IMF Staff Completes 2017 Article IV and Extended Fund Facility Second Review Mission to Egypt

IMF News, November 10, 2017

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An IMF team led by Mr. Subir Lall visited Cairo from October 25 to November 9, 2017, for the 2017 Article IV Consultation and the second review of Egypt’s economic reform program supported by a three-year IMF Extended Fund Facility (EFF).
The staff-level agreement covers the second review of Egypt’s economic reform program supported by the IMF’s SDR 8.597 billion (about $12 billion) arrangement.
Completion of the review would make available SDR [1,432.76 million] (about US$2 billion), bringing total disbursements under the program to about US$6 billion.
The staff-level agreement is subject to approval by the IMF’s Executive Board.

Egypt’s growth picked up during fiscal year (FY) 2016/17, with full year GDP rising by 4.2 percent compared to the projected 3.5 percent.
The current account deficit narrowed in dollar terms, supported by increased non-oil exports and tourism receipts while non-oil imports declined.
Reflecting increased investor confidence:
- Portfolio investments into Egypt reached $16 billion this year.
- Foreign direct investment rose by 13 percent.
Foreign exchange reserves increased significantly to record levels.

“The CBE remains committed to achieve its goal of reigning in inflation.”
The monetary policy framework is underpinned by a flexible exchange rate regime which has “eliminated chronic foreign exchange shortages and the parallel market.”
Headline inflation appears to have peaked in July and has been declining since then, supported by the Central Bank of Egypt’s (CBE) prudent monetary policy stance.
Inflation projection: expected to decline to about 13 percent in the quarter ending December of 2018.

Budget performance was broadly in line with program projections with a primary deficit of 1.8 percent of GDP.
The overall deficit exceeded projections by 0.4 percent of GDP and reached 10.9 percent of GDP, mainly on account of higher than expected interest payments.
Policy objective: the government’s aim to achieve a primary surplus in the current fiscal year to put government debt on a firmly downward trajectory over the medium term.
Mission support for authorities’ plans to strengthen public financial management and fiscal transparency, including:
- Enhanced monitoring of state-owned enterprises.
- Publication of financial statements.

The government is spearheading a comprehensive and ambitious agenda of structural reforms to unlock Egypt's growth potential.
Reform objectives:
- Create well-paying jobs to meet the rapidly growing population.
- Pave the way for increased private sector-led investment, productivity growth, and enhanced competition.
Labor and social priorities:
- Reducing unemployment, specifically among Egypt’s youth, and integrating more women into the labor force are “key to Egypt’s economic liftoff and are the strongest and most sustainable form of social protection.”
- Support for authorities’ commitment to expand childcare services to promote women participation in the labor market.
- Support for expansion of the “Takafol and Karama” programs which now reach 2 million families.
- Support for enhancing data collection to improve targeting and ensure subsidies reach the most vulnerable.

Egypt’s banking sector “continues to remain liquid, profitable, and well capitalized.”
The CBE continues to strengthen the regulatory and supervisory framework for the banking sector including through implementing Basel rules.
The mission supports the authorities’ aim to promote financial inclusion.

Press Release No. 17/431, November 10, 2017, IMF Communications Department.