IMF Executive Board Completes the Second Review under the Stand-By Arrangement (SBA) for the Arab Republic of Egypt and Concludes 2021 Article IV Consultation
IMF News, June 23, 2021
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- Published: June 23, 2021
Executive summary and program financing
- Executive Board completed the second and final review of Egypt’s economic reform program under a 12-month Stand-By Arrangement (SBA) on June 23, 2021.
- Completion allows draw of SDR 1,158.04 million (about US$1.7 billion).
- Total purchases under the SBA: SDR 3,763.64 million (about US$ 5.4 billion, 184.8 percent of quota).
- The arrangement was approved on June 26, 2020 (Press Release No. 20/248) to support the authorities’ economic reform program during the COVID-19 crisis.
- The Executive Board also concluded the 2021 Article IV consultation with Egypt.
Recent performance, outlook, and risks
- Egypt responded to the COVID-19 crisis with timely and prudent fiscal and monetary easing, helping mitigate health and social impacts while safeguarding economic stability, debt sustainability, and investor confidence.
- Growth projections:
- Growth is expected to reach 2.8 percent in FY2020/21.
- Growth is expected to rebound to 5.2 percent in FY2021/22.
- Key vulnerabilities and risks:
- Global uncertainty related to the pandemic clouds the outlook.
- High public debt and large gross financing needs leave Egypt vulnerable to shocks and changes in financial market conditions for emerging markets.
- Remaining risks to the outlook stem from global uncertainty and Egypt’s high public debt and gross financing needs.
Policy stance and near-term recommendations
- Fiscal and monetary policy:
- Near-term fiscal and monetary policies should continue to support the recovery while preserving macroeconomic stability.
- The budget target for FY2021/22 is judged to strike an appropriate balance between supporting the recovery and keeping public debt on the projected path.
- The envisaged pickup in growth should allow a return to the pre-crisis primary surplus from FY2022/23 to put public debt back on a firmly downward trajectory.
- Continued progress on fiscal structural reforms is critical to ensure additional space for high priority spending on health, education, and social protection.
- Monetary policy:
- The Central Bank of Egypt’s (CBE) data driven approach to monetary policy has helped anchor inflation expectations.
- Inflation remains below the CBE’s target range, providing scope for monetary policy to further support the recovery as warranted by inflation and economic developments.
- Continued progress on strengthening the monetary framework will support monetary transmission.
- Two-sided exchange rate flexibility is essential to absorb external shocks and maintain competitiveness.
- If subsidized lending facilities are considered necessary for social objectives, they should be defined and supported in the budget rather than implemented through the CBE.
- Financial sector:
- The banking system remains resilient, having entered the crisis well-capitalized and with ample liquidity.
- As crisis-related measures are unwound, continued supervisory vigilance will be needed to closely monitor lending standards.
- Noting the system’s high exposure to the sovereign, efforts to diversify banks’ revenue streams and enhance financial inclusion through digital financial technologies and a focus on underserved groups are welcomed.
- Structural reforms:
- Deepening and broadening structural reforms are essential to strengthen buffers, address post-pandemic challenges, and unleash Egypt’s growth potential.
- Authorities’ structural reform agenda aims for more inclusive and sustainable private sector-led growth to create durable jobs and improve external resilience.
- Reforms should focus on reducing the role of the state, enhancing governance and transparency, improving the business environment, strengthening social protection, deepening financial markets, increasing integration into global trade, fostering labor market participation of women and youth, and transitioning to a greener, more digital economy.
- The IMF will remain closely engaged with the Egyptian authorities and continue supporting their reform agenda.
Executive Board assessment and Directors’ views
- Directors agreed with the thrust of staff appraisal and commended Egypt’s strong performance under the Stand-by Arrangement, attributing success to timely policy response and steadfast implementation with overperformance in key program targets.
- Directors cautioned that global uncertainty remains high and encouraged continued efforts to safeguard debt sustainability, strengthen transparency and governance, and undertake structural reforms to build a greener, digital, and more inclusive economy.
- Fiscal assessment and recommendations:
- Directors lauded satisfactory performance against fiscal targets, including spending on health and social protection.
- Given still-high uncertainty, they agreed with more gradual fiscal consolidation to support recovery.
- Emphasized importance of returning to the pre-COVID-19 primary surplus from FY2022/23 onwards due to significant risks to debt sustainability.
- Welcomed the medium‑term revenue strategy and the medium-term debt strategy and stressed strong implementation, including enhanced revenue mobilization.
- Underscored need for continued progress toward greater fiscal transparency, including for state-owned enterprises.
- Monetary and exchange rate policy:
- Directors commended the CBE’s monetary policy support and supported a data-driven approach.
- Given available policy space and below-target inflation outturns, Directors broadly encouraged the CBE to consider easing if warranted by inflation and economic developments.
- Emphasized importance of exchange rate flexibility as a defense against potential volatility in capital flows and external shocks.
- Financial sector and other structural issues:
- Noted resilience of the banking system but observered that continued vigilance was warranted.
- Welcomed completion of the restructuring plan for the National Investment Bank, which will reduce fiscal and financial stability risks.
- Emphasized importance of reducing the role of the state, leveling the playing field, improving governance of public institutions, encouraging exports, and supporting the transition to a greener, more digital economy.
- Commended Egypt’s commitment to reach the Sustainable Development Goals by 2030.
- Timing:
- It is expected that the next Article IV consultation will be held on the standard 12-month cycle.
Selected macroeconomic indicators
- Population (2019): 98.9 million
- Per capita GDP (2019/20, US$): 3,057
- Quota (3/31/2018): SDR 2,037.1 million/100 percent of quota
- Literacy rate: 71 (2017)
- Main exports: Petroleum (crude oil and refined products), gold
- Poverty rate: 29.7 (2020)
- Key export markets: UAE, Saudi Arabia, Italy
- Output — Real GDP growth (%):
- 2018/19: 5.6
- 2019/20: 3.6
- 2020/21: 2.8
- 2021/22: 5.2
- Employment — Unemployment (%):
- 2018/19: 8.6
- 2019/20: 8.3
- 2020/21: --
- Prices — Inflation (%, end of period):
- 2018/19: 9.4
- 2019/20: 5.7
- 2020/21: 6.8
- 2021/22: 6.9
- Prices — Inflation (%, period average):
- 2018/19: 13.9
- 2019/20: 4.6
- 2020/21: 6.6
- Budget sector:
- Revenue and grants (% GDP):
- 2018/19: 17.7
- 2019/20: 16.7
- 2020/21: 17.9
- 2021/22: 18.6
- 2022/23: 18.7
- Expenditure (% GDP):
- 2018/19: 25.8
- 2019/20: 24.7
- 2020/21: 26.1
- 2021/22: 25.6
- 2022/23: 24.9
- Overall balance (% GDP):
- 2018/19: -8.1
- 2019/20: -7.9
- 2020/21: -8.2
- 2021/22: -7.0
- 2022/23: -6.2
- Primary balance (% GDP):
- 2018/19: 1.9
- 2019/20: 1.8
- 2020/21: 0.9
- 2021/22: 1.5
- 2022/23: 2.0
- Public debt (% GDP):
- 2018/19: 84.2
- 2019/20: 90.0
- 2020/21: 92.0
- 2021/22: 89.8
- 2022/23: 87.0
- Money and credit:
- Broad money (M2, % change):
- 2018/19: 11.8
- 2019/20: 17.5
- 2020/21: 16.5
- 2021/22: 12.7
- 2022/23: 12.0
- Credit to the private sector (% change):
- 2018/19: 12.4
- 2019/20: 19.5
- 2020/21: 20.1
- 2021/22: 18.0
- 2022/23: 16.0
- Treasury bill rate, 3 month (average, in percent):
- 2018/19: 14.7
- Balance of payments:
- Current account (% GDP):
- 2018/19: -3.6
- 2019/20: -3.1
- 2020/21: -3.9
- 2021/22: -2.6
- FDI, net (% GDP):
- 2018/19: 2.6
- 2019/20: 1.4
- 2020/21: 2.5
- Reserves (months imports):
- 2018/19: 7.0
- 2019/20: 5.9
- 2020/21: 6.0
- External debt (% GDP):
- 2018/19: 34.1
- 2019/20: 34.2
- 2020/21: 36.1
- 2021/22: 33.0
- 2022/23: 29.1
- Exchange rate:
- REER (% change; + means appreciation): 14.3 (year not specified in table)
- Exchange rate (EGP/$, end-period): 16.2 (year not specified in table)
Press Release No. 21/193; June 23, 2021; IMF Communications Department
