IMF Executive Board Completes the First and Second Reviews of Extended Fund Facility Arrangement for Egypt, Approves Augmentation of the Arrangement

IMF News, March 29, 2024

Source details

Canonical URL: IMF Executive Board Completes the First and Second Reviews of Extended Fund Facility Arrangement for Egypt, Approves Augmentation of the Arrangement

The Executive Board completed the First and Second Reviews of the extended arrangement under the Extended Fund Facility (EFF) for Egypt.
The Board approved an augmentation of the original program by about US$5 billion (SDR 3.76 billion).
This augmentation enables the authorities to immediately draw about US$820 million (SDR 618.1 million).
Egypt’s 46-month EFF arrangement was approved on December 16, 2022.
In completing the review, the Executive Board assessed that all but one of the quantitative performance targets for end-June 2023 were met.
The Board approved the authorities’ request for a waiver for non-observance of the June performance criterion on Net International Reserves on the basis of corrective actions.

Recent macroeconomic conditions have been challenging, with rising inflation, foreign exchange shortages and elevated debt levels and financing needs.
External shocks cited: Russia’s war in Ukraine; the conflict in Gaza and Israel; tensions in the Red Sea.
These developments reduced Suez Canal receipts and increased the complexity of macroeconomic challenges.
Growth and inflation projections:
- Growth slowed to 3.8 percent in FY2022/23.
- Growth is projected to slow to 3 percent in FY2023/24.
- Growth is projected to recover to about 4½ percent in FY24/25.
- Inflation (end of period) was 35.7 percent in 2022/23, projected 32.1 percent in 2023/24, and 15.3 percent in 2024/25.
- Inflation (period average) was 24.4 percent in 2022/23, projected 32.5 percent in 2023/24, and 25.7 percent in 2024/25.
The recent US$35 billion investment deal from an Abu Dhabi-based investment and holding company in Ras El-Hekma has alleviated near-term balance of payment pressures and, if used judiciously, will help Egypt rebuild buffers.

The program centers on:
- A liberalized foreign exchange system in the context of a flexible exchange rate regime.
- A significant tightening of the policy mix.
- Reducing public investment.
- Leveling the playing field to allow the private sector to become the engine of growth.
Recent measures highlighted as critical:
- Unification of the exchange rate.
- Clearance of the foreign exchange demand backlog.
- Significant tightening of monetary and fiscal policies.
The authorities committed to use a large part of the new financing from the Ras El-Hekma deal to:
- Improve the level of reserves.
- Fast-track the clearance of foreign currency backlogs and arrears.
- Reduce government debt upfront.
Fiscal management measures:
- Implementation of the newly established framework to monitor and control public investment to help manage excess demand.
- Pursuit of a revenue-based fiscal consolidation to put debt on a downward path and provide resources for expanding the social safety net.
- Replace untargeted fuel subsidies with targeted social spending as part of a sustained fuel price adjustment package.
Structural reforms priority:
- Withdrawing the state and military from economic activity.
- Leveling the playing field between the public and private sectors to attract foreign and domestic private investment.

External risks:
- High external uncertainty remains, including ongoing geopolitical shocks and disruptions affecting trade and tourism.
Domestic risks:
- Sustaining the shift to a liberalized foreign exchange system.
- Maintaining tight monetary and fiscal policies.
- Integrating transparently off-budget investment into macroeconomic policy decision making.
- Managing the resumption of capital inflows prudently to contain inflationary pressures and limit the risk of future external pressures.
The IMF emphasized that robust delivery on structural reforms is critical to lock in the benefits of the improved financing environment and sustainably address macroeconomic challenges.

Output
- Real GDP growth (%): 2022/23: 3.8; 2023/24: 3.0; 2024/25: 4.4
Employment
- Unemployment (%): 2022/23: 7.2; 2023/24: --
Prices
- Inflation (%, end of period): 2022/23: 35.7; 2023/24: 32.1; 2024/25: 15.3
- Inflation (%, period average): 2022/23: 24.4; 2023/24: 32.5; 2024/25: 25.7
Budget sector (budget sector comprises central government, local governments, and some public corporations)
- Revenue and grants (% GDP): 2022/23: 15.4; 2023/24: 16.2
- Expenditure (% GDP): 2022/23: 21.4; 2023/24: 21.7; 2024/25: 24.7
- Overall balance (% GDP): 2022/23: -6.0; 2023/24: -6.3; 2024/25: -8.5
- Primary balance including divestment proceeds (% GDP): 2022/23: 1.6; 2023/24: 7.1; 2024/25: 4.5
- Gross debt, general government (% GDP): 2022/23: 95.9; 2023/24: 96.4; 2024/25: 82.6
Money and credit
- Broad money (M2, % change): 2022/23: 38.6; 2023/24: 18.5
- Credit to the private sector (% change): 2022/23: 25.4; 2023/24: 30.0; 2024/25: 25.0
Balance of payments
- Current account (% GDP): 2022/23: -1.2; 2023/24: -2.4
- FDI, net (% GDP): 2022/23: 2.5; 2023/24: 9.3
- Reserves (months imports): 2022/23: 5.3; 2023/24: 7.3; 2024/25: 6.9
- External debt (% GDP): 2022/23: 41.8; 2023/24: 43.0; 2024/25: 45.4
Exchange rate
- Real Effective Exchange Rate (% change; appreciation +): 2022/23: -22.1

International Monetary Fund, Press Release No. 24/101 (March 29, 2024).