Arab Republic of Egypt: Staff Report for the 2014 Article IV Consultation
IMF Staff Country Reports, February 11, 2015
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Bibliographic details
- Published: February 11, 2015
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9781484337769.002
Key findings on macroeconomic context and objectives
- For a number of years Egypt experienced low and non-inclusive growth and high unemployment.
- Since 2011 these problems were compounded by large fiscal deficits, rising public debt, and external fragility evidenced by loss of foreign exchange reserves.
- In 2014, Egypt adopted a new constitution and elected a new president who communicated the need for economic reform.
- The government developed a plan centered on structural reform and investment promotion to raise growth and create jobs, and fiscal adjustment to bring the budget deficit and public debt under control.
- The authorities have already begun to implement fuel subsidy reform, raising prices by 40–80 percent in July 2014.
- The authorities have begun reforms to raise tax revenue and make Egypt more attractive for investment.
Authorities' quantitative targets (next five years)
- Raise growth to 6 percent per annum.
- Reduce annual inflation to 7 percent.
- Bring down the fiscal deficit to 8 percent of GDP.
- Reduce public debt to 80–85 percent of GDP.
- Increase foreign exchange reserves to 3½ months of imports.
Staff assessment and risks
- Staff considers the authorities’ objectives "appropriately ambitious," though a higher level of reserves would be prudent.
- Staff believes the authorities’ policies, if followed steadfastly, are broadly consistent with achieving the objectives, but noted some fiscal and structural measures are still being formulated.
- Staff highlighted remaining vulnerabilities:
- High public debt.
- Large financing gaps that would need to be covered by greater adjustment or financing, or a combination of the two.
- Difficulty of maintaining tight fiscal and monetary policies over a long period.
- Risk of dilution of structural reform efforts.
- Uncertain regional security environment.
Differences in outlook and upside potential
- Authorities are confident that policy implementation and improved confidence will lead to a surge in foreign investment, a pickup in tourism, and strong economic growth.
- Staff and authorities differed somewhat on the extent of vulnerabilities and risks.
- Staff agreed that with steadfast commitment to reform, Egypt’s prospects could be stronger than in staff’s baseline projections, noting in particular that the recovery in investment could exceed expectations.
Policy recommendations and contingent actions
- Develop contingency measures in the budget to contain vulnerabilities and risks.
- Take steps to build up reserve buffers.
- Allow greater exchange rate flexibility to restore competitiveness.
- Continue and complete formulation of fiscal measures and structural measures to improve the business environment.
International Monetary Fund. "Arab Republic of Egypt: Staff Report for the 2014 Article IV Consultation", IMF Staff Country Reports 2015, 033 (2015).