Arab Republic of Egypt: Third Review Under the Extended Arrangement Under the Extended Fund Facility, and Requests for a Waiver of Nonobservance of a Performance Criterion and for Modification of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt

IMF Staff Country Reports, July 12, 2018

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Canonical URL: Arab Republic of Egypt: Third Review Under the Extended Arrangement Under the Extended Fund Facility, and Requests for a Waiver of Nonobservance of a Performance Criterion and for Modification of a Performance Criterion-Press Release; Staff Report; and Statement by the Executive Director for the Arab Republic of Egypt

Macroeconomic conditions have continued to improve during 2017/18, with external and fiscal deficits narrowing, inflation and unemployment declining, and growth accelerating.
The near-term growth outlook is favorable, supported by the recovery in tourism and rising natural gas production.
The current account deficit has fallen below 3 percent of GDP.
Gross international reserves stood at 7 months of prospective imports at end-May.
Inflation is expected to temporarily rise in 2018/19, reflecting increases in fuel and electricity prices.
The monetary policy stance appears appropriate to contain second-round effects.
The government debt ratio is projected to decline markedly in response to fiscal consolidation and high nominal GDP growth.

Period of improved conditions: 2017/18
Current account deficit: below 3 percent of GDP
Gross international reserves: 7 months of prospective imports (at end-May)
Expected inflation behavior: temporarily rise in 2018/19 (due to fuel and electricity price increases)
Fiscal projection: government debt ratio projected to decline markedly (driven by fiscal consolidation and high nominal GDP growth)

External position: Narrowing external deficits and strengthened reserve coverage (7 months of prospective imports) support external stability.
Fiscal dynamics: Fiscal deficits have narrowed; ongoing fiscal consolidation is central to the projected marked decline in the government debt ratio.
Inflation and monetary policy: Anticipated temporary increase in inflation in 2018/19 is linked to administered price adjustments for fuel and electricity; current monetary policy stance is judged adequate to limit second-round inflation effects.
Growth drivers: Recovery in tourism and rising natural gas production underpin the favorable near-term growth outlook.

Continue fiscal consolidation to secure the projected marked decline in the government debt ratio.
Maintain a monetary policy stance that contains second-round effects from administered price increases while supporting the favorable near-term growth outlook.
Monitor external indicators given the improved current account position (below 3 percent of GDP) and reserve coverage (7 months of prospective imports).