Washington, DC: The Executive Board of the
International Monetary Fund (IMF) approved a 46-month arrangement under the
Extended Fund Facility (EFF) for Egypt in an amount of SDR 2,350.17 million
(equivalent to 115.4 percent of quota or about US$3 billion). The Executive
Board’s decision enables an immediate disbursement of SDR 261.13 million
(equivalent to about US$ 347 million), which will help meet the balance of
payments need and provide support to the budget. Over the course of the
program, the EFF is expected to catalyze additional financing of about
US$14 billion from Egypt’s international and regional partners, including
new financing from GCC countries and other partners through the ongoing
divestment of state-owned assets as well as traditional forms of financing
from multilateral and bilateral creditors.
The authorities’ economic program supported by the EFF arrangement
envisages the implementation of a comprehensive policy package to preserve
macroeconomic stability, restore buffers, and pave the way for sustainable,
inclusive, and private-sector-led growth. Specifically, the package
includes (i) a permanent shift to a flexible exchange rate regime to
increase resilience against external shocks and to rebuild external
buffers; (ii) monetary policy aimed at gradually reducing inflation in line
with the central bank’s targets together with strengthening policy
transmission, including by transitioning away from subsidizing lending
schemes, (iii) fiscal consolidation and debt management to ensure downward
trajectory in public-debt-to-GDP and contain gross financing needs, while
increasing social spending and strengthening social safety net to protect
the vulnerable, and managing national investment projects in a manner
consistent with external sustainability and economic stability; and (iv)
wide-ranging structural reforms to reduce the state footprint, level the
playing field across all economic agents, facilitate private-sector-led
growth, and strengthen governance and transparency in the public sector.
The authorities have also requested access under the Resilience and
Sustainability Facility (RSF), which could provide up to an additional SDR
1 billion to support climate-related policy goals. Discussions are expected
to take place in the context of future EFF reviews.
Following the Executive Board discussion, Ms. Kristalina Georgieva,
Managing Director and Chairman of the Board, made the following statement:
“Egypt showed resilience to the COVID-19 crisis, supported by previous
Fund-supported programs. While economic recovery gained momentum in 2021,
imbalances also started building amidst a stable exchange rate, high public
debt, and delayed structural reforms. Russia’s war in Ukraine crystallized
these pre-existing vulnerabilities, triggering capital outflows, and, in
the context of a still-stabilized exchange rate, reduced the central bank’s
foreign reserves and banks’ net foreign assets and widened the exchange
rate misalignment.
“The authorities’ recent commitment to a durable shift to a flexible
exchange rate regime and to unwind prior policy distortions, supported by
an upfront monetary policy tightening and further enhancements to the
social safety net, are welcome steps.
“The authorities’ economic program supported by the 46-month EFF
arrangement provides a credible policy package to reduce imbalances,
maintain macroeconomic stability, restore buffers and improve resilience
against shocks, and pave the way for private-sector-led growth. A permanent
shift to a flexible exchange rate regime will help mitigate external shocks
and prevent imbalances from re-emerging and allow monetary policy to focus
on maintaining price stability. Fiscal consolidation will ensure
medium-term debt sustainability, while expansion of social spending will
help alleviate poverty and protect the vulnerable. Structural reforms will
reduce the state footprint and level the playing field between the public
and private sector, strengthen private-sector-led growth, and enhance
governance and transparency. The EFF will fill part of the financing gap
with implementation of the underlying policy package unlocking substantial
additional financing from Egypt’s partners, including financing in the form
of investments.
“Given the heightened uncertainty and risks to the global economic outlook,
the authorities’ commitment to stay the course on exchange rate
flexibility, prudent macroeconomic policies, and structural reforms is
critical. Their strong ownership and track record under previous
Fund-supported programs and political support for the policy package are
important risk mitigating factors to achieving the objectives of the
Fund-supported program.”