## Transcript of Press Briefing on Egypt’s Economic Reform Program Review with Subir Lall IMF Mission Chief for Egypt, Middle East, Central Asia

_IMF News, September 27, 2017_

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**Canonical URL:** [Transcript of Press Briefing on Egypt’s Economic Reform Program Review with Subir Lall IMF Mission Chief for Egypt, Middle East, Central Asia](https://www.imf.org/en/news/articles/2017/09/27/tr092617-press-briefing-on-egypt-economic-reform-program-review-with-subir-lall)

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## Bibliographic details
- Published: September 27, 2017

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### Program objectives and rationale
- Address long-standing challenges: an over-valued exchange rate and foreign exchange shortages; large budget deficits leading to rising public debt; low growth and high unemployment.
- Program aims: restore investor confidence; reduce inflation to single digits by the end of the program; rebuild international reserves; strengthen public finances; and encourage private-sector-led growth.
- Social protection objective: use part of fiscal savings to strengthen social safety nets to shield the most vulnerable.

### Key policy components implemented
- Liberalization of the foreign exchange market and floatation of the currency to alleviate foreign exchange shortages and restore competitiveness.
- Fiscal consolidation including introduction of a value-added tax (VAT) and expenditure measures (wage restraint, energy subsidy reforms).
- Structural reforms: measures to improve the business environment (investment law, bankruptcy law, licensing law), and provisions to encourage lending to small and medium enterprises.
- Expansion of cash transfers through Takaful and Karama programs to reach more households.

### Recent macroeconomic developments and growth
- Fiscal year 2016/17:
  - IMF forecasted GDP growth of about 3.5 percent; actual growth came in at 4.2 percent.
  - Quarterly profile: 3.5 percent in the first quarter of the fiscal year and 5 percent in the final quarter.
- Growth drivers: manufacturing, construction, retail trade, transport, and communication — indicating broad-based growth.

### Exchange rate, foreign exchange markets, and reserves
- Parallel market eliminated; foreign exchange shortages have disappeared; FX can be acquired at the market rate.
- Exchange rate depreciated after the floatation and has since stabilized.
- Real effective exchange rate depreciation measured at about 27 percent, 26.8 percent.
- Sharp increase in foreign exchange reserves reflecting capital inflows, higher exports, and lower imports.
- New monetary policy framework: exchange rates act as shock absorbers; movements in reserves and exchange rates absorb external shocks without transmission to the domestic economy.

### Fiscal sector outcomes and social protection
- VAT introduction significantly improves prospects for revenue collection.
- Wage restraint and energy subsidy reforms have helped alter budget expenditure paths and contributed to arresting the rise in public debt.
- Fiscal savings used to expand social spending targeted at the less well-off.
- Energy subsidies are described as highly regressive; continued reform toward full cost recovery planned by end of the program (current cost recovery described as in the mid-50s).

### Inflation and monetary policy
- Inflation pressures rose due to exchange rate depreciation, VAT introduction, and energy subsidy reforms.
- Central Bank of Egypt tightened monetary policy to prevent second-round effects.
- Recent monthly data (August):
  - Headline inflation rose 1.1 percent month-on-month, after 3.2 percent in the previous month.
  - Core inflation rose 0.3 percent in August — first time core monthly inflation fell below 0.5 percent since July 2016.
- IMF outlook on inflation:
  - Expected to decline to slightly above 10 percent by the end of the current fiscal year (by June 2018).
  - Expected to reach single digits by 2019.
- Monetary stance to be reviewed against incoming data and authorities’ assessments; exchange rate is not a policy target in the floating regime.

### Program review, disbursements, and conditionality
- Second review expected to be completed by the IMF Executive Board by the end of December (before the new year).
- Third disbursement:
  - Will follow the second review.
  - Amount: an additional amount equivalent to USD2 billion.
- One June performance criterion was missed due to exogenous factors (exchange rate depreciation larger than expected affecting fuel prices and fiscal consolidation); policy actions were judged appropriate despite the miss.
- Authorities’ commitments and near-term priorities are detailed in their memorandum of economic and financial policies.

### Structural reforms and investment climate
- Reforms highlighted to improve investment climate:
  - Investment law, bankruptcy law modernization, licensing law to reduce time to set up businesses from over 600 days to around 30 days.
  - Measures to encourage lending to small and medium enterprises.
- Emphasis: private investment is critical to raise potential growth and create jobs, especially given demographic trends and low female labor force participation.

### Mission timing and next steps
- IMF mission expects to visit Cairo in the last quarter of the year to review developments and discuss policy mix for the next review.
- Continued monitoring of inflation data and other indicators to determine monetary stance and progress on program objectives.

### Expected benefits timeline for the population
- Stabilization measures are starting to gain a foothold; benefits are expected to materialize over time.
- Mechanisms through which households should benefit:
  - Lower inflation leading to improved purchasing power.
  - Declining public debt reducing interest payments and freeing fiscal space for social spending and infrastructure investment.
  - Structural reforms improving investment and job creation prospects.
- IMF view: the program is ambitious and calibrated; payoffs are expected to become evident over the three-year program horizon, with stronger effects in the remainder of the program.

*Transcript of Press Briefing on Egypt’s Economic Reform Program Review, Washington, D.C., September 27, 2017*

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## References

- [Arab Republic of Egypt and the IMF](http://www.imf.org/external/country/EGY/index.htm)
- [Transcripts](https://www.imf.org/en/news/searchnews)
- [PRESS CENTER](http://presscenter.imf.org/)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2017/09/27/tr092617-press-briefing-on-egypt-economic-reform-program-review-with-subir-lall_