## Transcript of Press Conference on the IMF Program for Egypt

_IMF News, January 10, 2023_

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## Bibliographic details
- Published: January 10, 2023

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### Program design and overarching objectives
- Program duration: 46 month program duration.
- Program is anchored on three main pillars:
  - Exchange rate and monetary policies: permanent shift to a flexible exchange rate regime to absorb external shocks, rebuild reserves, and gradually reduce inflation.
  - Continued fiscal discipline and fiscal structural policies: maintain market confidence, ensure downward trajectory of the debt to GDP ratio, strengthen the budgetary process, increase transparency, improve budget composition, and allow expansion in social spending.
  - Structural reform agenda: promote private sector investment and inclusive medium-term growth by reducing the role of the state in generating economic activity, leveling the playing field between state-owned enterprises and private companies, and removing barriers to trade.

### Exchange rate policy and monetary policy
- Objective: value of the Egyptian pound to be determined freely against other currencies to:
  - avoid build-up of chronic imbalance in demand for and supply of foreign currency;
  - eliminate import shortages; and
  - preserve foreign exchange reserves of the Central Bank.
- Under a flexible framework one would expect two-way movements in the exchange rate as it appreciates or depreciates in line with economic conditions.
- Expected outcome: once confidence in the framework is established, stronger investment inflows into Egypt are expected.
- Monetary policy role:
  - Restore price stability by tightening monetary policy or raising the policy interest rate.
  - Monetary policy should remain data dependent; the policy rate should be used as the main instrument for reducing inflation and ensuring price stability.
  - The Central Bank of Egypt has taken steps to improve transmission (example: moving subsidized lending schemes from the Central Bank to the government) so it can better use monetary policy to steer inflation.

### Fiscal policy, public debt outlook, and social spending
- Fiscal consolidation aims to reduce debt without jeopardizing social support; objective is to expand social support programs while consolidating.
- Fiscal targets and public debt projections:
  - Sustained primary fiscal surplus of around 2.1 percent of GDP by fiscal year 2023-2024.
  - About 2.5 percent thereafter.
  - Reduction in the general government debt to around 78 percent of GDP by fiscal year 2026-2027.
- Policy instruments and priorities:
  - Revenue mobilization is key to create space for priority spending and targeted support for vulnerable populations.
  - Authorities are open to using proceeds from state asset divestment to help reduce public debt further.

### Structural reforms, state ownership policy, and level playing field
- State ownership policy:
  - Sets out ambitious plans to reduce the footprint of the state and catalyze private sector investment.
  - Establishes a clear framework for which sectors the state will reduce its presence in and how divestments will be implemented.
  - Policy is endorsed at the highest level and will be made public; authorities commit to providing an annual report on progress and implementation.
- Leveling the playing field:
  - Annual reports on tax breaks, exemptions, and incentives will be published to increase transparency and help level the playing field so private firms are not disadvantaged.
- Trade facilitation:
  - Adoption of a risk based approach to customs procedures to help move traded goods through Egypt’s ports faster.
- Structural reforms are expected to take time to implement and to deliver results in reducing vulnerabilities and strengthening the growth outlook.

### Financing, financing gap, and disbursement schedule
- Financing gap and catalyzed financing:
  - Financing gap presented in the Staff Report: about $17 billion for Egypt over the next four years.
  - IMF financing is expected to close part of this gap and the IMF-supported program is expected to catalyze additional financing from multilateral institutions, bilateral partners, and private sector investors.
  - Additional financing will include proceeds from planned sales of state-owned assets.
  - The previously announced $5 billion in catalyzed financing refers to the first 12 months of the program.
- Monitoring and disbursement schedule:
  - The IMF-supported program will be monitored through semiannual reviews with disbursements distributed evenly over those reviews.
  - Targets (performance criteria) are set on net international reserves, the primary fiscal balance, the non-accumulation of external debt payment arrears; additional targets on tax revenues, social spending, maturity of debt, total debt of the budget sector, and the overnight interbank rate.
  - Test dates for targets: December 2022 and June 2023.
  - First review expected to be completed in or around March 2023.
  - Second review expected to be completed in or around September 2023.

### Inflation, social protection, and targeted budget support
- Inflation context and outlook:
  - Ongoing depreciation and high global commodity prices have put pressure on domestic prices, leading to higher inflation.
  - IMF expectation: inflation to remain elevated during the current fiscal year, but to fall back to around 7 percent by fiscal 2024-2025.
- Policy response to inflation:
  - Primary tool to contain inflation is monetary policy (policy interest rate).
  - Protect the vulnerable population with carefully targeted budget support that reaches those in need and only those intended to be compensated for the shocks.
  - Authorities have already rolled out targeted budget support since the global commodity price shock.

### Program monitoring, conditionality, and support
- Performance criteria and conditionality:
  - Program performance is assessed against specific targets (performance criteria) on reserves, fiscal balance, external arrears non-accumulation, and additional quantitative and structural benchmarks.
- Support and sequencing:
  - The IMF stands ready to support the authorities in delivering reform priorities in the near-term and over the 46 month program duration.
  - Discussions on climate policies that could be supported under a Resilience and Sustainability Trust for Egypt would be initiated in the context of the forthcoming review of the extended facility.

*Transcript of Press Conference on the IMF Program for Egypt — January 10, 2023, IMF Communications Department*

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_Source: https://www.imf.org/en/news/articles/2023/01/10/tr011023-transcript-of-egypt-press-briefing_