## Egypt: Overcoming the COVID Shock and Maintaining Growth

_IMF News, July 14, 2021_

## Source details

**Canonical URL:** [Egypt: Overcoming the COVID Shock and Maintaining Growth](https://www.imf.org/en/news/articles/2021/07/14/na070621-egypt-overcoming-the-covid-shock-and-maintaining-growth)

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## Bibliographic details
- Published: July 14, 2021

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### Impact of the COVID-19 pandemic
- Tourism at the onset of the crisis accounted for around 12 percent of GDP, 10 percent of employment, and 4 percent of GDP in foreign currency earnings.
- Immediate effects included a sudden stop in tourism, a temporary decline in domestic activity due to partial lockdowns and capacity restrictions, and a stretched government budget as tax revenues fell.
- Egypt experienced capital outflows of more than $15 billion during March-April 2020.
- Despite these shocks, Egypt experienced a positive growth rate in 2020, attributed to a short period of lockdown, a relatively diversified economy, and timely policy responses.

### Government policy response and domestic measures
- Reforms implemented since 2016 under the 2016-19 Extended Fund Facility (EFF) provided sizable buffers prior to the pandemic; measures included:
  - Floating the exchange rate to eliminate currency overvaluation.
  - Fiscal consolidation to reduce public debt.
  - Energy subsidy reform to address a key fiscal risk and create space for social spending.
  - Structural reforms to strengthen the business climate, attract investment, and increase employment opportunities, particularly among youth and women.
- Fiscal support measures during the crisis included:
  - Relief to businesses and workers in hardest-hit sectors such as tourism and manufacturing.
  - Postponement of tax payments.
  - Expansion of cash transfer programs to poor households and irregular workers.
- Central Bank of Egypt measures during 2020:
  - Reduced policy interest rates by 400 basis points; overnight deposit rate cut from 12.25 percent to 8.25 percent.
  - Introduced initiatives to reduce pressure on borrowers and ensure liquidity, including increased access to credit at preferential interest rates and a six-month debt moratorium on existing credit.
  - Objective: ensure smooth credit flow and alleviate pressures in domestic financial markets.

### IMF support and program specifics
- The IMF provided about $8 billion in financial support through a two-pronged plan:
  - The Rapid Financing Instrument provided $2.8 billion in May 2020 for emergency foreign currency needs.
  - The Stand-by Arrangement (SBA), approved in June 2020, provided access to about US$5.4 billion over the subsequent 12 months.
- Program objectives and outcomes:
  - Helped maintain economic stability and rebuild international reserves drawn down in response to the crisis.
  - Supported progress on structural reforms to strengthen public finances, fiscal transparency and governance, and laws to improve the business climate.
  - Policies sought a balance between supporting the economy through the COVID-19 shock and ensuring debt remains sustainable to maintain investor confidence.
- As a consequence of government policy and IMF support, growth was expected at 2.8 percent for FY 2020/21.

### Outlook, challenges, and priorities
- Growth projection:
  - Growth is expected to rebound to 5.2 percent in FY2021/22.
- Key uncertainties and vulnerabilities:
  - Outlook is clouded by uncertainty related to the pandemic, including full recovery of tourism.
  - High public debt and large gross financing needs leave Egypt vulnerable to external shocks, such as higher global borrowing costs as developed economies withdraw economic stimulus.
- Policy priorities and recommended reforms:
  - Continue preserving economic stability and reducing public debt.
  - Focus on structural reforms to encourage private-sector-led growth, including:
    - Policies to increase revenue for financing health, education, and social safety nets.
    - Enhance governance and transparency.
    - Further develop financial markets.
    - Reduce the role of the state in the economy and ensure a level-playing field for all firms.
    - Improve the business environment and increase integration into global trade by reducing trade barriers and ensuring predictability of customs procedures.
  - The IMF will continue to support Egypt’s reform efforts as specific policy measures are defined and implemented.

*Source: IMF News — "Egypt: Overcoming the COVID Shock and Maintaining Growth" (July 14, 2021).*

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## References

- [https://www.imf.org/en/News/country-focus](https://www.imf.org/en/News/country-focus)
- [PRESS CENTER](http://presscenter.imf.org/)
- [Read the press release](https://www.imf.org/en/News/Articles/2021/06/23/pr21193-egypt-imf-execboard-completes-2ndrev-under-the-sba-concludes-2021aiv)
- [FAQs](https://www.imf.org/en/Countries/EGY/Egypt-qandas)
- [Egypt and the IMF](https://www.imf.org/en/Countries/EGY)
- [2016-19 Extended Fund Facility (EFF)](https://www.imf.org/en/Publications/CR/Issues/2019/10/10/Arab-Republic-of-Egypt-Fifth-Review-Under-the-Extended-Arrangement-Under-the-Extended-Fund-48731)
- [Rapid Financing Instrument](https://www.imf.org/en/About/Factsheets/Sheets/2016/08/02/19/55/Rapid-Financing-Instrument)
- [https://www.imf.org/en/home](https://www.imf.org/en/home)

_Source: https://www.imf.org/en/news/articles/2021/07/14/na070621-egypt-overcoming-the-covid-shock-and-maintaining-growth_