Egypt: IMF Staff Concludes Mission for 2021 Article IV and Second Review for the 12-Month Stand-by Arrangement

IMF News, May 25, 2021

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Canonical URL: Egypt: IMF Staff Concludes Mission for 2021 Article IV and Second Review for the 12-Month Stand-by Arrangement

IMF team led by Ms. Celine Allard conducted a virtual mission from May 4 to 24, 2021 with the Egyptian authorities to discuss the 2021 Article IV Consultation and the second review of Egypt’s economic program under the IMF’s 12-month Stand-by Arrangement.
The IMF staff team and the Egyptian authorities reached a staff-level agreement on the second review of Egypt’s economic program supported by the IMF’s $5.2 billion Stand-by Arrangement (press release 20/248). This agreement is subject to approval by the IMF’s Executive Board, which will take place in the coming weeks.
Upon Executive Board approval, an additional SDR 1.16 billion (about US$1.6 billion) will be made available to Egypt.
Over the past 12 months, authorities’ implementation helped achieve program objectives of maintaining macroeconomic stability during the pandemic while protecting necessary social and health spending and implementing key structural reforms.

Growth projections:
- Growth is expected to be 2.8 percent in FY2020/21.
- Growth is expected to rise to 5.2 percent in FY2021/22.
Inflation:
- Inflation continued to be subdued with March outturn (4.5 percent) breaching the lower inner bound of the monetary policy consultation clause.
External support and financing:
- The COVID-19 crisis impact was mitigated by a two-step request for the IMF’s Rapid Financing Facility and Stand-by Arrangement package of around $8 billion.
- Net international reserve accumulation and the primary balance exceeded program targets.
Banking and monetary conditions:
- The Central Bank of Egypt’s (CBE) monetary policy remains data dependent.
- Continued exchange rate flexibility in both directions is recommended to help absorb external shocks.
- Egypt's banking system remains liquid, profitable, and well capitalized.
Uncertainty:
- Uncertainty remains against the backdrop of lingering pandemic-related risks.

All structural benchmarks were met, including reforms related to:
- Fiscal transparency and governance.
- Social protection.
- Improvement in the business environment.
- Continued efforts to reduce debt vulnerabilities and create more budget space for priority spending.
The publication of information related to COVID-19 crisis-related spending, procurement plan, and beneficial ownership of awarded entities was noted as a welcome step toward enhancing transparency.
The recent launch of the National Structural Reform Program (NSRP) signals commitment to:
- Human capital development.
- More efficient and transparent public institutions.
- A more competitive and export-oriented private sector.
- A greener economy.
The IMF noted it will be important to further define specific policy measures to support NSRP objectives, including allowing more space for the private sector to operate in a competitive environment and encouraging exports through further reducing trade impediments.

Fiscal policy in FY2021/22:
- Appropriately targets a gradual consolidation to balance needed support for the economic recovery while safeguarding fiscal sustainability.
- Continues a shift towards higher investments in infrastructure, health, and education in the next fiscal year.
Medium-term fiscal anchor:
- Government commitment to returning to a primary surplus of 2 percent of GDP starting in FY2022/23, as the economic recovery becomes entrenched, is essential to reduce public debt and support fiscal sustainability.

Near-term policies:
- Fiscal and monetary policies should continue to support the economic recovery while preserving macroeconomic stability.
Monetary policy:
- The CBE should remain data dependent and act as necessary to support economic recovery amid muted inflation.
- Maintain continued exchange rate flexibility in both directions to absorb external shocks.
Structural reforms:
- Deepen and broaden structural reforms to solidify the recovery, address post-COVID-19 challenges, strengthen buffers, and ensure higher and more inclusive growth.
- Further define specific measures under the NSRP to foster human capital, efficient public institutions, a competitive private sector, and export promotion.
Transparency and governance:
- Continue publishing information on COVID-19 spending, procurement plans, and beneficial ownership to enhance transparency.
Fiscal consolidation path:
- Gradually consolidate while protecting priority spending and aim for a primary surplus of 2 percent of GDP starting in FY2022/23.

Source: Press Release No. 21/140, May 25, 2021, IMF.