IMF Executive Board Discusses the Ex-Post Evaluation of Egypt’s Exceptional Access Under the 2020 Stand-By Arrangement
IMF News, July 26, 2022
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- Authors: Arrangement IMF Executive Board Discusses
- Published: July 26, 2022
Background and program context
- The IMF provided exceptional access to Fund resources in support of Egypt’s policy response to the COVID-19 pandemic in 2020 under a 12‑months Stand-By Arrangement (SBA) that was approved by the Executive Board on June 26, 2020 (Press release No. 20/248).
- Egypt requested emergency financing under the Rapid Financing Instrument (RFI) in April 2020 (Press Release No. 20/215) followed by the SBA.
- The overarching goal of Fund support was to maintain macroeconomic stability amid the crisis, allowing for the easing of fiscal, monetary, and financial policies to support health and social policy objectives.
- The SBA aimed at safeguarding medium-term fiscal sustainability and at keeping momentum in selected structural reform areas, mostly building on initiatives begun during the 2016-19 Extended Fund Facility (EFF).
- The SBA expired on June 25, 2021.
Key findings of the Ex-Post Evaluation (EPE)
- Primary objective:
- The SBA achieved its primary objective of maintaining macroeconomic stability in Egypt amidst the severe disruptions caused by the pandemic.
- Policy implementation and outcomes:
- Policy implementation was broadly in line with program objectives.
- Exchange rate variability remained limited during the SBA.
- External and domestic confidence strengthened.
- Quantitative program targets were comfortably achieved.
- Both reviews of the SBA were concluded on time and all program conditionality was met.
- The focused structural reform agenda supported by the SBA was fully executed.
- Governance and conditionality:
- Some governance commitments regarding COVID-19 related expenditures have been implemented; others remain outstanding.
- Program design and risk assessment:
- In hindsight, program design could have better captured upside risks as they materialized.
- A broader definition of FX reserve targets and a more comprehensive discussion of burden sharing would have been beneficial.
- The structural conditionality was found appropriate given the SBA’s short duration and its primary objective to maintain macroeconomic stability.
- Fund policies and procedures:
- Fund policies and procedures for financing under exceptional access were followed.
- The SBA was conducted in a manner consistent with Fund policies and procedures, including the stringent application of the Exceptional Access Framework and risk management procedures.
Executive Board assessment and judgments
- Directors welcomed the EPE and considered the two-step approach (RFI followed by SBA) an example of agile Fund support during the COVID-19 pandemic.
- Directors agreed the SBA achieved its primary objective of maintaining macroeconomic stability while allowing policies to be eased for emergency health and social protection spending, preserving fiscal sustainability.
- Directors noted that a better-than-expected external environment combined with policy implementation under the arrangement strengthened domestic and external confidence.
- Directors highlighted the role of conservative macroeconomic projections, the authorities’ commitment to fiscal discipline, and a well-focused structural reform agenda as important factors for the successful conclusion of the SBA.
- Exchange rate policy:
- Directors considered that greater exchange rate variability during the SBA could have been entrenched to avoid a buildup of external imbalances and to facilitate adjustment to shocks.
- Directors welcomed the authorities’ recent communications on the role of exchange rate flexibility in the policy toolkit.
- Program duration:
- While noting trade-offs implied by a short-duration program, on balance Directors agreed that a short duration SBA was the appropriate choice given prevailing uncertainties at the time.
- Governance commitments:
- Directors called on the authorities to meet the governance commitments related to COVID-19 expenditures.
- Directors concurred that the authorities demonstrated a strong track record of implementation of Fund programs.
Looking ahead — vulnerabilities and policy priorities
- Remaining vulnerabilities and risks:
- Egypt faces remaining vulnerability from a high public debt burden and large gross financing requirements.
- Policy priorities recommended by Directors:
- Decisive progress on deeper fiscal reforms to boost competitiveness and strengthen resilience against shocks.
- Decisive progress on deeper structural reforms to foster private sector development, improve governance, and reduce the role of the state.
- Use of the EPE:
- Directors noted that this EPE should inform ongoing discussions on the Fund’s future engagement with Egypt.
Source: IMF Executive Board Discusses the Ex-Post Evaluation of Egypt’s Exceptional Access Under the 2020 Stand-By Arrangement (Press Release No. 22/274, July 26, 2022).