Transcript of Press Conference on the IMF Program for Egypt

IMF News, January 10, 2023

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Program duration: 46 month program duration.
Program is anchored on three main pillars:
- Exchange rate and monetary policies: permanent shift to a flexible exchange rate regime to absorb external shocks, rebuild reserves, and gradually reduce inflation.
- Continued fiscal discipline and fiscal structural policies: maintain market confidence, ensure downward trajectory of the debt to GDP ratio, strengthen the budgetary process, increase transparency, improve budget composition, and allow expansion in social spending.
- Structural reform agenda: promote private sector investment and inclusive medium-term growth by reducing the role of the state in generating economic activity, leveling the playing field between state-owned enterprises and private companies, and removing barriers to trade.

Objective: value of the Egyptian pound to be determined freely against other currencies to:
- avoid build-up of chronic imbalance in demand for and supply of foreign currency;
- eliminate import shortages; and
- preserve foreign exchange reserves of the Central Bank.
Under a flexible framework one would expect two-way movements in the exchange rate as it appreciates or depreciates in line with economic conditions.
Expected outcome: once confidence in the framework is established, stronger investment inflows into Egypt are expected.
Monetary policy role:
- Restore price stability by tightening monetary policy or raising the policy interest rate.
- Monetary policy should remain data dependent; the policy rate should be used as the main instrument for reducing inflation and ensuring price stability.
- The Central Bank of Egypt has taken steps to improve transmission (example: moving subsidized lending schemes from the Central Bank to the government) so it can better use monetary policy to steer inflation.

Fiscal consolidation aims to reduce debt without jeopardizing social support; objective is to expand social support programs while consolidating.
Fiscal targets and public debt projections:
- Sustained primary fiscal surplus of around 2.1 percent of GDP by fiscal year 2023-2024.
- About 2.5 percent thereafter.
- Reduction in the general government debt to around 78 percent of GDP by fiscal year 2026-2027.
Policy instruments and priorities:
- Revenue mobilization is key to create space for priority spending and targeted support for vulnerable populations.
- Authorities are open to using proceeds from state asset divestment to help reduce public debt further.

State ownership policy:
- Sets out ambitious plans to reduce the footprint of the state and catalyze private sector investment.
- Establishes a clear framework for which sectors the state will reduce its presence in and how divestments will be implemented.
- Policy is endorsed at the highest level and will be made public; authorities commit to providing an annual report on progress and implementation.
Leveling the playing field:
- Annual reports on tax breaks, exemptions, and incentives will be published to increase transparency and help level the playing field so private firms are not disadvantaged.
Trade facilitation:
- Adoption of a risk based approach to customs procedures to help move traded goods through Egypt’s ports faster.
Structural reforms are expected to take time to implement and to deliver results in reducing vulnerabilities and strengthening the growth outlook.

Financing gap and catalyzed financing:
- Financing gap presented in the Staff Report: about $17 billion for Egypt over the next four years.
- IMF financing is expected to close part of this gap and the IMF-supported program is expected to catalyze additional financing from multilateral institutions, bilateral partners, and private sector investors.
- Additional financing will include proceeds from planned sales of state-owned assets.
- The previously announced $5 billion in catalyzed financing refers to the first 12 months of the program.
Monitoring and disbursement schedule:
- The IMF-supported program will be monitored through semiannual reviews with disbursements distributed evenly over those reviews.
- Targets (performance criteria) are set on net international reserves, the primary fiscal balance, the non-accumulation of external debt payment arrears; additional targets on tax revenues, social spending, maturity of debt, total debt of the budget sector, and the overnight interbank rate.
- Test dates for targets: December 2022 and June 2023.
- First review expected to be completed in or around March 2023.
- Second review expected to be completed in or around September 2023.

Inflation context and outlook:
- Ongoing depreciation and high global commodity prices have put pressure on domestic prices, leading to higher inflation.
- IMF expectation: inflation to remain elevated during the current fiscal year, but to fall back to around 7 percent by fiscal 2024-2025.
Policy response to inflation:
- Primary tool to contain inflation is monetary policy (policy interest rate).
- Protect the vulnerable population with carefully targeted budget support that reaches those in need and only those intended to be compensated for the shocks.
- Authorities have already rolled out targeted budget support since the global commodity price shock.

Performance criteria and conditionality:
- Program performance is assessed against specific targets (performance criteria) on reserves, fiscal balance, external arrears non-accumulation, and additional quantitative and structural benchmarks.
Support and sequencing:
- The IMF stands ready to support the authorities in delivering reform priorities in the near-term and over the 46 month program duration.
- Discussions on climate policies that could be supported under a Resilience and Sustainability Trust for Egypt would be initiated in the context of the forthcoming review of the extended facility.

Transcript of Press Conference on the IMF Program for Egypt — January 10, 2023, IMF Communications Department