Transcript of Press Briefing on Egypt

IMF News, March 13, 2025

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On Monday, March 10th the Executive Board completed the 4th review of Egypt's economic reform program under the EFF.
Completion of the 4th review enables the authorities to immediately draw about $1.2 billion.
The IMF Executive Board approved the authorities’ request for an arrangement under the Resilience and Sustainability Facility (RSF) with access of about $1.3 billion.
The Executive Board also concluded the 2025 Article IV Consultation with Egypt.
The RSF arrangement runs through the duration of the underlying EFF, through the fall of 2026, and is disbursed in pieces linked to reform implementation.

Recent signs of recovery in economic growth; private non-oil sector indicators suggest a tentative expansion after a long contraction.
Inflation:
- A particularly encouraging drop in February driven largely by base effects from February 2024.
- Current projection (pre-February release) of about 16.6% for end June (end of this fiscal year).
- Projection for fiscal year 2025–2026: inflation at the end of the period of 13.4.
Growth projection for fiscal year 2025–2026: 4.1.
Current account:
- Expectation that the current account will be fairly elevated this year.
- Projected to come down to about 3.5% of GDP for fiscal year 2025–2026.
Foreign exchange and reserves:
- Unification of the exchange rate in March 2024 and introduction of a flexible exchange rate regime eliminated gaps with the parallel rate and backlogs of unmet import demand.
- Tourism income has remained robust; foreign exchange reserves are now at adequate levels despite reduced Suez Canal inflows.

RSF disbursement mechanics:
- The RSF for Egypt has ten reform measures (RMs), each RM associated with one tenth of the overall RSF disbursement.
- Disbursements tied to completion of individual RMs and reviewed at the time of EFF reviews.
- Three RMs are scheduled to be reviewed within the end of this fiscal year (measures due in June).
Timing:
- The $1.2 billion disbursement associated with completing the 4th review is available immediately and, if not already delivered, will be delivered in March.
- The fifth review is expected, according to the current disbursement schedule, to take place before end June; disbursement becomes immediately available once the Board considers the review.

Debt-to-GDP ratio has begun to decline following fiscal consolidation and exchange rate unification.
Primary drivers of the downward debt path:
- Continued fiscal consolidation delivering on a primary balance.
- Debt management actions by the Ministry of Finance.
- Use of divestment proceeds for reduction of debt and financing needs.
Debt management:
- Adoption of a medium-term debt management strategy is identified as necessary for ensuring debt sustainability.
- IMF engagement: the IMF has discussed the importance of debt management with authorities but does not co-write debt management strategies.

Mixed progress on structural reforms; notable delays on reforms related to divestment and leveling the playing field between public and private enterprises.
Structural benchmarks and reforms delivered include:
- Submission to Parliament of a tax package (structural benchmark for November) to broaden domestic revenue mobilization.
- Measures to strengthen the independence of the Egyptian Competition Authority.
- Reforms to kickstart an assessment of governance of state-owned banks.
- Completion of the Household Income Expenditure Survey (structural benchmark) to underpin social protection targeting.
Policy priorities emphasized:
- Transition from stabilization to transformative phase by accelerating structural reforms to unlock growth and resilience.
- Decisively reducing the role of the public sector in the economy.
- Transforming monetary and exchange rate policy through implementation of inflation targeting within a flexible exchange rate regime and sustaining this reform over time.
- Broadening the tax base, streamlining tax incentives, and enhancing compliance to enable sufficient government spending on development and social needs.
- Implementing macroeconomically critical climate reforms to address adaptation needs and enhance long-term resilience.

For the 4th review the authorities met all but two of the quantitative performance criteria relevant for the review; waivers were requested and granted based on corrective actions.
Two missed quantitative performance criteria:
- End-December target to reduce the stock of central bank credit to public authorities (legacy monetary financing). The end-December target was missed but corrective measures were implemented and the stock was reduced back to target before the Board meeting.
- End-December primary balance target. The program’s primary balance definition includes divestment proceeds; divestment proceeds were not available in December and some non-tax revenues underperformed. Corrective actions (including allocating additional FDI proceeds to debt reduction and holding back some expenditure categories) supported approval of the waiver.
Structural reform implementation has progressed sufficiently in a number of areas to allow completion of the review, but delays remain in areas such as divestment.

Rationale: untargeted energy and fuel subsidies are not an efficient use of scarce public resources and are poorly targeted to those most in need.
Authorities’ public commitment: bring retail fuel prices to cost recovery levels by end December of 2025.
Safeguards for vulnerable groups:
- Egypt has a well-targeted cash transfer program (Takaful and Karama) as the main vehicle to protect vulnerable households from subsidy-reform impacts.
- Authorities committed under the EFF to extend resources allocated to Takaful and Karama and have announced augmentations.
- The Household Income Expenditure Survey provides the analytical basis for expanding coverage or benefits in a targeted manner.

Risks:
- Persistent external shocks (regional conflicts, trade disruptions in the Red Sea) and energy-sector difficulties continue to contribute to elevated external deficits and vulnerabilities.
- Delays in divestment and structural reforms could slow the transition from stabilization to sustainable growth.
Recommendations and conditionalities:
- Sustain exchange rate flexibility and transition to inflation targeting within a flexible exchange rate regime to avoid FX rationing and abrupt devaluations.
- Accelerate structural reforms to reduce public sector footprint, improve competition, enhance governance of state-owned banks, and unlock private investment.
- Continue fiscal consolidation while broadening and strengthening domestic revenue mobilization.
- Implement targeted social-protection measures (via Takaful and Karama) to protect vulnerable groups during subsidy reform.
- Advance and operationalize a medium-term debt management strategy and ensure divestment proceeds are used for debt reduction.

Transcript of Press Briefing on Egypt, March 13, 2025 — IMF Communications Department