Frequently Asked Questions on Egypt and the IMF
Source details
- Canonical URL
- Frequently Asked Questions on Egypt and the IMF
Other formats
Macroeconomic context and recent developments
- The Egyptian economy faces significant macroeconomic challenges, compounded by regional instability and external shocks such as the conflict in Gaza and disruptions in Red Sea trade.
- The UAE’s recent investment deal has relieved near-term pressures and provides an opportunity to address challenges.
- IMF staff conducted a mission to Cairo in May 2025 and noted continued progress under Egypt’s macroeconomic reform program, including improvements in inflation and foreign exchange reserves, while additional time is needed to finalize key policy measures.
- The Fifth and Sixth Reviews under the Extended Fund Facility (EFF) will be combined and are expected to be completed in the fall.
Program objectives and policy framework
- The IMF-supported program approved last year centers on four key goals to ensure macroeconomic stability and secure private-sector-led growth:
- A sustained shift to a flexible exchange rate system to help the domestic economy adjust to external shocks, support exports, and encourage investment.
- Monetary and fiscal policy tightening, including containing off-budget capital expenditure, to reduce inflation and maintain debt sustainability; prudent management of large capital inflows to contain inflationary pressures and limit external vulnerabilities.
- Targeted budget support to vulnerable households, with protected budget space for such support in recognition of the adverse impact of high inflation on purchasing power.
- Better balancing public and private sector roles, enhancing competition, and decisive implementation of the divestment program under the State Ownership Policy (SOP).
Exchange rate policy and foreign exchange liberalization
- Objective: achieve a sustained shift to a flexible exchange rate regime where the value of the Egyptian pound is determined freely and exhibits two-way movements in line with economic conditions.
- As an important step, the Egyptian authorities unified the official and parallel market exchange rates and made foreign exchange (Foreign Exchange) available to everybody at the same exchange rate.
- Expected benefits of exchange-rate flexibility:
- Smoother adjustment to external shocks.
- Improved ability of Egyptian businesses to sell goods and services abroad.
- Encouragement of greater investment.
- Preservation of central bank financial buffers.
Social protection, inflation, and fiscal stance
- The program considers macroeconomic stabilization must be accompanied by measures that protect the most vulnerable and support the middle class.
- Social protection measures:
- Takaful and Karama cash transfer program scaled up to cover over 5 million households.
- Multiple social support packages including increases in the public sector minimum wage and targeted support for teachers and healthcare workers.
- Fiscal policy recalibration:
- Create space for critical programs while maintaining debt sustainability through revenue mobilization and more efficient public spending, including reductions in untargeted energy subsidies.
- Monetary policy focus:
- Reducing inflation, which disproportionately affects low- and middle-income households, to dampen increases in the cost of living.
State Ownership Policy (SOP) and structural reforms
- The SOP, adopted in 2022, is the anchor for strengthening the private sector and guides state ownership of assets.
- SOP objectives:
- Significantly reduce state presence, including military entities, in the economy.
- Level the economic playing field between private and state economic agents.
- Create legal, regulatory, and competitive conditions supportive of competitive markets.
- Implementation status and priorities:
- Some reforms (e.g., removing special tax exemptions for SOEs) have been initiated but need full implementation.
- The significant and largely opaque presence of SOEs in competitive sectors creates uncertainty for private investors and underlines the need for forceful advancement of divestment plans and improved SOE transparency.
- Complementary reforms: strengthen independence of the Egyptian Competition Authority, streamline investment procedures (including land acquisition), facilitate trade, and improve governance and anticorruption measures.
Tax policy, administration, and revenue mobilization
- Measures to raise more public revenue and ensure funding for priority development and social needs:
- Broadening the VAT base: Parliament approved measures to expand VAT coverage to additional sectors including construction, contracting services, crude oil, cigarettes, and alcohol; these changes are expected to yield meaningful revenue gains.
- Streamlining tax exemptions to reduce inefficient and distortionary exemptions, improving equity and increasing the tax base.
- Modernizing tax and customs administration: digitization and streamlined procedures to reduce compliance costs and improve enforcement; early results show improved efficiency and confidence.
- Enhancing domestic revenue mobilization as part of broader strategy to fund essential services and development priorities while maintaining fiscal sustainability.
External sector, tourism, and Suez Canal receipts
- Tourism and Suez Canal receipts are important sources of foreign exchange:
- Tourism receipts reached US$13.6bn during FY 2022/23.
- Suez Canal current account receipts averaged over US$700 million per month prior to disruptions in the Red Sea.
- Recent developments:
- Tourism is holding up reasonably well despite challenging circumstances.
- Red Sea disruptions are impacting foreign exchange flows, could deter tourism, and through impacts on trade could result in shortages and add to inflationary pressures.
- Suez Canal receipts declined by US$6 billion in 2024 relative to 2023 and remained depressed in the first five months of 2025.
Debt reduction, divestment proceeds, and fiscal transparency
- Economic strategy aims to put the general government debt-to-GDP ratio on a downward path through continued fiscal discipline, protected social spending, and use of divestment proceeds.
- More revenue mobilization and proceeds from the ongoing state asset divestment program will help reduce public debt further.
- Fiscal transparency measures committed under the program include:
- Better monitoring and control of on-and off-budget public sector investment via a Prime Minister decree requiring all public entities to report annual projected and executed investment spending and specifying target ceilings monitored under the program.
- Introducing a binding requirement to ensure timely publication of audit reports on fiscal accounts by the Central Auditing Organization (CAO).
- Publication of all public procurement contracts that exceed EGP 20 million on the procurement portal website.
- Publication of all procurement contracts and awards made by the largest 50 state-owned enterprises on the procurement portal website.
- Publication of a comprehensive tax expenditure report including details and estimates of tax exemptions and tax breaks.
- Publication of reports on payment arrears by the Ministry of Finance.
Energy subsidies and pricing reforms
- General subsidies are costly, poorly targeted, and can hinder growth and contribute to pollution; fossil fuel subsidy removal also reduces energy security concerns related to volatile supplies.
- Energy subsidies have increased as retail energy prices have not kept up with the increase in the cost of energy production.
- Policy guidance:
- Gradual, transparent, and full increase in retail fuel and electricity prices is important to prevent reemergence of large untargeted subsidies and create fiscal space for enhanced social transfers targeted to vulnerable groups.
- Energy prices reflecting production costs can support investment in Egypt’s energy sector to meet increasing demand and avoid electricity shortages.
Climate-related risks and the Resilience and Sustainability Facility (RSF)
- Egypt faces growing climate-related risks—rising temperatures, water scarcity, and more frequent extreme weather—that threaten long-term economic and financial stability and require sustained investment and policy reform.
- The RSF provides affordable, long-term financing to support Egypt’s climate transition and backs:
- The country’s National Climate Change Strategy 2050 and updated Nationally Determined Contributions (NDCs).
- Objectives to accelerate decarbonization through reforms promoting renewable energy, energy efficiency, and sustainable transport.
- Strengthening environmental risk management, including better integration of climate risks into public investment planning and financial sector oversight.
- Enhancing climate-informed policymaking by improving data, transparency, and institutional coordination.
References