforms is critical to ensure additional space for high priority spending on health, education, and social protection.
- Monetary policy and exchange rate:
- The Central Bank of Egypt’s (CBE) “data driven approach to monetary policy has been instrumental to anchor inflation expectations and achieve low and stable inflation.”
- Monetary easing in recent months should further support economic activity and ease appreciation pressures from large capital inflows, which has had a dampening effect on inflation.
- “Two-sided exchange rate flexibility is essential to absorb external shocks and maintain competitiveness.”
- Banking sector resilience:
- “The banking system has been resilient thus far, having entered the crisis well-capitalized and with ample liquidity.”
- The CBE’s initiatives have helped ensure continued access to credit through the crisis.
- Ongoing financial sector supervision will be critical to maintain the resilience of the banking sector as crisis initiatives begin to expire.
Structural reforms and policy recommendations
- The government’s structural reform agenda is described as “appropriately ambitious.”
- Policy priorities and recommendations:
- Sustain progress on structural and governance reforms to foster higher, greener, and more inclusive private-sector-led growth.
- Continue and expand initiatives to support a green recovery.
- Enhance the transparency of state-owned enterprises.
- Facilitate trade and remove bureaucratic obstacles to private sector development.
- Ensure a level playing field for all economic agents.
- Timely finalization of a restructuring plan for the National Investment Bank to reduce fiscal risks.
- Removing bureaucratic obstacles and ensuring a level playing field “will lead to durable improvements in the investment climate and governance.”
Press Release No. 20/382 — IMF Executive Board Completes First Review under the Stand-By Arrangement (SBA) for the Arab Republic of Egypt (December 18, 2020)
